The first payment
99The payment of $154,000 on 12 October 2012 did not involve the transfer of funds from the firm's trust account but instead the diversion to Mr Berger personally of proceeds of the sale of her unit in a retirement village. The Law Society contended that it was made contrary to the Act and the Regulation. At the time of the diversion Ms Domabyl had passed away. Thus as and from the date of her passing Mrs Domabyl's property vested in the "NSW Trustee and Guardian" (Probate and Administration Act 1898, s 61), but if probate is granted at some point in the future then the vesting of the property in the executors will relate back to the date of Mrs Domabyl's death (s 44; The Daily Pty Ltd v White (1946) 63 WN (NSW) 262 at 263).
100As at October 2012 s 254(1) of the Act provided:
"Certain trust money to be deposited in general trust account
(1) Subject to section 258A, as soon as practicable after receiving trust money, a law practice must deposit the money in a general trust account of the practice unless:
(a) the practice has a written direction by an appropriate person to deal with it otherwise than by depositing it in the account, or
(b) the money is controlled money, or
(c) the money is transit money, or
(d) the money is the subject of a power given to the practice or an associate of the practice to deal with the money for or on behalf of another person.
Maximum penalty: 100 penalty units."
101None of ss 254(1)(a) to (d) was applicable at the time the proceeds of sale were received. Thus Mr Berger was obliged to cause the proceeds of the sale to be deposited into the firm's trust account. Sub-section 261(1)(b) would have entitled Mr Berger to withdraw moneys from the trust account on account of "legal costs" (assuming the bills he sent in 5 June 2012 could be so characterised) provided he had complied with Regulation 88 which provided:
"Withdrawing trust money for legal costs - section 261(1)(b) of the Act
(1) This clause prescribes, for the purposes of section 261(1)(b) of the Act, the procedure for the withdrawal of trust money held in a general trust account or controlled money account of a law practice for payment of legal costs owing to the practice by the person for whom the trust money was paid into the account.
(2) The trust money may be withdrawn in accordance with the procedure set out in either subclause (3) or (4).
(3) The law practice may withdraw the trust money:
(a) if:
(i) the money is withdrawn in accordance with a costs agreement that complies with the legislation under which it is made and that authorises the withdrawal, or
(ii) the money is withdrawn in accordance with instructions that have been received by the practice and that authorise the withdrawal, or
(iii) the money is owed to the practice by way of reimbursement of money already paid by the practice on behalf of the person, and
(b) if, before effecting the withdrawal, the practice gives or sends to the person a request for payment, referring to the proposed withdrawal.
(4) The law practice may withdraw the trust money:
(a) if the practice has given the person a bill relating to the money, and
(b) if:
(i) the person has not objected to withdrawal of the money within 7 days after being given the bill, or
(ii) the person has objected within 7 days after being given the bill but has not applied for a review of the legal costs under the Act within 60 days after being given the bill, or
(iii) the money otherwise becomes legally payable.
(5) Instructions mentioned in subclause (3) (a) (ii):
(a) if given in writing, must be kept as a permanent record, or
(b) if not given in writing, must be confirmed in writing either before, or not later than 5 working days after, the law practice effects the withdrawal and a copy must be kept as a permanent record.
(6) For the purposes of subclause (3) (a) (iii), money is taken to have been paid by the law practice on behalf of the person when the relevant account of the practice has been debited." (emphasis added)
102From October 2012 (and continuing to at least June 2013 prior to the grant of probate) it was common ground that "the person for whom the trust money was paid into the account" in sub-regulation 88(1) was the "NSW Trustee and Guardian". It was also common ground that nothing in sub-regulation 88(3) would have authorised any withdrawal of any funds paid into the trust account. In particular on no view of what occurred had there been any "instructions" that authorised the withdrawal (cf sub-reg 88(3)(a)(ii) or a request for payment "referring to the proposed withdrawal" (cf sub-reg 88(3)(b)). Further none of the conditions for withdrawal specified in 88(4) had been satisfied either. While Mr Berger had sent a bill it had not been sent to the "person" referred to in sub-regulation 88(4), namely "the person for whom the trust money was paid into the account" in sub-regulation 88(1). (The result would be the same even if Mrs Domabyl had not passed away).
