Barakat v The Law Society of New South Wales

(1) Background 14There was no dispute between the parties as to the facts surrounding most of the events said to give rise to the concerns about the fitness and propriety of each of Mr Barakat and Mr Roulstone. Since their histories are intertwined, I will outline the common background to both of their appeals before addressing their individual circumstances. 15At the outset, it should be noted that it was implicit in much of what transpired that, for a reasonably long period of time, both Mr Barakat and Mr Roulstone together with their respective spouses had deployed various structures to hold their family assets including discretionary trusts. The origins and purpose of those arrangements was not explored and I do not suggest that they should have been. 16It was not contended that it was inappropriate per se for legal professionals to employ such structures either for the purpose of tax planning, estate planning or even "ring fencing" presently held assets in the event of a successful claim made against a professional in the future. I would expect that, if that string were pulled, some very large threads of the legal profession would unravel. Be that as it may, an appeal concerning the fitness and propriety of two particular practitioners is not a forum to debate the wider questions concerning the legitimacy of the use of such structures. 17Both Mr Roulstone and Mr Barakat were admitted as solicitors of this Court in 1985. In 1988, Mr Barakat became a partner of Keddies. In 1992, Mr Roulstone became a partner of Keddies. As I have stated, Keddies specialised in personal injury claims. It also conducted some insurance litigation. At the time of the events relevant to this appeal, Russell Keddie was the only other partner of the firm. 18Mr Barakat explained that from around January 2007, new clients retained a company associated with and owned by the partners, namely, Keddies Insurance Law Specialists Pty Limited ("Keddies Insurance"). He said the clients that retained the firm prior to that time continued to retain the partners thereafter. Thus, after January 2007, the law practice was, in effect, operated by both the partners and Keddies Insurance. 19On 18 May 2010, a statement of claim was served on the partners of Keddies. They were named as defendants to proceedings commenced on behalf of a former client, Mr Tariq. According to Mr Barakat, Mr Tariq claimed a refund of costs that he said were overcharged by Keddies as well as other heads of damage. The claim was settled in July 2010. 20The firm of solicitors acting for Mr Tariq was Firths. Mr Tariq's statement of claim appears to have been the opening salvo in what the various affidavits described as "Firths litigation". After this time, there were a series of proceedings commenced against both the partners and Keddies Insurance by their former clients, most, if not all, of whom were represented by Firths. Mr Roulstone stated that almost 100 claims were filed. 21The affidavits filed on behalf of Mr Roulstone and Mr Barakat explained that the claims against them alleged that Keddies' costs agreement was not effective to enable the firm to charge above the fixed costs applicable in respect of motor accident claims. It was pointed out by Mr Barakat and Mr Roulstone that, for some of these matters, Keddies paid out funds in third party disbursements and the like, even though they were later found to not have been entitled to do so. Thus, the result was they had to refund amounts that had not been retained by the partnership. However, it was also conceded that at least some of the claims alleged overcharging on the part of Keddies, sometimes to the point of charging for work that was not, in fact, done. I am not convinced this description exhausts the bases for the various claims that were made (see Barakat v Bazdarova [2012] NSWCA140 ("Bazdarova")). 22It is not necessary to discuss this further. As I have already noted, the Law Society did not contend that the circumstances which gave rise to these claims raised any matter going to Mr Barakat or Mr Roulstone's fitness to practice. It is simply sufficient to note the existence of the claims, their frequency, and the fact that they ultimately matured into debts of the partners arising out of the partnership business. 23On 29 October 2010, each of the partners of Keddies entered into an agreement with Slater & Gordon Ltd ("Slater & Gordon") pursuant to which they sold their shares in Keddies Insurance. The purchase price was comprised of an amount payable on completion, certain deferred payments, and shares in Slater & Gordon. Provision was made for these amounts to be adjusted in various ways. The Law Society contended that the total sale price was approximately $32 million. 24The transaction was completed on 11 January 2011. Each of Mr Barakat and Mr Roulstone received the first tranche of their entitlement to the sale proceeds on or around this time. Apparently, the amount received exceeded $5 million. It appears that substantial amounts of those funds were applied to Mr Barakat and Mr Roulstone's personal benefit and that of their families. However, it is not said that any aspect of that conduct reflected upon their fitness and propriety. 25One of the clauses of the share sale agreement with Slater & Gordon provided for the partners to indemnify Slater & Gordon in respect of any claim by a client or former client of the partnership or Keddies Insurance, including any claim in respect of a dispute over costs. As the subject matter of the sales was Keddies Insurance, this indemnity was most likely only to engage in respect of a claim that included Keddies Insurance and was not likely to be engaged by a claim that was solely made against the partners. 26After the share sale was completed, both Mr Barakat and Mr Roulstone worked for Slater & Gordon. Mr Roulstone ceased working for them on 19 June 2012. Mr Barakat ceased working for Slater & Gordon in December 2011. 27There was a steady stream of claims from former clients, both before and after the completion of the share sale agreement to Slater & Gordon. In the calendar year 2011, 24 such claims were settled and paid. Two claims proceeded to judgment at first instance, and it appears that both judgments were adverse to the partners. One of those cases, Bazdarova, went on appeal. On 27 March 2012 that appeal was unsuccessful, (Bazdarova supra). 28Between 1 January 2012 and 29 March 2012, a further eleven claims were settled and paid. In his affidavit, Mr Roulstone said that by mid-March 2012, 47 out of the 104 claims had been settled. He said that the settlements totalled $3.2 million. In his oral evidence, Mr Roulstone expressed doubt about the figures in his affidavit. Based on an agreed schedule that was tendered, I have calculated that, as at late March 2012, 46 cases had been settled and paid. My calculation of the total settlements paid to that time is just over $1.8 million. 29In his affidavit, Mr Barakat stated that "by February/March 2012" he had concluded that, given the number of claims and their likely size, the partners' total liability was "so large it was likely to be beyond our ability to meet". Mr Roulstone said he concluded by this time that it was "possible that we would be unable to meet our potential debts in full". This evidence was not challenged. I accept it. As I have said, the focus of the Law Society's case was the actions undertaken by Mr Barakat and Mr Roulstone after they reached this understanding. Otherwise, it should be noted that by this stage, each of Mr Roulstone and Mr Barakat were expecting to receive substantial capital gains tax assessments as a consequence of their receipt of the proceeds of the sale of their shares in Keddies Insurance to Slater & Gordon.

