Clifton v The Council of the Law Society of New South Wales

Supreme Court of NSW|2021-08-30|Before: Adamson J, Cavanagh J

Solicitors: Bartier Perry Lawyers (Plaintiff) The Law Society of New South Wales (Defendant) File Number(s): 2021/226453

Introduction

By summons filed on 9 August 2021, the plaintiff, David Clifton (the practitioner) seeks to appeal against, or seek a review of, the following two decisions made by the defendant, The Council of the Law Society of New South Wales (the Council), on 6 August 2021: 1. not to renew his practising certificate (the Refusal Decision); and 2. to appoint a manager to the practitioner's practice (the Manager Decision).

The background to the practitioner's qualification, admission and early employment in the legal profession

The practitioner was born in 1949. He was the managing director of a family car and spare parts dealership which was, in 1992, wound up by the Australian Taxation Office (ATO). From 1993-2000, the practitioner worked in an administrative position at the University of New England. During this period, he completed a law degree. On 6 April 2001, when the practitioner was in his early fifties, he was admitted to practice as a lawyer and obtained a practising certificate.
The practitioner obtained a position as an employed solicitor in a partnership at Glen Innes. In May 2003, two years post-admission, he became a partner at the firm. Ten years later, the partnership was dissolved, which left the practitioner with significant debts in the order of $235,000.

The establishment of the practice

In 2013, he established his own firm, Clifton Legal (the practice), of which he was sole principal. The practice had offices in Armidale and Tenterfield. In May 2016, the practitioner employed William Warrick as a bookkeeper. In late 2017, the practitioner sold the practice's Tenterfield office, which was not profitable. The liabilities exceeded the sale price, which, in turn, affected the practitioner's own financial position. As a consequence of the sale, his liabilities included the obligation to pay out his former employees' leave entitlements. By about early 2018, the financial position of both the practice and the practitioner was parlous.
At or prior to that time, the practitioner was retained by the executors of the estate of the late Ms Jean Tregurtha (the Tregurtha Estate), which was valued at approximately $1.9m.

The misconduct

In May 2018, Mr Warrick, who was concerned about the practice's pressing debts for which there were no available funds, suggested to the practitioner that they use some of the funds in the practice's trust account to pay the debts and that they create false invoices to cover the withdrawals. The practitioner, who had been unable to extend his overdraft facility, agreed to the proposal and instructed Mr Warrick to make withdrawals and create false invoices.
During the period 21 May 2018 to 20 September 2018, the practitioner caused to be withdrawn from the practice's trust account and paid into his office account a total of approximately $50,000, which comprised the following amounts, all of which were subsequently repaid to the trust account: Date Amount withdrawn from trust account When repaid to trust account Trust account from which $ withdrawn Purpose for which monies used by practitioner 21 May 2018 $8,892 28 September 2018 The Tregurtha Estate Pay third parties, including the ATO, web maintenance and rent for the practice's office. 31 May 2018 $6,206 28 September 2018 The Tregurtha Estate Pay wages and credit card debt for the practice 19 July 2018 $8,533 Soon after withdrawn. General trust account Reduce overdraft to enable disbursements to be made. 10 August 2018 $4,725 Soon after withdrawn. General trust account Ditto 29 August 2018 $6,010 Soon after withdrawn. General trust account Ditto 31 August 2018 $10,735 25 October 2018 The Tregurtha Estate Ditto 20 September 2018 $6,200 25 October 2018 The Tregurtha Estate Ditto

The practitioner admitted that each of these payments from the practice's trust account to his office account constituted a breach of the provisions of the Uniform Law and the Uniform Rules set out in the table below. Section of Uniform Law Substance of provision 135 Unauthorised dealing with trust money 138(1)(b) Funds disbursed from trust account without authority 146 Intermixing of trust and office money 147(2)(a) and rr 45 and 47 of the Uniform Rules Making withdrawals not recorded in trust account payments cash book or debited or charged to a specific trust account 148 Causing deficiencies in trust account and trust account ledger without reasonable excuse 145 Authorising trust account money to be used for the payment of debts of the law practice

The practitioner admitted that his conduct was dishonest and amounted to professional misconduct, both at common law and within the meaning of the Uniform Law.
In respect of the amounts withdrawn from the trust account for the Tregurtha Estate, the practitioner authorised false tax invoices, as follows, to be prepared, which showed that professional costs had been incurred, in circumstances where no such costs had been incurred. Date of false invoice Amount of false invoice 2 May 2018 $15,100 14 August 2018 $10,735 20 September 2018 $6,200

The Tribunal found (consistently with the practitioner's ultimate admissions in cross-examination) that the purpose of the creation of the false tax invoices was to conceal the unauthorised transactions.
In June 2018, the practitioner and his law practice received approval for an overdraft facility with the National Australia Bank.
In 2019, the practitioner, who turned 70 that year, decided to try to sell the practice on the basis that he would be employed, either on a full-time or part-time basis, for the following five years.