103As I have stated Mr Berger did not deny that with the benefit of hindsight the diversion of these funds was not authorised. The real issue was whether he had an honest albeit mistaken basis for causing the payment to occur. In particular the Law Society contends that Mr Berger knew that the payment was improper. This contention involved five interrelated matters it contended were relevant to an assessment of Mr Berger's state of mind, namely the absence of any instructions from anyone with a proper interest in the funds that were transferred, the use of the power of attorney after Mrs Domabyl's death, his knowledge of the defects in his right to recover fees, his concealment of his actions from his partners and his alleged lies in 2013 concerning his actions.
104In his first affidavit Mr Berger explained his actions in transferring these funds as follows. He referred to the accounts he sent in June 2012 to Jan and Robert Domabyl. He described Jan Domabyl as the person "who clearly controlled, managed and administered the family's finances and affairs" and thus the "most appropriate" person to deal with. Mr Berger described Robert Domabyl as being "part of the family" and stated that his belief was "that if there would be any person in the family to make a Family Provision Act claim or challenge the will (and make an objection to my professional fees), it would be him". Mr Berger noted there was no response to his letter enclosing the invoices and explained:
"I also note that in about June to October 2012, I met the husband and son in Sydney on several occasions and they did not raise any objection in relation to the invoice ... I caused $154,000 to be paid from the settlement money to me in part payment of the invoice for $176,800.94 because I was informed by Mr Freedman that he as my partner did not want to receive any part of the fees that might have been payable for the legal work that I had performed for Mrs Domabyl as her attorney. At the time of the transfer I honestly believe[d] that I could transfer the funds, having issued a proposed invoice to the family and having not received any objection for some four months and indeed having met with Mr Domabyl Snr and Robert several times in the intervening period without any objection being made." (emphasis added)
105To this explanation Mr Berger added that it was his belief that it was a common and permissible practice to pay the various debts of an estate, including legal fees, prior to the grant of probate. In response the Law Society tendered a report from a very experienced probate practitioner, Mr Jeremy Glass. Mr Glass stated that there is a "common and permissible practice" enabling a solicitor to make payments from monies held in trust for a deceased estate prior to a grant of probate but only "where the payments are for the benefit of the estate or in due course of administration", and are made with the express authority of the executors in circumstances where there is no suggestion that the estate is insolvent. Mr Glass considered that this practice permits such payments as are necessary to "maintain, protect or preserve" estate assets but did not permit a solicitor to make a payment of his own costs from estate funds.
106To the extent that Mr Berger asserts that he met with Jan and Robert Domabyl in the period June to October 2012 and they raised no objection to the bill then I accept his evidence. As I have stated the Law Society did not call either of them. Such material as was available was not inconsistent with this assertion. However I am also satisfied that during those meetings Mr Berger did not tell them that he was proposing to deduct the fees from the proceeds of sale of Mrs Domabyl's unit. Mr Berger never asserted that he told them that. Nothing to that effect is adverted to in the letters he sent in June 2012. Mr Green's account of a meeting with Jan Domabyl only records Jan Domabyl becoming aware of the deduction after it had occurred.
107Mr Berger's assertion that he caused the $154,000 to be paid to himself as opposed to the firm because of Mr Freedman's objection to receiving the funds can be accepted as far as it goes. The Law Society disclaimed the contention that Mr Berger was dishonest in the sense that he acted to defraud his partners of their entitlements to fees. However Mr Freedman's and Ms Gopalan's objections extended far beyond their not wanting to receive the funds. They had strenuously objected to the firm levying the fees at all. They had pointed out that there was no fee disclosure or cost agreement justifying the fees. Mr Berger had accepted that. They had insisted that Mr Berger write off his time. Mr Berger told them he had. Mr Berger had led them to conclude that he would not levy the fees. They had made it clear that if he pursued recovery of the fees they would report the matter to the Law Society. Mr Berger had twice undertaken to the Law Society that he would comply with his disclosure obligations. Mr Berger must have appreciated that a further report from his fellow partners would have placed him in significant peril.