(2) Advice from Mr Green in 2012 30From early 2011, Verekers Lawyers had acted for the Keddies partners in the defence of at least some of the claims made by former clients. Mark Green is a partner of Verekers who specialises in insolvency. At some point, he commenced providing advice to Mr Roulstone and his wife. In his affidavit, Mr Green says he also met with Mr Barakat. Mr Green said he understood that Mr Roulstone was not only obtaining advice for himself, but was obtaining advice that "encompassed his common financial dealings with Tony Barakat". Mr Barakat said he met with Mr Green twice in March 2012, and that otherwise Mr Roulstone passed on Mr Green's advice. This evidence was not challenged. I accept it. 31In his affidavit, Mr Green recounted meeting Mr Roulstone and his wife on 28 February 2012. Mr Green recalled that the opening comments of Mr and Mrs Roulstone were that they wished to use the outstanding payments from the sale of shares to Slater & Gordon to meet Mr Roulstone's forthcoming capital gains tax assessment. Mr Green also recalled Mr Roulstone expressing concern about the partners' ability to meet the total amount of client claims. Mr Green said he inquired about the quantum of that exposure and what was known about Mr Keddie's capacity to meet those claims. 32Mr Green also said he informed Mr and Mrs Roulstone of the powers of a trustee in bankruptcy to reclaim a bankrupt's property. He said he advised Mr Roulstone to negotiate with Firths and to seek to "slow down any bankruptcy moves by Firths." Mr Green said he advised Mr Roulstone that if he could not negotiate a settlement with Mr Firth, "you can look at an arrangement under Part X and possibly avoid bankruptcy". He said that he explained that arrangements under Part X of the Bankruptcy Act 1966 (Cth) were an alternative to bankruptcy. 33Mr Green recalled the following exchange then occurring: "Mrs Roulstone: 'What about the tax?' Mr Green: 'As I understand your position, there is no assessment and so no tax presently due and payable but tax once assessed will become due and payable in the future when you get a notice of assessment. So from what you are telling me there is no point in paying the Commissioner because to do so is just as likely to be a preference to him if Scott is declared bankrupt. It's probably better to keep the money aside on the basis it can be part of an arrangement to try and settle with all your creditors including the tax department but from what you have told me and as it stands if you pay the tax and end up bankrupt the ATO will have to give the money back to a Trustee. Better for everyone to set it aside as part of a fund to deal with all creditors. The ATO will not be pressing too quickly and from a lot of work I have done with Barristers and the ATO I can say the Commissioner is willing to look at arrangements to pay tax as long as he is satisfied you have genuine financial difficulties and you are working to meet your commitments.' Mr Roulstone: 'Well I certainly don't want to go Bankrupt.'" (emphasis added) 34In his affidavit, Mr Green also recounted meeting with Mr and Mrs Roulstone as well as Mr Barakat on 14 March 2012. He recalled being informed of the likelihood that all the claims from former clients could not be met. This is consistent with a finding I have already made. Mr Green also said that he reiterated his advice about pursuing negotiations in respect of the claims by former clients. 35At some point in this period, the share sale agreement with Slater & Gordon was amended. The remaining amount of the deferred cash consideration was reduced and the payment date was brought forward. Apparently, Slater & Gordon had agreed to this on condition that the proceeds would be used to pay outstanding claims, especially those to which Keddies Insurance was a defendant. Mr Barakat and Mr Roulstone both stated that they negotiated the variation to allow them to meet their impending capital gains tax liabilities. 36On 30 April 2012, Mr Roulstone informed Mr Green of the amendment to the share sale agreement. Mr Green recounted the conversation as follows: "Scott said to me words to the effect: 'we are due to receive further instalments from Slater & Gordon from the sale which we were looking at using to pay the tax' to which I replied words to the effect, 'I think that to keep your options open for dealing with all of this you are better off to hold on to the money rather than pay the ATO who will really only be one more unsecured creditor and if you could get a deal with Firth then based on past experience I expect you will be able to get a deal with the ATO'." 37On 1 May 2012, Mr and Mrs Roulstone met with Mr Green. Mr Roulstone's accountant, Mr Wickenden, also attended for part of the meeting. Mr Green says that he canvassed various options with Mr and Mrs Roulstone. He said that he advised them about the operation of various provisions of the Bankruptcy Act including the powers of a trustee in bankruptcy to avoid uncommercial and preferential transactions. He said he again advised them about the possibility of avoiding bankruptcy by entering into an arrangement under Part X of the Bankruptcy Act. 38Mr Green recalled stating to Mr Roulstone: "As you have money coming to you [you] should quarantine it where you can keep control of it to support a Part X arrangement and so avoiding bankruptcy, you can't really pay it to one creditor in preference to another but the amount would be [a] good start to a workable arrangement although one of the problems is that if Firth gets all his clients proxies for a meeting of your creditors he will control the outcome of any creditor meeting and the creditors can require you to file a debtor's petition." 39In his affidavit, Mr Green recounts having a further meeting with Mr and Mrs Roulstone and with Mr Wickenden on 9 May 2012, and then again on 22 May 2012. Mr Green says that in the meeting on 9 May 2012, he discussed the inter-relationship between Mr Roulstone's capital gains tax liability and the level of his superannuation contributions. Mr Green recalled being told that the quantum of Mr Roulstone's capital gains tax liability arising on the sale of his shares to Slater & Gordon, had been clarified. He states that he was also told that it had been determined that Mr Roulstone could effectively halve his capital gains tax liability if he made a substantial superannuation contribution. In his affidavit, Mr Green states that he "identified nothing wrong with Scott making a contribution as recommended by the accountant" especially as it "might ultimately work for the benefit of creditors at large". Mr Roulstone gave a similar account, although he said the advice was given on 22 May 2012. Mr Wickenden did not provide an affidavit which addressed this meeting. However, on 23 October 2012 he provided a written advice which was entirely consistent with the opinion attributed to him by Mr Green and Mr Roulstone in the meetings held in May 2012. 40At this point, it is appropriate to note the content and the effect of Mr Green's evidence as the advice he gave. 41First, it is clear that Mr Green repeatedly advised Mr Roulstone and through him, Mr Barakat, as to the operation of the bankruptcy laws and the powers available to a trustee in bankruptcy to undo dispositions of property. 42Second, it is clear that on 28 February 2012, Mr Green was advising them both not to pay their creditors, including the Australian Tax Office (the "ATO"), but instead, to hold on to their funds. 43Third, it is clear that Mr Green gave this advice in a context where the desired outcome was to avoid bankruptcy altogether. In part, Mr Green's advice was that this might be achieved by "keeping the money aside as part of a fund" from which it was hoped to "deal with all creditors". The only real consideration given to post bankruptcy possibilities and their effect on such assets was in that part of the meetings during which Mr Green discussed the powers of a trustee in bankruptcy. 44To this point, I have not referred to the advice that may have been given concerning any specific proposed disposition of property by Mr Roulstone or Mr Barakat other than the superannuation contribution by Mr Roulstone that was discussed in May 2012. The evidence concerning what advice was given about two types of dispositions, namely dispositions to family trusts and payments to discharge loans to secured creditors, needs to be addressed. 45In her affidavit, Mrs Roulstone deposed to attending a meeting with Mr Green "some time prior to 1 May 2012" which addressed what was to occur with the proceeds of the accelerated payment from the share sale to Slater & Gordon. Mrs Roulstone explained that the Roulstone Family Trust (the "RFT") was indebted to her, but that her husband owed it funds. Mrs Roulstone described the advice that she and her husband received from Mr Green about the possibility of making a payment to the RFT as follows: "7. Mr Green's advice was to the effect that it was sensible and appropriate that the payment by Slater & Gordon should be paid to the Roulstone Family Trust, and that the trust could then pay that sum to me in reduction of the debt due by the trust to me. The basis of that advice as Mr Green explained it to my husband and me, was that if it became possible to negotiate a composition with creditors, which would depend on the outcome of the negotiations which were then taking place with Mr Firth, or if those negotiations were unsuccessful and my husband were to become bankrupt, the money was best placed where it could be retrieved if necessary. The expression he used, I recall, was to the effect that it should not be paid to any other creditors because that would be a preference, but should be placed where you have control over it. I recall also he said that the payment to the trust probably would be regarded as a preference and the money would have to be repaid in the event of bankruptcy. 8. I said to Mr Green in the presence of my husband words to the effect: 'If it has to be paid back, I will pay it back. That won't present any problems'. 9. It was always my intention to assist my husband in any way possible, firstly to avoid bankruptcy, but if that proved to be impossible to assist him to reach an agreement with his creditors which would enable him to come out of bankruptcy as soon as possible. Accordingly, it was the case that by paying the money to the trust in repayment of my husband's debt, and the trust paying the money to me, my husband did, indirectly retain control as Mr Green suggested." (emphasis in original) 46Mr Roulstone also recalled receiving advice to this effect prior to 1 May 2012. He also says that the advice was repeated on 1 May 2012. Further, in cross-examination, Mr Roulstone stated that the suggestion that the money that was paid to the RFT should be on-paid to his wife was, in fact, Mr Green's. 47In his affidavit, Mr Green recalled a discussion about a payment to the RFT, but did not state when it occurred. He recalled being told of Mr Roulstone's indebtedness to the RFT and of the RFT's indebtedness to Mrs Roulstone. He stated the following about the advice he gave on this topic: "I recollect telling Scott that, given his stated intention to deal with his creditors and avoid bankruptcy I could see no issue with him paying money to the trust on the basis proposed but that if he was not successful in avoiding bankruptcy, the payment being a payment to a related entity, and involving a preference over other creditors, might be clawed back by [the] trustee in bankruptcy as a preference and it was likely that the bankruptcy trustee would try to recoup it but the same situation was likely if he used the money to pay the ATO. I advised Scott that, given his desire to avoid bankruptcy, he could pay the money to the family trust, so that the money could be made available to try and do a deal with Firth to avoid bankruptcy or if a deal could not be done then to put [it] into a Part X arrangement." 48There are some potentially significant differences between the respective accounts. First, both Mr and Mrs Roulstone stated the advice they received on this topic was provided prior to 1 May 2012. This is possibly significant because the moneys were paid to the RFT from the proceeds of the deferred consideration payable under the share sale agreement on 1 May 2012. Mr Green did not nominate the date when he discussed the RFT with Mr and Mrs Roulstone. On his account, it was unlikely to have been before 1 May 2012 because he recalled receiving a call on 30 April 2012 during which Mr Roulstone told him about the accelerated payment that had been negotiated with Slater & Gordon, and that it was due to be made the next day. It would seem unlikely that he had a meeting in the afternoon of 30 April 2012, and then another one the next day on 1 May 2012. 49Second, Mr Green did not state whether he was specifically aware of the proposal to pay funds out of the RFT to Mrs Roulstone, much less whether he approved that course as suggested by Mr and Mrs Roulstone. This is a potentially significant difference in that that step made the task for a trustee in bankruptcy of recovering funds from the RFT as a preference, that much more difficult. That said, it is clear that Mr Green was told that the RFT had an indebtedness to Mrs Roulstone. It is difficult to understand what the significance of that information was if it was not imparted in a context in which Mr Green was told that moneys would be paid out of the RFT to Mrs Roulstone. 50In any event, Mrs Roulstone was not cross-examined. Mr Roulstone was cross-examined, but his version of events in this respect was not challenged. Mr Green was also not cross-examined so that the opportunity to take up these potential discrepancies with him did not arise either. The Law Society's case on unfitness effectively proceeded on an acceptance that the various transactions involving the RFT was undertaken in reliance on advice provided by Mr Green. In these circumstances, and where there is no direct inconsistency between the two strands of evidence, I accept Mr and Mrs Roulstone's evidence concerning the advice given by Mr Green about the payment to the RFT and out of the RFT. 51In his affidavit, Mr Green does not refer to ever having been asked to provide advice about the disposition of funds by Mr Roulstone or Mr Barakat to repay debts secured over real property. Each of Mr Barakat and Mr Roulstone were pressed in cross-examination concerning transactions that each of them engaged in, pursuant to which their own funds were used to discharge a liability of theirs but which was secured by property owned by another. In Mr Barakat's case, the property was owned by his wife. In Mr Roulstone's case, the property was owned by the RFT. 52Mr Barakat was asked about these transactions by me as follows: "Q. Why did you apply your money to pay that debt of yours and not others? ... A. Your Honour, we received advice from Mr Green to the effect that the first thing that has to be paid is the loans that were secured by banking institutions. So when the sale of the - especially when the sale of the Roseville house was finalised all that money, both mine and my wife's share, went to pay that debt and also the balance was topped up by myself. Q. When did you get that advice from Mr Green? A. That would have been late February. Q. Did Mr Green say why that was the case? A. I think it was - at the time I didn't really understand it fully. But I think I understand the reasoning behind it was that in the event of a bankruptcy or an arrangement prior to bankruptcy, it was - it was advisable that we retained control through various entities of the funds, so they can be reapplied in the event there was a settlement or a composition to go into the pool of funds to be available and be distributed to creditors. I think it was more of a control issue." 53Mr Barakat explained that the payment he made discharged the loan over the property owned by his wife. He said that the property was later refinanced and the proceeds were used to fulfil his obligations as part of the agreement he reached to annul his bankruptcy. 54In the case of Mr Roulstone, in cross-examination he was asked and answered as follows: "Q. What difference did you see in paying $1.2 million in broad terms across to the Roulstone Family Trust and $500,000 into the NAB loan for the Thredbo property again owned by the family trust, compared with not paying tax? A. I personally would have preferred to pay my tax, but I took comprehensive advice, I think from the end of February with Mr Green, and we went through a lot of the accounts and brought the accounts of myself and the associated entities up to speed. We involved the accountants which was Mann Judd heavily and I think I must have met with Mr Green probably five or six times, and it was his strong view, his strong advice that I pay the Roulstone Family Trust, that I make the superannuation contribution in the way that I did and also that I pay the NAB bank loan on 16 April, as I did. It was a secured loan, and I received hours of advice on those matters." 55I also addressed some questions to Mr Roulstone on this topic. He stated that Mr Green's advice was to pay off any secured debts because the financier had priority, "and it would be taken by [the financier] in any event." Mr Roulstone said that advice was given on 14 March 2012. 56It seems that Mr Barakat and Mr Roulstone both described Mr Green as being more proactive in advising that they pursue some of the impugned transactions than suggested by Mr Green in his affidavit. Nevertheless, I accept their evidence that the discharge of loans in their name secured over the property owned by a close associate was discussed with Mr Green, and he did not advise them not to engage in such a transaction. To the contrary, he gave advice that that was a step they could take as it was consistent with the strategy he had outlined to Mr Roulstone in the meeting on 28 February 2012. 57Overall, the effect of the advice given by Mr Green was that Mr Barakat and Mr Roulstone should cease paying third party creditors entirely and instead should "set aside" amounts which could be deployed either to negotiate with the creditors to achieve an overall settlement, or failing that, to pursue a Part X proposal in order to avoid bankruptcy. 58Realistically, such a proposal was only likely to be persuasive if some doubt was raised in the minds of the creditors as to whether bankrupting Mr Roulstone and Mr Barakat was likely to yield a better result than a negotiated settlement or a Part X arrangement. The most likely basis for persuading the creditors of this was to put forward a proposal involving a contribution of funds from close associates in circumstances where the creditors would know that there would at least be some doubt as to whether those funds would be available if bankruptcy was pursued. 59However, at this time, Mr Barakat and Mr Roulstone's efforts were directed to avoiding bankruptcy. No doubt, each of Mr Barakat and Mr Roulstone were seeking to maximise their ability to do that, yet they were not acting indifferently to their creditors' plight. Further, it is unclear from this material as to what position they would take post-bankruptcy if their efforts to avoid it failed. There is some significant evidence on that topic provided by other advisors which I will outline shortly.