The discovery of the misconduct

In July 2019, Chee Kit Thong, a trust account investigator for the Law Society, conducted a routine trust account inspection of the practice's trust account and discovered (the practitioner having not self-reported these breaches) the unauthorised withdrawals from the trust account which are set out in the table above. Mr Thong's report of 26 July 2019 was considered by the Council.

The Council's response to the misconduct and the subsequent actions of the practitioner

On 6 September 2019, the Council resolved to make complaints to the Legal Services Commissioner (LSC) about the practitioner's conduct with respect to the unauthorised transactions and also to request that the LSC consider making a recommendation to suspend the practitioner's practising certificate for the year ending 30 June 2020 under s 278(1) of the Uniform Law. On 13 September 2019, the LSC referred the complaints to be investigated by the Council. On 24 September 2019, the LSC informed the Council that he did not consider immediate suspension of the practitioner's practising certificate to be warranted in the public interest pending completion of an investigation into the complaint and any disciplinary action or proceedings.
On 3 October 2019, the Council resolved to appoint Penelope Waters as supervisor of the practice's trust account for a period of two years unless terminated earlier by the appointment of a manager.
On 9 December 2019, Clifton Legal Pty Ltd was registered. It became the corporate vehicle through which the practice was conducted. On that date, the practitioner and Toni Clifton, the practitioner's wife, were appointed directors of the company. They remained the only directors until William Scott Waterson was appointed as a director on 3 June 2021. In addition to becoming a director, the practitioner became an employee of the practice. Since the incorporation of Clifton Legal Pty Ltd, the practitioner and Ms Clifton have each owned 50,000 "A" class shares in the company.
On 21 May 2020, the Council resolved to commence disciplinary proceedings against the practitioner in the Tribunal. On or about 1 July 2020, the Council renewed his practising certificate for the 2020-2021 year. I apprehend that this occurred because of the decision of the LSC not to suspend his practising certificate but to await determination of the proceedings in the Tribunal.
On 30 September 2020, Mr Warrick left his employment with the practice. Since November 2020, the practice has generated sufficient income to warrant the employment of three full-time solicitors, including the practitioner, and three part-time staff, including a new bookkeeper. In about December 2020, the practitioner's discussions with a prospective purchaser stalled, although the practitioner was hopeful, at the time of the Tribunal hearing in May 2021, that these discussions would be resumed.