108Thus, Mr Berger had a strong motive to take steps to ensure that neither his fellow partners nor any other person with a proper knowledge of the regime for costs recovery became aware that he had billed Mrs Domabyl's accounts and recovered the fees. The manner in which the fees were billed in June 2012 and then partly paid for in October 2012 was undertaken in a manner to avoid or least minimise that type of scrutiny. Neither Mr Freedman nor Ms Gopalan was made aware of the bills. The bills did not advise the recipients of the ability to seek an assessment or the fact that they were not supported by any costs agreement. Only three months previously he had prepared and apparently "issued" a compliant fee disclosure (see [37]). The accounts did not advert to the possible deduction of the amount owing from the sale or a trust account, but instead left the question of payment open to some form of dialogue. The funds were obtained by diverting the sale proceeds before they were placed into the firm's trust account. Thus an audit of the trust account would not reveal that the payment was made. No one out of Mr Freedman, Ms Gopalan, Mr Green, Jan Domabyl or Robert Domabyl was made aware of the payment prior to or around the time that it was made. The fact that it occurred was only revealed to Mr Freedman and Ms Gopalan when the files were subject to close scrutiny in April and May 2013.
109As I have stated one matter on which the Law Society's allegation of dishonesty relied was the absence of any express instructions from anyone with a proper interest in the funds that were transferred. If all the evidence revealed was that Mr Berger had simply acted on the approval of Jan or Robert Domabyl to pay a properly issued bill issued prior to Mrs Domabyl's death then I would not have been satisfied that he acted knowing that his conduct was improper. The fact that the payment occurred after her death and he did not seek the approval of or raise it directly with the co-executor or the parent of the beneficiaries, much less the NSW Trustee, makes the position far worse, but does not of itself satisfy me that he was aware that his actions were so improper as to warrant immediate suspension.
110However when those matters are considered with some of the other circumstances surrounding the payment referred to by the Law Society then I am forced to conclude that he knew of the serious impropriety of the payment. The first of those circumstances has already been discussed, namely his conduct in concealing his actions in levying the bills and recovering the funds from his fellow partners.
111The second is that I do not accept that Mr Berger genuinely believed that he could make the payment based on the lack of objection from Jan and Robert Domabyl to his account. In context, their lack of objection was meaningless. Mr Berger knew they had not been told of any of the problems with levying the accounts in the first place, problems which Mr Freedman and Ms Gopalan had strenuously pointed out to him. Mr Berger's letters did not advise the recipients of their rights to seek assessment. Neither Jan nor Robert Domabyl were told of the proposal to deduct $154,000 from the settlement monies.
112One matter pointed to by Mr Davidson SC as negating the allegation of dishonesty on the part of his client was the suggestion in the letter of 5 June 2012 that the recipients obtain "independent advice" (see [60]). I have considered that submission but in the end this point does not assist Mr Berger. The contrast between the absence of any statements in the letter advising the recipients of their rights and the clear terms of the fee disclosure issued in March 2012, as well as the proper notification of rights to assessment in the other accounts sent in early 2013 (see [97]), is marked. Jan Domabyl was in Prague and Robert Domabyl was not a beneficiary. Neither of them had any real reason to go to the trouble of obtaining independent advice in circumstances where no basis for challenging the bill was made apparent to them. I am satisfied that Mr Berger was, by June 2012, fully cognisant of his non-compliance with the Act in failing to make a proper fee disclosure to Mrs Domabyl (or anyone else concerning her fees) and of the appropriate disclosures that should be made in a bill of costs. I am satisfied that he deliberately failed to disclose those matters.