(3) Mr Roulstone: The impugned transactions 60At this point, it is appropriate to describe the transactions said to give rise to the concern about Mr Roulstone's unfitness to practice. They all occurred in the period April to May 2012 which was the period when Mr Roulstone was seeking advice from Mr Green. Although I make some findings concerning the transactions at this point, it will be necessary to return to them as subsequent events are relevant. 61The first transaction concerned two payments totalling approximately $500,000 made by Mr Roulstone on or about 16 April 2012. Mr Roulstone transferred these funds from an account in his name in repayment of a loan that was secured over a property owned by the RFT. Mr Roulstone said that he was "a borrower" in respect of this loan. The evidence does not disclose whether there were any other borrowers such as his wife or the RFT. 62Mr Roulstone agreed that the financier had not been pressing for repayment of this loan. He agreed that he made the payments in circumstances where he knew the funds available to him were not sufficient to fully satisfy his third party creditors including his tax liability. His explanation for taking this step, and not applying the funds to pay his creditors, was his reliance on Mr Green's advice which I have already outlined. 63The second impugned transaction concerning Mr Roulstone involved two steps. On 1 May 2012, Mr Roulstone became entitled to receive $1.25 million being his component of the accelerated payment for Slater & Gordon. He directed that that payment be made to the RFT. Of that amount, an amount of $100,000 was returned to Mr Roulstone. However, on 23 May 2012, the RFT paid $1.15 million to an account in the name of Mrs Roulstone. 64At the time of these events, Mr Roulstone was indebted to the RFT. Mr Roulstone said his indebtedness arose from the RFT having financed the business of the firm, and that a condition of the sale to Slater & Gordon was that all such loans be removed from the relevant structures. Mr Roulstone explained that he acquired the firm's indebtedness to the RFT. It was also said that the RFT was indebted to Mrs Roulstone, but how that debt had arisen was not explained. In her affidavit, Mrs Roulstone stated that she had inherited significant wealth. Perhaps she had lent funds to the RFT which it had on-lent them to the firm. Mr Roulstone accepted at the time of the payment to his wife, his wife was not pressing the RFT for payment. 65I have already described the evidence surrounding the advice Mr and Mrs Roulstone stated they received from Mr Green in relation to this payment. As noted, Mrs Roulstone says she had advised Mr Green in the presence of her husband, that if the funds had to be paid back, they would be paid back. Annexed to Mrs Roulstone affidavit was a set of bank statements demonstrating that she received these funds on or about 23 May 2012, and they were thereafter kept in an account so that they were effectively preserved throughout the period of Mr Roulstone's bankruptcy. 66The third impugned transaction concerning Mr Roulstone was a payment made by him of $500,000 into the Roulstone superannuation fund on 23 May 2012. I have described the advice received by Mr Roulstone in relation to that payment. Based on his having received that advice, Mr Roulstone stated that he believed that this payment would not even be regarded as a preference or otherwise voidable in the event of his bankruptcy because of its beneficial effect upon the interests of creditors as a whole. I accept that evidence.

(4) Mr Barakat: The impugned transactions. 67Four transactions or sets of transactions were identified in relation to Mr Barakat as reflecting adversely on his fitness and propriety. 68The first set of transactions involved the transfer of motor vehicles to members of his family. On 2 March 2012, Mr Barakat transferred title to a BMW car valued at $15,000 to his daughter. On 2 April 2012, Mr Barakat transferred to his son a Subaru motor vehicle valued at $20,000, and transferred to his wife a Mercedes Benz motor vehicle also valued at $20,000. 69In his affidavit, Mr Barakat explained that all three vehicles had been purchased from funds in an account held jointly with his wife. He said that each of the donees had always used the vehicles, and that they were only registered in his name to reduce the insurance premiums that were otherwise payable. As I will explain, Mr Barakat, later agreed with his trustee that two of the three vehicles should be sold at auction for the benefit of his creditors. 70In cross-examination, Mr Barakat accepted that he did not need to transfer the vehicles to enable his family members to use them. It was suggested to him that, by transferring them, he had made it more difficult for a trustee to take steps to recover them compared with title remaining in his name, in which case it would have automatically vested in a trustee upon his bankruptcy. Mr Barakat stated that he was not really aware of what steps were required by a trustee as a consequence of his transferring title. He pointed out that, after his bankruptcy, he physically collected the cars and drove them to auction. 71In answer to a question from the Court, Mr Barakat asserted that he regarded the cars as being a similar category to the other related party transactions which I will describe. Thus, Mr Barakat was asked and answered as follows: "Q. Do you say you transferred them with the belief that you could, because they were going to family members, and you could unravel it, if you needed to? A. Yes and in fact I told the children and my wife that I'm affecting [sic] the transfers and that ultimately they will have to be returned in the event either of the bankruptcy or in the event that we were able to negotiate a settlement with Mr Firth prior to bankruptcy." I accept this evidence. 72The second set of transactions concerning Mr Barakat consisted of two payments made in March 2012 to discharge a joint debt owed by himself and his wife. The debt was secured over a very valuable apartment owned by his wife at Circular Quay. In particular, on 12 March 2012, Mr Barakat's half of the proceeds of the sale of he and his wife's matrimonial home, being $988,146, were applied to reduce the loan that was secured over that apartment. On 28 March 2012, Mr Barakat applied $244,039 from an account in his name to discharge the balance of the debt. 73I have already described the evidence concerning the advice Mr Barakat said he had received and acted upon in effecting this transaction. I note one additional matter. In his affidavit, Mr Barakat denied the decision to apply his funds in that way was "related to the possibility of bankruptcy", or was otherwise undertaken in an attempt to remove the funds from attachment by his creditors. Read literally, this evidence sits uneasily with those aspects of his oral evidence in which he described the advice given by Mr Green in relation to the need to pay off secured debts and keep control of the assets for the purpose of dealing with his creditors. The explanation he gave clearly does suggest that the application of these funds was "related to the possibility of bankruptcy". 74The third impugned transaction concerning Mr Barakat was a payment made to his family trust of $1.615 million that occurred on 1 May 2012. Mr Barakat stated that as at that date he was indebted to the family trust for $1.615 million. On that day he directed that his share of the accelerated payment of the deferred consideration from the sale of shares to Slater & Gordon, namely, $1.25 million be paid direct to the trust. He also arranged for a further $365,000 from accounts in his name to be paid to the trust in discharge of his total indebtedness. 75In his affidavit Mr Barakat explained that he made these payments in reliance on the advice of Mr Green, as relayed by Mr Roulstone, namely, that he should deal with the proceeds of sale by effectively "park[ing] it somewhere where it would remain" under his control in the event of bankruptcy, but "in which case the payment[s] would probably be a preference and would then have to be retrieved." I accept this evidence. Those funds were not further dissipated by the trustee of his family trust. 76The fourth impugned transaction in relation to Mr Barakat was a payment made on 22 May 2012 of $450,000 as a contribution to his superannuation fund. In a statement Mr Barakat prepared for use in proceedings before the Administrative Decisions Tribunal (the "ADT"), he stated that he sought advice from his accountants about his rights in respect of superannuation contributions. He stated they advised him that he was entitled to contribute $450,000 from his "capital entitlements", in addition to the amount paid into the fund from his employment at Slater & Gordon. He stated that they recommended he do so, and advised him that such a payment was consistent with the level of income that he had received in that year. 77Mr Barakat's recitation of the advice he received concerning this payment does not outline whether he told those accountants of his likely insolvency, nor reveal whether he considered the position of his creditors when he made this payment. He was not cross-examined on those topics either.