The proceedings in the Tribunal

On 19 November 2020, the Council commenced proceedings in the Tribunal, alleging professional misconduct in relation to the unauthorised withdrawals from the trust account and the creation of false invoices in relation to trust transfers. It sought an order that the practitioner's name be removed from the roll. The application was amended on 22 February 2021 to change the allegation from an allegation that he caused funds to be transferred to one that he authorised funds to be transferred.
In January 2021, the practitioner filed affidavits in the Tribunal from Gerard Kelly (a solicitor in Armidale who had met the practitioner when he was an academic at the University of New England, where the practitioner was studying law); Philip Theobald (a barrister who has known the practitioner for about 15 years); and Samuel Notley (a chartered accountant, who had been the practice accountant of the firm with which the practitioner was associated in 2003 and who is the practitioner's personal accountant). Each of these witnesses deposed as to his good fame and character. The practitioner relied on their evidence in the Tribunal and on their updated evidence in this Court. In this Court, the practitioner also relied on the affidavit evidence of Peter O'Connor (a barrister, who had been regularly briefed by the practitioner since April 2001), which is referred to further below.
By 31 March 2021, the practitioner's past tax debt had been paid in full. On 18 May 2021, the practitioner applied to renew his practising certificate for the 2021-2022 year. He sought renewal as a principal of the practice. As the practice is an incorporated law practice, the Uniform Law requires a principal to be a director.
The hearing before the Tribunal proceeded on 25 May 2021. The practitioner gave evidence and was cross-examined. In his evidence in chief, he admitted that he had authorised Mr Warrick to create false invoices but maintained that he had not done so for the purposes of concealment but, rather, because he believed that his accounting software required this to be done before monies could be removed from his trust account. However, in cross-examination, he ultimately admitted that he had authorised Mr Warrick to produce the false invoices to create a paper trail to conceal the true nature of the transactions.
The practitioner gave evidence in the Tribunal that he had one conversation with Mr Warrick authorising him to make an unauthorised withdrawal from the trust account but said that he had no recollection of further conversations. Mr Warrick's evidence in the Tribunal was that he had at least three conversations with the practitioner about the withdrawals, the first in May 2018 and the second and third in July or August 2018, in which Mr Warrick told the practitioner that he was proposing to take more money out of the trust account. The Tribunal accepted Mr Warrick's evidence of the three conversations.
Mr Warrick gave evidence, which the Tribunal accepted, that the money transferred from the trust account had been repaid to the trust account on the dates set out in the table above.
The Tribunal reserved its decision and published reasons and made orders on 27 July 2021.
While the Tribunal accepted the practitioner's expressions of deep regret and the candour with which he answered questions put to him, it was not satisfied that he sufficiently understood the seriousness of his conduct. The Tribunal was concerned that the practitioner could not say why he had not self-reported before the routine trust account inspection conducted by the Law Society had discovered the breaches; why he had not informed the executors and trustees of the Tregurtha Estate that he had misappropriated the funds of the estate; and why he continued to employ Mr Warrick throughout 2019 until September 2020.
The Tribunal, at [64] of its reasons, said: "Mr Clifton conceded that he had not voluntarily reported his conduct to the Law Society or to the Office of the Legal Services Commissioner (OLSC) before Mr Thong conducted his routine file verification investigation of the Law Practice commencing on 9 July 2019. Even at that stage Mr Clifton did not bring the transactions to Mr Thong's attention, but waited until Mr Thong had identified the transactions from his own investigations. Mr Clifton also said that he had not informed the executors and trustees of the Tregurtha Estate that payments had been made from the estate's trust funds to pay the debts of the Law Practice."
The Tribunal found that the practitioner was not presently fit to practise and that this was "likely to be the case probably indefinitely." Accordingly, it concluded that the appropriate action was to recommend that the name of the practitioner be removed from the roll.
On 28 July 2021, the day after the Tribunal had published its reasons and made orders, the Council wrote to the practitioner seeking submissions on why his application for a practising certificate ought be granted. On 3 August 2021, the practitioner responded by submitting that the status quo ought be maintained pending determination of the proceedings in the Court of Appeal, which would determine his fitness to remain on the roll.
On 6 August 2021, the Council resolved that the practitioner was not a fit and proper person (as required by s 45(2) of the Uniform Law) and, accordingly, refused his application for a practising certificate and appointed a manger to the practice. As referred to above, the Refusal Decision and the Manager Decision are the subject of the present application to this Court. In its reasons for its resolutions, the Council addressed the findings of the Tribunal.