113The third circumstance is that I am satisfied that Mr Berger was aware that he should not continue to use the power of attorney after Mrs Domabyl's death to complete the sale of her unit but did so regardless. It was accepted that the power of attorney ceased on Mrs Domabyl's death (In re Williams; Williams v Ball [1917] 1 Ch 1 at 7; Wellington Steam Ferry Company (Limited) (In Liquidation) v Wellington Deposit, Mortgage And Building Association (Limited) (1915) 34 NZLR 913 at 915; Powers of Attorney Act 2003, s 7). Mr Berger stated that he had no recollection of Ms Kuhni presenting the uncompleted part of the transfer for him to complete just prior to settlement (at [41]). I do not accept that he would not recall such an event. By October 2012 he knew that his acting for and rendering fees in respect of Mrs Domabyl was extremely contentious in the partnership. He knew that, contrary to the protestations of the other partners, he was about to obtain payment by diverting funds from the proceeds of sale. Mrs Domabyl had just passed away. In those circumstances I would expect, and am satisfied, that Mr Berger closely scrutinised every step in the process of effecting completion of the sale after her death.
114The submissions of the parties did not identify what steps a solicitor acting under a power of attorney to complete a sale should take in the event that their client dies prior to completion and the power of attorney lapses. However it does not appear to have been disputed that continuing to use the power of attorney and paying one's self from the proceeds was an improper course to take. The gravamen of the Law Society's allegation was that Mr Berger knew that. Thus it was put to him that:
"Q. You knew when you signed [the second page of the transfer] that you had no existing authority under the Power of Attorney?
A. I had not thought about that at that moment.
...
Q. You also knew that you stood to receive personally $154,000.00 from the sale?
A. Yes.
Q. You signed the document at page 406 in order to obtain $154,000.00 for yourself?
A. I can understand that view being derived at.
Q. It is true?
A. I didn't see it in those terms.
Q. That was dishonest, wasn't it?
A. In the present time I would say yes in hindsight."
115I reject Mr Berger's evidence that he did not think about his lack of authority under the power of attorney at the time he signed the second page.
116The fourth possible circumstance concerns the accuracy of various statements made by Mr Berger concerning his actions in 2013. The Law Society pointed to what it contended were false statements made to Mr Sofiak concerning this payment during 2013 as revealing an appreciation that his conduct was improper. It was submitted that at times he sought to justify the payments by asserting that they were approved by Mr Green when he knew that was false. Mr Sofiak's notes of an interview with Mr Berger on 7 June 2013 contain an entry in relation to the sixth payment (see below) that Mr Berger justified that payment by stating:
"The same thing as the others. I would say to Michael and say can I take the fees and he would say fine." (emphasis added)
117In context the reference to the "others" appears to be a reference to the first to fourth payments, yet Mr Berger did not assert in his evidence that Mr Green authorised those payments in advance and Mr Green denied that he did. However Mr Berger did not accept that he stated this to Mr Sofiak. In the absence of evidence from Mr Sofiak, I am not prepared to disbelieve him on that point. Bearing in mind Briginshaw's admonition against relying on "inexact" proofs, I am not satisfied that Mr Berger falsely asserted to Mr Sofiak that he had Mr Green's prior approval for the payment of $154,000 on 12 October 2012.
118I have already rejected Mr Berger's evidence as to the belief he held when causing this payment to be made. I am satisfied to the requisite standard that in causing that payment to be made Mr Berger knew that his conduct was seriously improper. He knew that no proper fee disclosure had been made and no form of relevant consent, agreement or even acquiescence had been obtained from any person to authorise the payment. He knew that the lack of express objection or complaint from Jan or Robert Domabyl in response to his invoices did not justify the payment that was made. He completed the sale relying on the power of attorney knowing that his authority to do so had lapsed and did so for the purpose of, inter alia, obtaining a personal benefit. For the reasons I have already explained I do not consider it necessary to determine whether this finding as to his state of mind attracts the label "dishonesty" in any of the senses described above. The critical question is whether the finding I have made as to his knowledge warrants upholding the decision to suspend Mr Berger's practising certificate. I will address that matter after considering the balance of the payments.