(5) Events up to bankruptcy 78Consistent with the advice given by Mr Green, from 29 March 2012, Mr Barakat and Mr Roulstone ceased making payments to meet judgments entered against them in favour of former clients, other than in respect of those judgments where one of the defendants to the proceedings was Keddies Insurance. In respect of those claims, Slater & Gordon had the benefit of the indemnity which I have previously outlined. At this point in time Mr Roulstone and Mr Barakat were yet to receive their allocation of shares in Slater & Gordon, being the last component of the consideration payable under the share sale agreement. It is not clear whether that allocation could be reduced by Slater & Gordon if the indemnity in respect of claims by former clients was engaged. 79On 23 May 2012 there was a meeting between Mr Roulstone and Mr Barakat on the one hand and representatives of Firths on the other. The meeting was called in an endeavour to negotiate a settlement of all outstanding client claims. Their efforts were unsuccessful. 80On 5 June 2012 Mr Roulstone received a notice of assessment from the Australian Taxation Office of $1.26 million. This assessment reflected the effect upon his capital gains tax liability of the superannuation contribution that he had made in May 2012. Mr Roulstone negotiated a repayment plan with the Australian Taxation Office. It is unnecessary to describe this further as it was overtaken by events. 81On 15 June 2012, Mr Barakat received a taxation assessment of $2.35 million. On the same date Mr Keddie filed a debtor's petition. Clearly by this point Mr Roulstone and Mr Barakat's financial positions had become very bleak. Four days later they were each served with bankruptcy notices. 82On 21 June 2012, a further meeting was held in an attempt to settle all the outstanding client claims. Again it was unsuccessful. 83At some point in June 2012 Mr Roulstone and Mr Barakat decided that they would seek separate advice in relation to their impending bankruptcy. Mr Barakat retained Darren Bowles, solicitor. He and Mr Bowles met on 28 June 2012 to discuss the bankruptcy notice. On the same day Mr Barakat and Mr Roulstone met with representatives of Slater & Gordon to seek an early release of the outstanding share entitlements, being the final component of the deferred consideration for the sale of shares in Keddies Insurance. 84On 4 July 2012 Slater & Gordon agreed to their proposal. However, on 6 July 2012, one of the client claimants represented by Firths obtained an ex parte asset freezing order preventing the disposition of those shares. 85In July 2012, both Mr Barakat and Mr Roulstone were served with creditors' petitions. Ultimately, on 3 August 2012, Mr Barakat filed a debtor's petition. On 9 August 2012, Mr Roulstone did likewise. 86In the meantime, Mr Bowles had retained Mr Brian Skinner of counsel. Both Mr Skinner and Mr Bowles were experienced insolvency practitioners. Mr Bowles assisted Mr Barakat in drafting the statement of affairs that accompanied the debtor's petition he later filed. Mr Skinner reviewed it. It is notable that the statement of affairs disclosed all of the impugned transactions concerning Mr Barakat. 87Both Mr Bowles and Mr Skinner provided affidavits that were read in these proceedings. Both recount that Mr Barakat fully and frankly disclosed the details of all of the impugned transactions to them. Both stated that neither of them regarded the transactions as illegal or improper. Neither of them advised Mr Barakat that they should be reversed. 88In his affidavit Mr Bowles went further than Mr Skinner in one respect. Mr Bowles states that he understood that all of the transactions, other than the repayment of the loan secured over the apartment owned by Mr Barakat's wife, could be reversed overnight if necessary. Mr Bowles stated that he positively advised Mr Barakat that it was unnecessary to reverse the transactions because "full disclosure was made" and it was a matter that could be "sorted out with the trustee later on." Mr Barakat's evidence concerning the advice he received was to similar effect. I accept the advice was given and relied on. The giving of the advice and the reliance upon it by Mr Barakat are very important in the scheme of events. 89Shortly prior to filing his debtor's petition Mr Roulstone sought advice from Mr Philip Stern. Mr Stern is a very experienced commercial litigator and insolvency practitioner. Mr Roulstone stated that Mr Stern assisted him in preparing his statement of affairs. Again it is notable that the statement of affairs fully disclosed all the transactions the subject of complaint by the Law Society. 90Both Mr Roulstone and Mr Stern recall Mr Stern advising Mr Roulstone that, having regard to the accounting advice that had been received concerning the effect of the superannuation contribution on Mr Roulstone's capital gains tax liability, that payment was unlikely to be regarded as a preference. 91Both Mr Roulstone and Mr Stern also recall Mr Stern advising Mr Roulstone that the payment to the RFT was likely to be regarded as a preference and thus voidable. Mr Roulstone also recalled that Mr Stern's "further advice was to the effect that as the transaction was fully disclosed in the Statement of Affairs, there was no reason to reverse it prior to presenting the Debtor's Petition as it would be sorted out by the trustee after the event". In his affidavit Mr Stern does not recount giving any advice to this effect. He also does not state whether or not he was expressly told the RFT had on-paid the amount it received to Mrs Roulstone. As I have stated, that payment was certainly capable of representing an obstacle to the matter being "sorted out" by a trustee in bankruptcy later. However, in the absence of those potential discrepancies being taken up with either Mr Roulstone or Mr Stern, I accept Mr Roulstone's evidence on this topic.

(6) Post-bankruptcy events of Mr Barakat 92Leaving aside the impugned transactions and superannuation, Mr Barakat's statement of affairs disclosed that he owned $508,000 in two different bank accounts, $1 million in shares in Slater & Gordon, around $1.2 million in receivable debts of doubtful value, and little else. He estimated his joint liability for claims from former clients at $11.5 million. Mr Barakat listed his tax liability as $2,393,307 and stated that an amount of $3,075,422 was owing to the Kedsec Unit Trust. It is not clear what the unit trust was, but it was certainly some form of associated entity. 93Shortly after Mr Barakat became bankrupt, his Trustee in Bankruptcy obtained an asset preservation order in respect of the amount paid to the family trust on 1 May 2012. In his affidavit Mr Barakat stated that he did not receive advance notice of the application. He said he would have procured the re-transfer of those funds if he had been requested to do so by his Trustee. 94As previously noted, it was eventually agreed that two of the three vehicles whose title Mr Barakat had transferred would be surrendered. On 19 September 2012 Mr Barakat personally delivered the vehicles to an auction house. They were sold and the proceeds paid to his Trustee in Bankruptcy. 95On or about 25 October 2012, a proposal for a composition in satisfaction of Mr Barakat's debts was lodged with his Trustee in Bankruptcy (see ss 73(1)(a) of the Bankruptcy Act). Mr Max Donnelly was proposed as the trustee of the composition. By this time the $1.615 million transferred to his family trust in May 2012 had been reacquired by the Trustee in Bankruptcy, although no doubt the family trust had became a creditor of his estate. Mr Barakat's proposal involved the payment of an additional $2 million in cash payable over a period, but with him reacquiring most of the property that vested in his Trustee on his becoming bankrupt. 96On or about 14 November 2012, Mr Barakat's Trustee in Bankruptcy provided a report to creditors recommending his proposal. The Trustee's analysis suggested that the proposal exceeded the best case scenario if the bankruptcy proceeded. He calculated that creditors would be paid a return of around 22.83 cents in the dollar under the proposal. 97On 6 February 2013 the proposal was accepted. Mr Barakat's bankruptcy was thereby annulled (Bankruptcy Act, s 74(5)). 98Mr Donnelly was appointed trustee of the composition. Mr Donnelly prepared a report six days later. By this time it was estimated there would be a return to creditors of between 24 to 31 cents in the dollar. On 12 November 2013, Mr Donnelly certified that Mr Barakat has satisfied all his obligations under the composition. 99Leaving aside interest, the total value of the impugned transaction in relation to Mr Barakat was just over $3,350,000. The combined figure for the amount realised by the sale of the cars, the return of the payment to the family trust and the cash contribution made to the composition, was in excess of $3,640,000. It was not suggested that the property Mr Barakat reacquired on the annulment of his bankruptcy was anything other than of negligible value.