The Council's conclusions, as set out in paragraph 32 of the reasons for its resolutions, were as follows: "The Tribunal found the [practitioner] to be guilty of professional misconduct, that he is not currently fit to practise and that this is likely to be the case probably indefinitely and made orders recommending that the name of the [practitioner] be removed from the Roll. Having regard to the factors detailed in rule 13 of the General Rules, Council is satisfied that: i. the Tribunal's findings that the [practitioner] is not currently fit to practise and that his conduct was dishonest means that he is not a person of good fame and character; ii. the [practitioner] has been the subject of disciplinary proceedings concerning contraventions of the Uniform Law in which findings adverse to him were made; iii. the [practitioner] was found to have breached the Uniform Law and [Uniform] Rules concerning trust money or trust accounts, including sections 135, 138(1)(b), 145, 146, 147(2)(a) and 148 of the Uniform Law and Rules 45 and 47 of the [Uniform] Rules in the Tribunal; iv. paragraphs 47 and 48 of MN Legal and Management Consultants Pty Ltd v The Council of the Law Society of New South Wales; Michail v The Council of the Law Society of New South Wales [2018] NSWSC 1410) discuss the principles of 'inherent' requirements. The Tribunal's findings that the [practitioner] acted dishonestly, contravened various provisions of the Uniform Law and General Rules, the [practitioner's] conduct amounts to professional misconduct both under common law and statute and the order pursuant to s302(1)(f) recommending removal from the roll demonstrates that the [practitioner] does not meet the inherent requirements of practice as an Australian legal practitioner; and v. the Tribunal found the [practitioner] was not currently fit to practice and that this is likely to be the case indefinitely."
The Council said further at paragraph 33: "Having regard to the findings made in the Tribunal, Council is satisfied the [practitioner] is not a fit and proper person to hold a practising certificate and refuses to renew the [practitioner's] practising certificate for the year ending 30 June 2022."
The Council also gave reasons for the Manager Decision on 6 August 2021. It said of present relevance: "Circumstances warranting external intervention 6. Section 326 of the Uniform Law lists the circumstances warranting external intervention. In particular, s 326(a) states the following circumstance as warranting external intervention, namely, where a legal practitioner associate involved in the law practice ceases to hold a current Australian practising certificate. 7. Having regard to the Council's resolutions on 19 August 2021 to refuse to issue the Respondent Solicitor with a practising certificate for the year ending 30 June 2022, the Law Practice would be without a principal solicitor. It is in the protection of the interests of the clients of the Law Practice, the employees, the owner and the general public that a manager be appointed to wind up the affairs of the Law Practice. 8. The Respondent Solicitor made efforts to sell the Law Practice in 2019 but discussions with a prospective purchaser had stalled in December 2020. The Respondent Solicitor informed the Tribunal that he was 'hopeful that they could recommence shortly.' Council notes that the impact of the current Covid-19 pandemic may make it more difficult to find purchasers for the Law Practice. 9. A manager for the Law Practice should be appointed as Council is of the opinion that: a. there is a need for an independent person to be appointed to take over professional and operational responsibility for the Law Practice as the Respondent Solicitor, principal of the Law Practice, no longer holds a current Australian practising certificate; b. issues relating to the Law Practice's trust records have been the subject matter of adverse findings in the Tribunal. In Council of the Law Society of New South Wales v Clifton (2021) NSWCATOD 101, the Tribunal handed down its decision on 27 July 2021 and found the Respondent Solicitor breached the Uniform Law and Legal Profession Uniform General Rules 2015 (General Rules) concerning trust money or trust accounts, including ss135, 138(1)(b), 145, 146, 147(2)(a) and 148 of the Uniform Law and rr45 and 47 of the General Rules; and c. the appointment of a manager is necessary to protect the interests of clients in relation to trust money or trust property. The appointment of the manager is necessary to wind up the existing trust account and protect the interests of clients in relation to the trust money or trust property. … 13. Council resolves that the terms of the appointment as manager to be for a term of 12 months, to provide monthly written reports as requested by the Director, Legal Regulation and itemised billing for costs and disbursements. Council also notes that it is appropriate to recover the costs of the Manager's appointment from the Law Practice and to provide a copy of the itemised bill to the Director, Legal Regulation. The fees for the manager appointed to the Law Practice to be an hourly fee exclusive of GST of $375 plus disbursements. 14. Council notes that should another person be identified as suitable to takeover and be the Principal of the Law Practice, then the appointment of a manager can be revisited." [Footnotes omitted.]
On 11 August 2021, Mr Waterson, who is both an employee and, since his appointment on 3 June 2021, a director of the practice (referred to above), was issued with a practising certificate by the Law Society that allows him to practise as a principal of the practice. Mr Waterson's practising certificate includes an authorisation to receive trust money on behalf of the practice. Mr Waterson holds 500 "F" class shares in the practice, which (according to the ASIC extract for Clifton Legal Pty Ltd) are valued at $500.