(7) Post-bankruptcy events of Mr Roulstone 100Mr Roulstone's statement of affairs disclosed that he owned $10,000 in cash, a heavily encumbered motor vehicle, shares in Slater & Gordon worth approximately $1 million, and little else. His list of creditors included the same estimate of client claims as that provided by Mr Barakat in his statement of affairs. It also included a debt to the Australian Taxation Office of $1,259,907.85, a debt to Kedsec of $3,075,442, and various other debtors totalling approximately $300,000. 101On 15 March 2013, Mr Roulstone's Trustee in Bankruptcy provided a report to the creditors concerning a proposal submitted by Mr Roulstone to enter into a composition with his creditors. Mr Roulstone proposed to make a payment of $1 million and to use his best endeavours to have Kedsec withdraw its proof of debt. 102Mr Roulstone's proposal also involved treating all unsecured creditors equally. Apparently there was an issue in his bankruptcy concerning s 141 of the Bankruptcy Act and whether its effect was such that client creditors were not to be paid out until all other unsecured creditors were paid, because they were only joint debts of the partnership. It is unclear why this was also not an issue in relation to Mr Barakat's bankruptcy. 103Mr Roulstone's Trustee in Bankruptcy advised the creditors that under Mr Roulstone's proposal to creditors they were likely to receive a dividend of between 11.5 and 11.7 cents in the collar. The Trustee estimated that if the proposal was rejected non-partnership creditors would receive a dividend of between 46.2 and 74.6 cents in the dollar, and the remainder would receive nothing. That remainder included former clients of Keddies. 104The Trustee's report discussed the recoverability of various potential preference payments, including the payment to the RFT and the superannuation fund. The report did not address the payment of $500,000 made on or about 16 April 2012. In respect of the superannuation payment the report noted that Mr Roulstone had indicated that attempts to recover it would be "vigorously defended". Presumably this position was taken because of the contention that the payment was overall in the best interests of creditors. In respect of payments to the RFT, the Trustee reported that it was most likely a preference payment, but he only valued the right of recovery at $287,500 because of concerns about the RFT's financial position. 105On 4 April 2013, Mr Roulstone's creditors rejected his composition proposal. The Trustee in Bankruptcy retired. Mr Donnelly was appointed his new Trustee in Bankruptcy. 106On 9 October 2013, Mr Roulstone put forward a revised proposal. There were two variations to the proposal that had been rejected by creditors. Firstly, the proposed cash contribution was increased from $1 million to $1.3 million. Secondly, instead of there being an undertaking from Mr Roulstone to use his best endeavours to have Kedsec withdraw its proof of debt, there was a binding promise to that effect. 107Mr Donnelly stated that the low estimate of a dividend on a bankruptcy, assuming all unsecured creditors would be treated equally, was 3.29 cents in the dollar and that the high estimate was 15.66 cents in the dollar. Mr Donnelly estimated the value of Mr Roulstone's proposal to creditors was 14.94 cents in the dollar. 108Mr Donnelly's report to creditors concerning the revised proposal addressed the same set of transactions as his predecessor's. However, in relation to the payment to the RFT, Mr Donnelly stated that the funds had been paid out to Mrs Roulstone. In relation to their recoverability, Mr Donnelly's report said: "As outlined in 3.1 of this report, Mrs Roulstone was the ultimate beneficiary of the $1,205,000 in funds that Mr Roulstone paid into the RFT. If RFT was placed into liquidation, the liquidator would investigate the transactions between RFT and may determine that the transactions between RFT and Mrs Roulstone were uncommercial. However, for the purposes of my analysis, I have calculated the estate's claim against RFT on the basis that a liquidator would not recover the funds from Mrs Roulstone." 109Neither Mr Roulstone nor Mrs Roulstone were questioned about whether they ever communicated to the Trustee Mrs Roulstone's willingness to reimburse the RFT for the amount that she received on or about 23 May 2012. 110On 12 November 2013 Mr Roulstone's revised proposal was accepted and his bankruptcy was annulled. 111Leaving aside the payment to the superannuation fund, the balance of the impugned transactions concerning Mr Roulstone, diminished his assets by $1.65 million. The proposal that was ultimately accepted involved a cash payment of $1.3 million and a withdrawal of a proof of debt. It is difficult to quantify the effect of the latter as it depends upon, in part, the application of s 141 of the Bankruptcy Act to that debt's circumstances and a determination of the amount of the estate's indebtedness once it is removed. As best as I can ascertain, the value of the revised composition proposal appears to approximate to the value of two of the three impugned transactions.

(8) Dealings with the Society 112A number of events that transpired during the course of Mr Barakat's and Mr Roulstone's bankruptcies amounted to "show cause events" within the meaning of s 4(1) of the LPA 2004. As a consequence various disclosure obligations were engaged. It is unnecessary to describe them other than to state that there is no suggestion that they were not complied with. 113On or about 22 November 2012 the Council of the Law Society resolved, pursuant to s 68(3)(b) of the LPA 2004, that each of Mr Barakat and Mr Roulstone was not a fit and proper person to hold a practising certificate. Pursuant to s 72(1)(a), each of their practising certificates was suspended. 114Both Mr Barakat and Mr Roulstone appealed to the ADT. At the conclusion of a two-day hearing on 16 May 2013, the ADT made orders dismissing their applications for review, with reasons to be provided at a later time. The ADT published its reasons on 28 November 2013: Barakat v Law Society of NSW [2013] NSWADT 271, and Roulstone v Law Society of NSW [2013] NSWADT 272. 115In the meantime, on 15 May 2013, each of Mr Barakat and Mr Roulstone applied for a renewal of their practising certificates for the period 1 July 2013 to 30 June 2014. In circumstances that I will explain, the Law Society treated each as an application for a fresh grant of a practising certificates. 116On 18 July 2013 the Council of the Law Society resolved, pursuant to s 48(3) of the LPA 2004 to refuse their applications. In respect of each of the plaintiffs the Law Society stated that their conduct in relation to each of the impugned transactions: "... demonstrates a reckless disregard by him for his obligations which Council is satisfied amounts to an intention to avoid them, and is inconsistent with [a] recognition by him of his moral obligation to creditors, thus the Council considers that [Mr Barakat/Mr Roulstone] is not a fit and proper person to hold a local practising certificate."

(9) Mr Roulstone's professional history and reputation 117As previously stated, Mr Roulstone was admitted as a solicitor of this Court in 1995 and commenced practice in 1998. He became a partner in Keddies in 1992. He was awarded a Master of Laws in 1996. He became an accredited specialist in personal injury law. He was a member of the Law Society's professional conduct committee from 1998 to 2008. He served on the Council of the Law Society from 2006 to 2009. Mr Roulstone was elected junior vice-president of the Law Society in 2007. In his affidavit Mr Roulstone also outlined a number of Law Society committees that he had served upon, and various other positions that he has held. 118Mr Roulstone ceased working for Slater & Gordon in June 2012. He has not worked as a legal practitioner since. He intends to practise as a barrister. In November 2013 he achieved the appropriate pass mark of 75% in two of the three bar entrance exams. He sat for the third in February 2014 and achieved the requisite mark. However, due to this matter, he was not able to undertake the April 2014 bar practice course. 119A number of testamentary affidavits from very experienced fellow practitioners, as well as from a barrister and a senior accountant, were read on behalf of Mr Roulstone. The deponents all testified to his honesty, trustworthiness and professionalism as a legal practitioner. An affidavit was also read from Ms Patricia McDonough who is currently the supervising principal of the solicitors employed at the Media, Entertainment and Art Alliance. She has previously been the principal solicitor of a number of local community centres. She had dealings with Mr Roulstone over a long period. She stated that in his early years in practice Mr Roulstone volunteered at various legal centres and later assisted her and others working at those centres. 120There was also read an affidavit of Mr Robert Tassel, a litigation partner from Verekers, who acted for Mr Barakat and Mr Roulstone as well as Mr Keddie in the attritional litigation they had been engaged in with the Firth interests and their former clients since 2007. Mr Tassel testified to the close contact he had had with Mr Roulstone while acting for him. He described the proceedings as imposing great stress on Mr Roulstone as they involved the making of serious allegations against him and were conducted in circumstances where his financial livelihood was very much at stake. Despite that, and perhaps because of it, he stated that from his observations he considered Mr Roulstone to be a person of good character.

(10) Mr Barakat's professional history and reputation 121Mr Barakat was admitted as a solicitor in 1985 and became a partner in Keddies in 1988. He obtained his specialist accreditation in personal injury law in 2000. He subsequently examined practitioners seeking that accreditation. He served on several Law Society committees. After he finished working for Slater & Gordon in December 2011, he commenced his own practice under the name "Barton Lawyers". In August 2012 he changed his trading name to "Tony Barakat Lawyers". Mr Barakat ceased working when his practising certificate was suspended. 122Again, an impressive group of very experienced legal practitioners who had dealings with Mr Barakat, including Mr Hugh Marshall SC, all testified to his competence, professionalism and honesty. Mr Tassel swore an affidavit concerning Mr Barakat to similar effect to that I have described in relation to Mr Roulstone.

(11) Grant or renewal? 123A threshold issue in this case is whether these proceedings involve an appeal from the exercise of the power to grant a practising certificate or the exercise of a power to renew a practising certificate. The significance of the difference concerns which party bears the onus of proving fitness and propriety. 124Sections 48(1), 48(3) and 48(4) of the LPA 2004 provide: "48 Grant or renewal of local practising certificate (1) The appropriate Council must consider an application that has been made for the grant or renewal of a local practising certificate and may: (a) grant or refuse to grant the certificate, or (b) renew or refuse to renew the certificate. ... (3) The Council must not grant a local practising certificate unless it is satisfied that the applicant: (a) was eligible to apply for the grant when the application was made, and (b) is a fit and proper person to hold the certificate. (4) The Council must not renew a local practising certificate if it is satisfied that the applicant: (a) was not eligible to apply for the renewal when the application was made, or (b) is not a fit and proper person to continue to hold the certificate." 125Further, s 47 of the LPA 2004 provides: "47 Timing of application for renewal of local practising certificate (1) An application for the renewal of a local practising certificate must be made within: (a) the period prescribed by the regulations as the standard renewal period, or (b) a later period prescribed by the regulations as the late fee period. (2) Those periods must be within the currency of the local practising certificate being renewed. (3) The appropriate Council may reject an application for renewal made during the late fee period, and must reject an application for renewal made outside those periods." (emphasis added) 126Regulation 12 of the Legal Profession Regulations 2005 (NSW) specifies the period referred to in ss 47(1) (a) and (b) for barristers and solicitors. It suffices to state that, for each arm of the profession, an application for renewal of a practising certificate can only be made between 1 April and 30 June each year. 127In the case of Mr Barakat and Mr Roulstone, their practising certificates were suspended at the time they sought renewal. Accordingly, Senior Counsel for the Law Society, Ms Webster SC, submitted that their applications could not have been, and were not, made "within the currency" of their existing practising certificates (see ss 47(2)). Senior Counsel for Mr Barakat and Mr Roulstone, Mr Lynch SC, submitted that even though his clients' practising certificates were suspended when renewals were sought, they still existed and thus they still had "currency". 128Section 43 of the LPA 2004 specifies the duration of a practising certificate. It provides: "43 Duration of local practising certificate (1) A local practising certificate granted under this Act is in force from the date specified in it until the end of the financial year in which it is granted, unless the certificate is sooner suspended or cancelled. (2) A local practising certificate renewed under this Act is in force until the end of the financial year following its previous period of currency, unless the certificate is sooner suspended or cancelled. (3) If an application for the renewal of a local practising certificate as a solicitor has been properly made as required by this Act but has not been determined by the Law Society Council by the following 1 July, the certificate: (a) continues in force on and from that 1 July until the Law Society Council renews or refuses to renew the certificate or the holder withdraws the application for renewal, unless the certificate is sooner cancelled or suspended, and (b) if renewed, is taken to have been renewed on and from that 1 July." 129Further, s 6 of the LPA 2004 provides "6 Terms relating to legal practitioners For the purposes of this Act: (a) an Australian legal practitioner is an Australian lawyer who holds a current local practising certificate or a current interstate practising certificate, and (b) a local legal practitioner is an Australian lawyer who holds a current local practising certificate, and (c) an interstate legal practitioner is an Australian lawyer who holds a current interstate practising certificate, but not a local practising certificate." (emphasis added) The phrase "Australian lawyer" in s 6 is defined by s 5 as a person who was admitted to the legal profession under the LPA 2004 or a corresponding law. 130The principal prohibition in the LPA 2004 is ss 14(1). It prohibits a person from engaging in legal practice "unless the person is an Australian legal practitioner", i.e. an Australian lawyer with a current practising certificate. 131In the ordinary course one would expect the word "current" as utilised in relation to a practising certificate in s 6 to convey the same meaning as "currency" in s 47(2). If that is right, it is fatal to Mr Lynch SC's argument. If an Australian lawyer's practising certificate which was suspended still had "currency" during its period of suspension, then it would still be a "current" practising certificate and the lawyer would not breach ss 14(1) if they engaged in legal practice, notwithstanding s 43. 132This outcome cannot be correct. The correct interpretation is one that gives "current" and "currency" a consistent meaning. It means that by operation of s 43 a suspended practising certificate that is no longer in force is neither "current" nor has "currency". 133Mr Lynch SC submitted that if this construction were to be adopted, there would be no difference between suspending a practising certificate and cancelling a practising certificate. However, a number of other provisions make it clear that the distinction has consequences for the practitioner (e.g. LPA 2004, s 72(5), s 548(6) and (7)).