The proceedings in this Court

As referred to above, the practitioner, by summons filed on 9 August 2021, appeals, and seeks review of, the Refusal and Manager Decisions in this Court.
On 9 August 2021, the practitioner applied to Cavanagh J, as Duty Judge, for a stay of the Refusal Decision and the Manager Decision. His Honour made directions and listed the application for hearing on 12 August 2021. On that day, his Honour made orders staying both decisions pending the determination of these proceedings and listed the matter for hearing on 30 August 2021.
On 13 August 2021, the practitioner's solicitors wrote to the Council and inquired whether it intended to revoke the Manager Decision, having regard to the practising certificate issued to Mr Waterson referred to above. On 17 August 2021, they also wrote to the Council, inquiring whether the Council would consider issuing the practitioner with a practising certificate as an employee of a law practice. On 18 August 2021, the Council responded to these two letters by pointing out the difficulties in issuing a practising certificate to the practitioner or revoking the Manager Decision, pending the Court's determination of the summons.
The practitioner swore an affidavit on 18 August 2021 in which he deposed to his changed attitude to his misconduct as a result of further reflection and consideration of the Tribunal's reasons. In this affidavit, he accepted all of the findings of the Tribunal (apart from the question of ultimate fitness). He acknowledged that the Tribunal was correct to find that he "did not have full insight and did not truly understand the errors of [his] conduct." He also deposed: "I now believe, through a deep and repeated process of reflection in the light of the hearing, my cross examination and consideration of the reasons of the Tribunal - which set out in stark and objective terms events which I had failed to fully grapple with - I now believe that I no longer lack the insight into my conduct that the Tribunal correctly found at the time of its decision."
In his affidavit, the practitioner has addressed the Tribunal's reasons in which the Tribunal has expressed reservations about his insight and stated that he now accepts the Tribunal's analysis. He accepted that the purpose of the creation of the false invoices was to conceal the unauthorised withdrawals from his trust account.
In his affidavit read in this Court, the practitioner addressed the Tribunal's findings about his conversations with Mr Warrick, in part, as follows: "28 I have reflected on the evidence at the Tribunal and in particular Mr Warrick's evidence that he had two conversations with me in July and August 2018 at which further withdrawals from the Trust Account were discussed. I have no reason not to accept Mr Warrick's evidence as correct and I fully accept the Tribunal's finding in this regard. Having reviewed the findings of the Tribunal in relation to this issue and reflected on those findings I accept that I was made aware of the proposal for further withdrawals from the Trust Account at our regular discussions in at least July and August as stated by Mr Warrick. The horror and shame of what I had agreed to I believe completely clouded my recollection of the precise details as to the timing and details of those other discussions with Mr Warrick in July and August 2018 as l continued to try and block it out of my mind. 29. The Tribunal at [39] also stated: 'For these reasons we also find it difficult to accept Mr Clifton's evidence that he only became aware of the extent of the borrowings when he read the Trust Report and that he felt "stunned".' On further reflection I accept the Tribunal's finding that I could not have been stunned by the amount withdrawn from the trust account without authorisation. I accept that I had more than one conversation with Mr Warrick about withdrawing trust money to meet the debts of the practice, but I never faced up in my own mind to what that must mean about the total amount withdrawn. On further reflection I believe this was because I did not want to face up to what was happening and I did not want to know the full extent of the amount withdrawn. I accept that I could not have been stunned and that in truth l was not even willing to admit to myself or face up to the fact that the amounts withdrawn were large and that while I had not calculated the precise amount in my head, the amount would be in the order of that which I read in the trust report."
The practitioner also deposed in his affidavit that if he were faced with a similar situation today, he would seek other financial means (such as asking for an overdraft extension) rather than using the money in his trust account. He said that if he made any unauthorised withdrawals, he would report this to the Law Society, as required by s 154 of the Uniform Law.
He also addressed the Tribunal's criticism of him for continuing to employ Mr Warrick until September 2020, as follows: "I accept that I continued to employ Mr Warrick until September 2020 and that it evidenced a lack of insight on my part in continuing his employment. I was motivated by a misplaced loyalty to him, given our prior friendship before he started working as a bookkeeper for me. As I had not fully faced up to my conduct, and his role in that conduct, I continued to regard him as a competent accountant without fully facing up to the dishonest plan he suggested, and which I acceded to, and his role in facilitating the unauthorised withdrawals from the trust account. On reflection I believe I continued to employ Mr Warrick because I had not yet fully accepted my own wrongdoing in the events Mr Warrick was also involved in. I accept it was wrong for me to continue employing Mr Warrick for as long as I did."
The practitioner also sought, in his affidavit, to explain why he had initially rejected the suggestion that his conduct was dishonest and had only accepted it in cross-examination. He said that he had never thought of himself as dishonest and that "this was a hard truth to accept about [himself]."
The practitioner submitted that, as Mr Waterson had a practising certificate which permitted him to act as principal of the practice and receive trust money on behalf of the practice, it was no longer necessary for the practitioner to practise as a principal and that he would only seek a practising certificate that allowed him to work as an employed solicitor in the practice. The practitioner also deposed that he has removed himself as a co-signatory on the practice's trust account and that he undertakes not to be a co-signatory on any future trust account.
The practitioner also deposed: "My intention is to remain in practice for two more years, with a view to selling the Law Practice and ensuring that the goodwill of the practice, associated with me, remains and transitions to the new owner of the business. After that time, I hope to retire from legal employment."
The practitioner also adduced affidavit evidence from those deponents on whose evidence he had relied in the Tribunal, as well as from Mr O'Connor, who deposed to the effect of the Tribunal's decision on the practitioner and to the practitioner's acknowledgment of his "terrible error" and his regret at his misconduct. Mr O'Connor also deposed that from around 2018, the practitioner was not his "normal self". Mr O'Connor considered that he was suffering from depression in 2018. The deponents as to the practitioner's character depose as to his professional integrity and competence over a lengthy period.