(12) Fitness and propriety: Approach 134It follows that, for each of Mr Roulstone and Mr Barakat to succeed on the appeal, it must be positively demonstrated that they are fit and proper persons to hold a practising certificate (s 48(3)(b)). Sections 42(2)(a) to (c) specified a number of matters that are to be taken into account in determining whether a practitioner is a fit and proper person. None of those matters are relevant to this case. 135Section 42(2) also provides that so-called "suitability" matters are to be taken into account in determining fitness and propriety. These are defined in s 9 of the LPA 2004 and relevantly include: "(a) whether the person is currently of good fame and character,; (b) whether the person is or has been insolvent under an administration ... (f) whether the person is currently subject to an unresolved complaint investigation, charge or order under any of the following: (i) this Act or a previous law of this jurisdiction which corresponds to this Act, or (ii) a corresponding law or corresponding foreign law, ... (i) whether the person's right to engage in legal practice has at any time been suspended or cancelled in Australia or a foreign country" 136The phrases "fit and proper" and "good fame and character" are not defined in LPA 2004. It was not suggested that either Mr Barakat or Mr Roulstone were lacking in the requisite reputation. In this context, the concept of "character" is subsumed in the discussion below of fitness and propriety. In relation to (b) and (i), the circumstances of Mr Roulstone's and Mr Barakat's bankruptcy and practising certificate suspensions have already been described. In relation to (f), as noted that there is presently an unresolved complaint against each of them, but beyond that the Court was not apprised of any details. 137In New South Wales Bar Association v Murphy [2002] NSWCA 138; 55 NSWLR 23 ("Murphy"), the Court of Appeal discussed the concept of fitness and propriety in the context of a legal test directed towards the issue or refusal to issue of a practising certificate, as opposed to the removal of a practitioner from the roll of practitioners. Murphy involved a consideration of whether the circumstances surrounding the commission of an act of bankruptcy, indictable offence or tax offence warranted a finding adverse to the practitioner (see former s 38FC(1) of the Legal Profession Act 1987). Section 48(3) of the LPA 2004 is not so confined. 138In Murphy the Court of Appeal noted that adverse findings on fitness and propriety in relation to practising certificates have a more temporal quality than findings which warranted the removal of the practitioner from the roll (at [25] per Spigelman CJ and [111] per Giles JA). In that regard the legislative regime enables, and in fact requires, a fresh determination of fitness and propriety on each occasion that a practising certificate is applied for (at [110] per Giles JA). 139Bearing in mind the potential for a difference between assessments of fitness in respect of applications to remove a practitioner from the roll and appeals from the denial of an application for a practising certificate, Giles JA in Murphy drew upon discussions of the former in describing the latter. Thus his Honour stated (at [113]): "Refusal, cancellation or suspension of a practising certificate upon determination of unfitness to hold a practising certificate is not punitive of the legal practitioner. It is protective of the public in the same manner as removal from the roll. Fitness to hold a practising certificate is to be assessed having in mind the high standards required of legal practitioners in the practice of their profession. The standards are required because the relationship between legal practitioner and client, between legal practitioners, and between legal practitioner and court is one of trust in the performance of professional functions, and because there must be confidence in the public and in those engaged in the administration of justice that legal practitioners will properly perform those functions." 140This passage makes clear that what is required is more than just a demonstrated honesty and competence in dealing with clients, other practitioners and the Court. It also extends to the assessment of a practitioner's "character" in order to maintain the continuing confidence of the public in the performance of the duties of legal professionals given the "central role the profession plays in the administration of justice" (see New South Wales Bar Association v Cummins [2001] NSWCA 284; 52 NSWLR 279 at [20] per Spigelman CJ). 141In recent years this has been considered in the context of practitioners' conduct when managing their personal finances in order to meet their taxation liabilities and other debts. Thus in Murphy the practitioner had managed his financial affairs in a desultory manner, such that he reached a point where if he had lodged his tax returns his assessments of provisional tax would have overwhelmed him (at [124]). The practitioner sought accounting advice, but was wrongly advised that he should delay lodging his returns (at [126]). Ultimately returns were lodged and the practitioner attempted to make payments to the ATO. However, he eventually went bankrupt. At first instance the conduct of the practitioner was found to be deserving of severe criticism, especially his inability to meet more of his tax obligations. Nevertheless the trial judge found that he had "honestly intended to trade his way out of his difficulties" and that "otherwise his conduct could not be described as dishonest" (at [156]). 142The Court of Appeal found that the trial judge in Murphy had erred in considering that a finding as to the practitioner's honesty was itself an answer to the statutory test (at [170] per Giles JA with whom Spigelman CJ at [28] and Ipp JA at [174] agreed). Nevertheless Giles JA explained that the finding of honesty was still significant: "[170] McLellan J's finding that there was no dishonesty does not of itself answer the statutory test, but it is relevant to the answer. The respondent was not indifferent to his taxation obligations. There was not the regard to compliance with the taxation laws which there should have been in 1990, but apart from that the respondent's failings were not in the probity required of a legal practitioner, but in the ability properly to order his affairs and cope with the taxation consequences of fluctuations in income. He could have been more questioning of his accountant's performance, and more resolute in attempting to come to an arrangement with the Australian Taxation Office rather than let the situation overwhelm him (although I do not think deciding to trade on with a view to profitable sale of the kindergarten business was an unreasonable course). [171] The determination is of fitness to hold a practising certificate at the time of the determination - s 38FC(1)(b) refers to circumstances that show that the applicant or holder is not a fit and proper person to hold a practising certificate. McLellan J accepted as genuine the respondent's acknowledgment that he was wrong to delay lodgement of his taxation returns and that he should have addressed his problems at an earlier time. If the respondent were to be judged unfit to hold a practising certificate, it would be because his failings so reflected upon his ability to act in the affairs of his clients that protection of the public warranted cancellation of his practising certificate. [172] I do not think that they do. In my judgment the circumstances as found do not reveal such deficiency in character or competence as a legal practitioner that the respondent is not fit to practise as a barrister. On the facts of this case, plainly very different from those of cases such as New South Wales Bar Association v Cummins and New South Wales Bar Association v Somosi, the statutory test has not been fulfilled." (emphasis added) 143In Wardell v New South Wales Bar Association [2002] NSWSC 548 ("Wardell") a barrister was found to have persistently failed to meet his tax obligations even though he expended significant funds in what was described as "lifestyle pursuits" (at [31]). Acting Justice Cripps noted that in Murphy the Court of Appeal had found that no special significance was to be attached to tax debts as compared to others. His Honour identified the relevance of practitioners taking steps to meet their debts to assessments of their fitness to hold a practising certificate as anchored in the maintenance of public confidence in the legal profession. Thus his Honour stated (at [42]): "I would suggest, however, that now it is generally recognised by most right thinking members of the community that people have an obligation to meet their debts, if they can, and that failure to do so over a long period of time without any exculpating features other than that the money was spent elsewhere would promote in the minds of right thinking people in our community that that person was not a fit and proper person to hold a practising certificate." 144In Wardell Cripps JA found the practitioners had honestly intended to meet the tax obligations (at [44]). However, consistent with Murphy, this was not treated as determinative. Instead Cripps JA held against the practitioner, finding he had such "a reckless disregard as to his obligations as to amount to his intention to avoid them". The phrase "reckless disregard" was, of course, employed by the Law Society in its decision refusing practising certificates to Mr Barakat and Mr Roulstone in this case. 145The Law Society also referred to the judgment of McClellan CJ at CL in Meredith v Legal Profession Admission Board of NSW [2008] NSWSC 1170 ("Meredith"). In Meredith the practitioner sought readmission after having been removed from the roll for dishonestly misappropriating client funds. In the meantime, he had been bankrupted. He sought readmission in circumstances where the Solicitors Fidelity Fund had compensated his clients, but he, the practitioner, had not reimbursed that fund. 146Chief Judge McClellan noted, inter alia, the heavy onus on a practitioner who seeks readmission to the roll (at [17]). His Honour noted that the practitioner had correctly recognised that he had no ongoing legal obligation to pay the moneys he had misappropriated because his liabilities had merged in his bankruptcy. However, his Honour stated the practitioner had failed to recognise his "moral obligation" to reimburse the Fidelity Fund and that that failure was, in part, manifested by his actions in meeting other personal financial responsibilities instead of making recompense to the fund (at [27] to [29]). 147As noted in Murphy, the Court of Appeal rejected the proposition that the tax obligations are "of a special kind" (at [161] per Giles JA). Instead, the Court found that they should be treated as no different to other financial obligations and that the relevant enquiry is why the obligations were not met, what was done and what could have been done to meet them (at [162] per Giles JA). 148The decision in Meredith might appear to suggest that special consideration is warranted in respect of debts arising out of dealings with clients. However, Meredith provides little guidance for this case. In Meredith the "moral obligation" of the practitioner to make recompense to the Fidelity Fund arose out of the practitioner's previous conduct in, effectively, stealing his clients' money. In this case there was no detailed exploration of the manner in which the debts incurred by Mr Barakat and Mr Roulstone to their former clients arose, beyond noting the contention that in some respects they arose out of the use of a non-compliant fee arrangement, and in some respects they arose from overcharging. It was not suggested that either Mr Roulstone or Mr Barakat were directly responsible for their occurrence. Further, there was no exploration of whether they personally profited from that conduct and, if they did, to what extent. In those circumstances, the debts to former clients fall to be considered as simply debts of a partnership in respect of which Mr Barakat and Mr Roulstone are jointly liable. 149The authorities, including those that have already been discussed, recognise that for a practitioner to be considered fit and proper they must meet certain obligations beyond those imposed by law. An exhaustive statement of the scope of those obligations is not possible. The invocation of phrases such as "moral obligations" (as in Meredith) or the expectations of "right-thinking people" (as in Wardell), can be criticised as being too vague and subjective. With some issues, yesterday's "right-thinking" person is tomorrow's bigot. However, any such imprecision in the identification of the scope of the standards imposed on legal practitioners beyond those imposed by law is simply a reflection of the multitudinous forms of conduct which can render a lawyer unfit to practise. 150In the end it is the statutory criteria that must be applied in the sense explained in Murphy. In the present context, to found a conclusion of unfitness some form of moral turpitude must attach to the practitioner in that it must be concluded that their conduct revealed "such deficiency in [their] character" to warrant the conclusion that they are not fit to practise (Murphy at [172]). 151A finding of dishonesty is clearly sufficient to warrant that conclusion, but it is not a necessary condition. In Wardell a "reckless disregard" for obligations "as to amount to an intention to avoid them" was found to be fatal. Lesser forms of conduct may suffice. However, a mere failure to take the most honourable or selfless course of action does not demonstrate unfitness (see Ziems v Prothonotary of the Supreme Court of New South Wales [1957] HCA 46; 97 CLR 279 at 298 to 299 per Kitto J). Practitioners faced with pressing financial obligations are not to be equated with fiduciaries. Nothing in Murphy or the other cases relied upon by the Law Society states that a legal practitioner facing financial difficulties cannot take some steps in their own interests, although they cannot disregard their responsibilities to others. 152I will shortly return to discuss the circumstances of each practitioner. However, generally once Mr Barakat and Mr Roulstone recognised they faced probable insolvency they sought advice from Mr Green. At that time they said that they wanted to pay their impending tax assessments. However, Mr Green told them to cease paying third party creditors. He suggested they put funds aside for use in an attempt to avoid bankruptcy, either by negotiating with creditors or pursuing an arrangement under Part X of the Bankruptcy Act. I accepted that they acted on that advice. When bankruptcy appeared inevitable each sought further advice. I have found they were both told not to unravel the impugned transactions. They fully disclosed the transactions in their respective statements of affairs. In the case of Mr Barakat, the composition proposal he put forward to his creditors reflected a greater value to them than would have resulted from an unravelling of his impugned transactions. Mr Roulstone's proposal represented the approximate value of two of the three impugned transactions concerning him, and the other transaction I have found to be in the interests of his creditors. 153Ultimately the Law Society did not dispute these aspects of Mr Roulstone's or Mr Barakat's behaviour. To the extent that there is any doubt as to whether either of them were truly giving effect to the advice they received in entering into the impugned transactions, that was a doubt raised by the Court and not by the Law Society. Instead, the Law Society contended that, even though Mr Roulstone and Mr Barakat were acting on advice, they still took deliberate steps to benefit their own financial position at the expense of other creditors and that of itself is sufficient to demonstrate unfitness. The Law Society contended they took steps to take funds out of the immediate control of the trustee, if one was appointed, and in doing so placed themselves in a position whereby they could negotiate with their trustees and their creditors in a manner that they "could not otherwise have done." Ultimately it was submitted that this conduct was undertaken in breach of a "moral obligation" in that it was said that they extracted from that situation "a preference for their own position". 154I do not accept that the conduct of the kind described in the Law Society's submission of itself demonstrates unfitness. The level of enquiry required must, in my view, descend deeper than that suggested by its submissions. 155Mr Roulstone's and Mr Barakat's conduct was certainly not dishonest. The impugned transactions were fully disclosed. They were undertaken after obtaining advice and they were mostly undertaken in a manner consistent with that advice. Of course reliance upon such advice has its limits. The topic of the advice was what was lawful and not necessarily what was expected of a solicitor. Nevertheless, the fact that the advice was obtained and acted upon is significant. It does not suggest that Mr Barakat and Mr Roulstone were indifferent, much less recklessly indifferent, to the interests of their creditors. To the contrary, it appears that they had regard to the interests of their creditors, although their own interests were considered a high priority. 156The conduct of Mr Barakat and Mr Roulstone during this period, and especially that of Mr Roulstone in his dealings with his creditors after he went bankrupt, was not necessarily to their credit. More honourable courses of action were open. However, overall Mr Roulstone's and Mr Barakat's conduct does not reveal "such deficiency in character" to warrant a conclusion that they are not fit to practise.