Consideration

Before addressing the parties' submissions, I propose to summarise the relevant principles.

General principles

First, disciplinary proceedings are sui generis: Weaver v Law Society (1979) 142 CLR 201 at 207 (Mason J); [1979] HCA 35; McCarthy v Law Society of New South Wales (1997) 43 NSWLR 42. They are not entirely civil since they bear some relationship with the criminal law. Their primary purpose is the protection of the public although, from the point of view of the practitioner, the effect may be punitive.
Second, the question whether a practitioner is a fit and proper person to hold a practising certificate for the period in question is a different question from whether a practitioner's name ought be removed from the roll. As Spigelman CJ explained in New South Wales Bar Association v Murphy (2002) 55 NSWLR 23; [2002] NSWCA 138 (Murphy) at [25], the latter is based on "probable permanent unfitness." Thus, the determination which I make in these proceedings is distinct from the question for the Court of Appeal, following the recommendation of the Tribunal that the practitioner's name ought be removed from the roll.
Third, the protection of the public does not solely concern whether this practitioner is likely to commit the same misconduct again but includes protection of the reputation of the profession and the salutary effect which disciplinary proceedings are intended to have, not only on the practitioner concerned, but also on the profession generally and the way in which the conduct is regarded by the profession. The need to protect public confidence in the profession is an important purpose of disciplinary proceedings. The way in which unethical conduct is dealt with in such proceedings is, accordingly, significant to the reputation of the legal profession.
In Hercules v Phease (1994) 2 VR 411, Marks J (Fullagar J agreeing) said at 423: "The regulation of the legal profession and supervision over disciplinary procedures is an integral part of the judicial arm of government which is dependent for its proper service to the public, not only on the integrity of the courts, but on the integrity of all those who practise before them and provide legal services."
Basten JA in NSW Bar Association v Meakes [2006] NSWCA 340 explained what was comprehended by the phrase "protective purpose" at [114], as follows: "That being said, it may also be noted that the protective purpose may operate in different ways. First, by its direct effect upon the practitioner, the order will either remove that practitioner from membership of the profession (by disbarment or suspension) or will provide a deterrent against the repetition of such conduct (in the case of a fine or reprimand). There are also important but indirect effects to be considered. First, the order reminds other members of the profession of the public interest in the maintenance of high professional standards. Secondly and more specifically, it may give emphasis to the unacceptability of the kind of conduct involved in the disciplinary offence. Thirdly, by speaking to the public at large, it seeks to maintain confidence in the high standards of the profession. The underlying purpose is not self-aggrandisement on the part of the profession, but a recognition of the social value in the availability of the services provided to the public, combined with an understanding of the vulnerability of many who require such services."
Thus, disciplinary proceedings have analogues in the criminal law concepts of specific deterrence (to deter the offender from re-offending); general deterrence (to deter others from offending in like manner); denunciation (registering the opprobrium with which the conduct is regarded); and educating the public and the profession as to appropriate standards: Rich v Australian Securities and Investments Commission (2004) 220 CLR 129; [2004] HCA 42 (ASIC v Rich) at [41] (McHugh J). While disciplinary proceedings, unlike criminal proceedings, do not have as one of their purposes, punishment of the practitioner, this can be an inevitable consequence of orders which are designed to protect the public: see the discussion in ASIC v Rich, which rejected the protective/punitive distinction as a false dichotomy, at [30]-[33] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ) and [42]-[43] (McHugh J).
Fourth, the standards which apply to the operation of solicitors' trust accounts are particularly significant in the context of the reputation of the profession. In Barwick v Council of the Law Society of New South Wales [2004] NSWCA 32 (Barwick), a case not dissimilar from the present, Ipp JA (Tobias and Stein AJA agreeing) said: "117 The Appeal Panel dealt with the appellant's misuse of trust account funds as follows: '200. In that [regard], we emphasise the numerous serious transgressions admitted started with the taking of trust moneys without authority and in an irregular way (to put it at its best light). It is well accepted that the misuse of trust account funds is a matter that will ordinarily call for striking off. 201. The trust account is "sacred": "trust accounts should be sacred, so that moneys paid into the account should only be paid out to the persons to whom the money belonged, or as directed": In re a Practitioner [1941] SASR 48 at 51. 202. It is no reply that the practitioner intended to pay the money back, and did so. Conduct of this kind remains "an affront to the sanctity of a practitioner's trust account": In re a Practitioner (1982) 30 SASR 27 at 31 per King CJ. King CJ went on to say at 31, responding to the circumstances of that case (short term holding of client funds before payment into the trust account): 'The public can feel confidence in legal practitioners and their handling of their money only if they know that there is involved no element of judgment on the part of the practitioner, and their money must remain in his Trust Account until it is disbursed in accordance with their direction; because no matter how good the intentions of a practitioner might be, no matter how confident he might be that the money can be made good, whenever a client's money is deliberately used for a purpose other than the purpose for which the client entrusts it to the practitioner, there is an act of dishonesty on the part of the practitioner and one which exposes the client to some risk as to his money. There are two aspects of such misuse of trust moneys held for clients (1) the clients are exposed to some risk, great or small, depending upon the situation, as to their money, and (2) there is a dishonest misuse by the practitioner of money which does not belong to him for his own purposes and, of course, free of interest.' To similar effect, see Dupal v Law Society of New South Wales (unreptd, [NSWCA], 26 April 1990) per Handley JA at 23: "Sympathy for [the solicitor] and for the tragedy that he has brought on himself and his family by his inability to live up to the high standards which this Court and the profession demand of solicitors can not be allowed to deflect this Court from doing its duty": cited with approval by Sheller JA in Law Society of New South Wales v Bannister (1993) 4 LPDR 24 (CA) at 30.' [118] In my opinion, the views expressed by the Appeal Panel are entirely correct. The trust and confidence which clients place in their solicitors are a basic element of the administration of justice in this country. Violations by legal practitioners of trust accounts betray that trust and harm public confidence in the legal system. This explains the sacrosanct nature of trust accounts and the acute concern that courts have when practitioners, in breach of their fiduciary obligations, misuse trust moneys for their own benefit (see, for example, Law Society of New South Wales v Bannister). [119] The deliberate falsification of file notes for the purpose of concealing his misconduct from the Law Society, his use of his employee, Mrs Hayward, to construct the skein of deceit that he was contriving, and the careful placement, after the event, of misleading notes, letters and other documents, reveal aspects of the appellant's character fundamentally inimical to fitness to practise as a legal practitioner. He thereby displayed a reprehensible lack of integrity, a willingness to deceive and a willingness to instruct his employee to participate in his dishonest schemes."

The parties' submissions

Although I have summarised above the arguments put by Mr Beaumont on behalf of the practitioner and Ms Morgan's response, it is necessary to outline them in more detail.
Mr Beaumont submitted, first, that whereas, at the time of the Tribunal's decision, the practitioner had limited insight into his wrongdoing, he has since appreciated, through reflection and contemplation of the Tribunal's reasons, the extent of his wrongdoing and his failure to acknowledge its full extent. Thus, his rehabilitation through the salutary effects of the disciplinary proceedings is complete and there is no need to restrict his right to practise, particularly in circumstances where he will no longer be principal of the practice and undertakes not to operate any trust account in future.
Secondly, Mr Beaumont submitted that it was relevant to have regard to the circumstance that the Council did not seek from the Tribunal an order for suspension of the practitioner's practising certificate and can thus be taken to have been unconcerned with the practitioner continuing to practise for the period up until the Refusal Decision. He submitted that, in these circumstances, the appropriate course was for this Court to set aside the Refusal Decision and make orders in terms of the amendment set out above. He contended that it would be then for the Court of Appeal to determine, in due course, whether the practitioner was a fit and proper person to remain on the roll of practitioners.
In response, Ms Morgan argued that the practitioner had failed to address several matters in his evidence before this Court and that, accordingly, the Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 inference arose, in accordance with Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418-19 (Handley JA), that evidence on these topics would not have assisted him. Ms Morgan identified the following.
First, she submitted that although the practitioner in his evidence addressed the impact of the disciplinary proceedings on himself, his family and his staff, he did not address, or show insight into, the effect of his misconduct on public confidence into the integrity of the legal profession or his clients' trust in him, the practice or the legal profession generally. Secondly, she contended that the practitioner had failed to identify the weakness of character which had led to his misconduct and how he could address such weakness to prevent further misconduct. Thirdly, she submitted that the practitioner had failed to address what he would do, in future, if confronted with the situation with which he was faced in 2018: pressing financial demands with no access to bank finance. Fourthly, she relied on the circumstance that the practitioner had not given any evidence to this Court that he had told any of his clients (including the executors of the Tregurtha Estate) of his misconduct, notwithstanding the observations made by the Tribunal regarding this failure at [64] of its reasons.
Ms Morgan argued that the plaintiff had not discharged the onus which lay on him to demonstrate that he was a fit and proper person to hold a practising certificate in light of his failure to address the matters referred to above. Further, she submitted that the gravity of the misconduct and its proximity in time to the present application prevented the practitioner from discharging the onus.
In reply, Mr Beaumont submitted that there was no support in the authorities for a requirement that the practitioner engage in a "ritual incantation" of matters such as a consciousness of the effect of the wrongdoing on the reputation of the legal profession. He submitted that it was sufficient that the practitioner had amply demonstrated that he had full insight into the misconduct and no longer posed a threat to the public.

Whether the practitioner has demonstrated that he is a fit and proper person to hold a practising certificate