(13) Mr Barakat's fitness and propriety 157I will supplement the above findings by further considering the particular circumstances of Mr Barakat. 158I doubt that Mr Barakat's transfer of his vehicles to members of his family was, in fact, undertaken as part of a strategy to "park" assets for use in negotiations with creditors or to pursue a Part X arrangement. However, I accept they were undertaken in the knowledge and with the intention that they could be easily unravelled if they needed to be and, in that sense, they were consistent with and taken as a consequence of Mr Green's advice. In the meantime, the effect of the transfers was to give Mr Barakat's family members some additional comfort as to their ability to retain possession of the vehicles even if he went bankrupt. 159I am satisfied that Mr Barakat's transfer of funds to his family trust and his discharge of the loan which was secured over the apartment owned by his wife were undertaken on reliance of Mr Green's advice. With some hesitation, I am satisfied that the position is the same in relation to his payment to the superannuation fund. At the very least, his proposal to his creditors revealed that he was prepared to make good the value of that payment. Otherwise, Mr Barakat fully disclosed all these transactions in his statement of affairs. He sought advice as to whether they should be unravelled prior to bankruptcy and was advised that need not occur. As I have already stated his dealings post-bankruptcy involved him returning greater value to creditors than the amount of the impugned transactions. For the sake of completeness, I record that I found Mr Barakat to be an honest witness. 160The balance of the evidence concerning Mr Barakat's reputation and professionalism that I have summarised above clearly points to a finding that he is a fit and proper person to hold a practising certificate. His conduct in relation to the impugned transactions does not reveal "such deficiency in his character" as to undermine that finding. 161Mr Barakat's appeal will be allowed.

(14) Mr Roulstone's fitness and propriety 162I will also supplement the above findings by considering the position of Mr Roulstone. 163The superannuation contribution made by Mr Roulstone on 23 May 2012 does not raise any issue concerning his fitness and propriety. He had received advice that the payment was in both his interests and that of his creditors. It was not suggested that the advice was inaccurate or, more importantly, that he was not entitled to rely on it. 164Otherwise, the findings that I have made above apply to the two remaining impugned transactions concerning Mr Roulstone, although there are two related matters of concern. 165First, I was troubled by the transfer of funds from the RFT to Mrs Roulstone. The taking of that step meant there was a significant obstacle to the recovery of this amount by a trustee in bankruptcy. 166Second, there is some doubt as to whether Mr Roulstone's proposals to his Trustee in Bankruptcy to effect a composition consistent with what he stated was his intention when the transactions were undertaken. That Trustee does not appear to have been acting on the basis that Mrs Roulstone would reimburse the RFT as she stated she told Mr Green in May 2012. As I have stated, I am only satisfied that Mr Roulstone's composition proposal that was ultimately accepted involved the return to his creditors of the approximate value of what was taken out by the two remaining impugned transactions. 167However, in the end these misgivings travel nowhere other than to potentially undermine Mr Roulstone's assertions that he acted on advice and his assertions as to his intentions generally in undertaking the impugned transactions. Yet the Law Society's case was pitched differently. In the end result, I accept Mr Roulstone's evidence including that concerning the advice he received, his reliance upon it and his overall intentions. 168As with Mr Barakat, the balance of the evidence concerning Mr Roulstone clearly demonstrates his fitness and propriety to hold a practising certificate. Despite some misgivings, his conduct in relation to the impugned transactions does not "reveal such a deficiency in his character" (Murphy at [172]) to undermine that finding. 169Mr Roulstone's appeal will also be allowed.

(15) The ADT decision 170As noted, the ADT upheld the Law Society's decision to suspend Mr Roulstone and Mr Barakat's Practising Certificates. 171This is not an appeal from that decision. However, as these proceedings are primarily concerned with the protection of the public, and as the Law Society urged this Court to make various findings that were also made by the ADT, it is appropriate to briefly note some of the reasons for the different outcome in this case compared with that one. 172First, it appeared that the ADT was invited to embark upon an inquiry into a larger number of payments than was identified in this case. No doubt since the time of the ADT decision, the Law Society has had the benefit of considering its position further. 173Second, without traversing them, it is clear that the ADT reached different factual conclusions to this Court especially so far as the practitioners' intentions were concerned. 174Third, and with respect, the ADT appeared to have concluded that each of Mr Roulstone and Mr Barakat's conduct involved a failure to adhere to certain "ethical obligations" without identifying the nature and scope of those obligations (see [2013] NSWADT 271 at [236]ff; [2013] NSWADT 272 at [227]ff).

16. Orders 175Accordingly, the Court orders that: (1)The appeal by Tony Barakat from the decision of the Council of the Law Society refusing him a practising certificate for the period 1 July 2013 to 30 June 2014 be allowed. (2)The decision of the Council of the Law Society of New South Wales to refuse Tony Barakat a practising certificate for the period 1 July 2013 to 30 June 2014 be set aside. (3)The Council of the Law Society issue to Tony Barakat an unrestricted Practising Certificate entitling him to practise as a solicitor and barrister for the period 1 July 2013 to 30 June 2014. (4)The appeal by Scott John Roulstone from the decision of the Council of the Law Society of New South Wales refusing him a practising certificate for the period 1 July 2013 to 30 June 2014 be allowed. (5)The decision of the Council of the Law Society of NSW to refuse Scott John Roulstone a practising certificate for the period 1 July 2013 to 30 June 2014 be set aside. (6)The Council of the Law Society issue to Scott John Roulstone an unrestricted practising certificate entitling him to practise as a solicitor and barrister for the period 1 July 2013 to 30 June 2014. [Counsel addressed on costs.] 176Following my giving reasons an application was made by junior counsel for the plaintiffs, Mr Vernier, for an order that the Law Society pay his clients' costs on an indemnity basis. Ms Webster SC indicated that, in view of the outcome, she could not resist an application for costs but she argued that there was no justification for ordering that costs be payable on anything other than the ordinary basis. 177Mr Vernier tendered correspondence between his instructing solicitors and the relevant section of the Law Society dating back to February 2014. The correspondence reveals that in February 2014 a form of "Calderbank offer" was made to the Law Society for the proceedings to be resolved by either the immediate issue of practising certificates to Mr Barakat and Mr Roulstone or the agreement of the Law Society that they would be issued with effect from 1 July 2014 and the proceedings otherwise dismissed. The letters set out detailed reasons why, in the author's opinion, those offers should be accepted. The offers were left open for a considerable period. 178On that basis Mr Vernier seeks costs on an indemnity basis from the particular point in time that he submits the Law Society should have accepted the offer that was made. 179Mr Vernier referred me to the decision in County Securities Pty Ltd v Challenger Group Holdings Pty Ltd (No 2) [2008] NSWCA 273 ("County Securities") which discusses the principles in respect of making orders for indemnity costs arising out of the refusal of a Calderbank offer. 180For present purposes two points from County Securities should be noted. First, the party seeking a special costs order bears the onus of satisfying the Court that the order should be made (at [31] per McColl JA). 181Second, in the end the ultimate question is whether the offeree's failure to accept the offer in all the circumstances warrants a departure from the ordinary rule as to costs (at [33] per McColl JA). 182In relation to this latter criteria, in County Securities at [36], McColl JA posed the question whether in that case it was unreasonable for the unsuccessful party not to accept the offer that was made. 183In a case such as this where the unsuccessful party is the Law Society and it is contended that it unreasonably refused to compromise the proceedings two particular matters should be noted. 184First, in the ordinary course, proceedings of this kind are effectively "winner take all". Thus, there is very little scope for a result which represents some form of compromise between the two competing positions. In substance, the offers that were put to the Law Society in this case were tantamount to an invitation for the Law Society to surrender. In a case where the outcome is either all or nothing, it is that much more difficult for the party seeking indemnity costs to discharge the onus that is placed on it (see Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [29] to [31]). 185Second, an assessment of the reasonableness of the Law Society's conduct must take into consideration the very significant regulatory function that it performs and the protective nature of these proceedings. Of course, in a particular case a conclusion may be reached that the Law Society's persistence in alleging that a particular practitioner was not fit and proper was unreasonable. However, some degree of deference to the wider interests at stake has to be afforded given the role of the Law Society in cases of this kind. 186At the time the offers were made to the Law Society, both practitioners had had their practising certificates previously suspended and those suspensions had been upheld by the ADT. The ADT had published reasons for its decision. In circumstances where the position being taken by the Law Society had already been vindicated by one independent body, it is very difficult to reach a conclusion that it was somehow unreasonable for it not to effectively surrender at a time after that body published its decision. I am certainly not persuaded that that is so. 187Accordingly, I order the defendant to pay the plaintiffs' costs of the proceedings. 188I otherwise dismiss the application for indemnity costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 June 2014