As referred to above, the practitioner was not cross-examined. Thus, I have had no opportunity to assess his evidence other than on the page. Further, as a matter of fairness, I am not entitled to reject his evidence, since it was not relevantly challenged: see the discussion in Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 1 NSWLR 1 (Allied Pastoral) at 23-24 (Hunt J).
Although the practitioner was not cross-examined, he was nonetheless on notice of the Council's submissions as to what his evidence had failed to address, since this was made plain in Ms Morgan's written submissions, which were filed on 27 August 2021. Thus, there was no requirement for him to be cross-examined about these matters, adequate notice having been given in this way: Allied Pastoral at 16D-F, 26F.
Having regard to the lack of cross-examination, I accept the practitioner's evidence as to his present beliefs, intentions and insight. I accept that, in future, if he was short of funds, he would endeavour to get bank or other finance, rather than have resort to his trust account. However, he has not given evidence about what he would do if those alternative sources of finance were unavailable (as they proved to be at the time of the misconduct).
I cannot infer that the practitioner has told any of his clients about his misconduct since he has failed to address this question, although it was raised by the Tribunal and in Ms Morgan's submissions. I regard the lack of evidence on this matter as significant, particularly having regard to the duty of candour which practitioners owe to the Court: see the consideration of authorities in Council of the NSW Bar Association v Power (2008) 71 NSWLR 451; [2008] NSWCA 135 at [17]-[18] and [28] (Hodgson JA, Beazley and McColl JJA agreeing). I infer that the executors of the Tregurtha Estate were valuable clients to the practice. They were among the victims of the practitioner's misconduct, which constituted breaches of the fiduciary duties which he owed to them (as clients and as beneficiaries of money held by him on trust for them in his trust account), as well as breaches of the Uniform Law. Had he disclosed his misconduct to them, I infer that he would have given evidence to that effect. I also infer that disclosure to such clients would give rise to a real prospect that the executors would terminate the practice's retainer and move the work to another firm (as they may have felt bound to do by reason of the duties which they owed to potential beneficiaries under the deceased's will to properly administer the estate).
The misconduct was situational. The practitioner was in dire need of funds and had not obtained approval for an extension of his overdraft at the time of the first withdrawal from the trust account on 21 May 2018. He resorted to the trust account to assist his own, and the practice's, financial position. I infer that there was a risk, given that the first withdrawal was used, at least in part, to pay tax debts, that if the tax debts had not been paid, there would have been a prospect of the practitioner being made bankrupt at the suit of the Commissioner for Taxation, which would itself have prejudiced his right to practise. In these circumstances, the practitioner's evidence that, if he needed funds in future, he would try to get them from a bank, does not engender confidence in what he would do if confronted with the same situation as he faced in May 2018.
I confirm that I have had regard to the evidence of witnesses who gave unchallenged evidence as to the practitioner's good fame and character as well as his acknowledgement of his wrongdoing and his shame at what he has done. He is entitled to have this evidence taken into account in his favour. However, in my view, its weight is tempered, and outweighed, by the admitted gravity of the practitioner's misconduct. Further, those who know the practitioner and have previously held him in high regard, might be inclined to regard his misconduct as an isolated matter which does not affect their views of him. However, when his misconduct is held up to public view and judged by those who do not know him, it is inevitable that it would be regarded as not only as serious but also as rendering him unfit to practise, at least for a limited period. If no such consequences flowed from his misconduct, it would have a tendency to bring the legal profession into disrepute.
I confirm that I have also had regard to the conduct of the Council as described above. It is plain from the Council's referral of the matter to the LSC in September 2019 that it considered the gravity of the misconduct to warrant immediate suspension. However, the LSC took a different view: namely, that this question ought await determination of "any disciplinary action or proceedings". The Council waited until the proceedings before the Tribunal had been determined. Following publication of the Tribunal's decision on 27 July 2021, the Council immediately sought submissions from the practitioner as to why his pending application for a practising certificate ought not be refused. In doing so, the Council was complying with its obligation to accord procedural fairness. As soon as it had heard from the practitioner, the Council refused his application and appointed a manager.
I do not discern any indication from the Council's conduct that it was doing other than acting in accordance with the LSC's determination in September 2019. It cannot be taken to have acquiesced in any assumption that the practitioner was fit to practise at any time since the offending conduct since its application in the Tribunal was for an order removing the practitioner from the roll. Such an order carries with it a presumption of permanent unfitness (New South Wales Bar Association v Cummins (2001) 52 NSWLR 279; [2001] NSWCA 284 at [25]-[27] (Spigelman CJ, Mason P and Handley JA agreeing)); that is, that the practitioner is not only not fit to practise at the time of the order but is unlikely ever to be fit to practice: see Murphy, above.
Even apart from the deficiencies in the practitioner's evidence, and taking account of the mitigating factors which Mr Beaumont has identified, I consider the practitioner's misconduct to be so grave as to prevent the practitioner from discharging the onus which rests on him to prove that he is a fit and proper person to hold a practising certificate, at least for the year ended 30 June 2022. In resorting to his trust account for ready funds, he breached the standards set out in Barwick above as to the operation of his trust account. As in Barwick, the practitioner aggravated the wrongdoing of allowing unauthorised withdrawals to be made from his trust account by involving himself in acts (in the present case, the creation of false invoices) which were intended to conceal his misconduct. Also, as in Barwick, I consider "the deliberate misuse of trust moneys and the deliberate falsification of the files [to] overwhelm these subsequent mitigatory circumstances" (Ipp JA at [120]).
I accept that the practitioner has better insight into his wrongdoing than he had when giving evidence in the Tribunal. The risk that the practitioner, in the circumstances currently proposed (that he no longer be a principal of the practice and that he work only as an employed solicitor), will resort to the trust account if in need of funds may be adjudged to be relatively low. However, the protection of the public is not limited to this matter. I consider that the egregious conduct of the practitioner was such that it would be an affront to the reputation of the legal profession were he permitted to continue to practise so soon after the misconduct.

Whether the Manager Decision ought be set aside

I turn now to address the challenge to the Manager Decision. Mr Beaumont submitted that if the practitioner was unsuccessful in obtaining a practising certificate, various prohibitions would follow in terms of law practice, including that the practitioner would not be able to be employed by the practice, remain as one of its directors or share in its profits or receipts. He submitted that none of these matters warranted the retention of a manager of a practice, particularly as Mr Waterson was now the principal of the practice.
Ms Morgan relied on the Council's letter dated 18 August 2021, referred to above. She submitted that it was possible to envisage a situation where, once the practitioner had resigned and sold his shareholding in the practice, the practice would no longer need a manager. However, she contended that as long as the practitioner was a disqualified person (that is, that he did not have a practising certificate) and remained a director and significant shareholder of the practice, the Manager Decision ought not be set aside. However, she indicated that the Council continued to review the matter and accepted that there would be a natural endpoint when no manager would be required. In response, Mr Beaumont submitted that Mr Waterson was already the principal of the practice and that, if the first issue (whether the practitioner was entitled to a practising certificate) was decided against the practitioner, the practitioner would become a disqualified person and the statutory prohibitions would apply of their own force.
Presently, the practitioner and his wife own all the "A" class shares in the corporation through which the practice is conducted. While Mr Waterson is now the principal of the practice, there will be a transition period during which the consequences of the statutory prohibitions will take effect on the practice. In the meantime, I am not persuaded that it is no longer necessary to have a manager of the practice, for the protection of the clients of the practice. However, I accept the force of Ms Morgan's submissions that the need for such a manager is likely to be finite and will be kept under review by the Council.

Costs

Mr Beaumont asked me to reserve the question of costs. I indicated that I would make a provisional costs order but preserve the parties' rights to seek a different order within a defined period.

Orders

For the reasons given above, I make the following orders: 1. Dismiss the summons filed on 9 August 2021, as amended on 30 August 2021. 2. Subject to either of the parties applying to my Associate in writing for a different order within seven days, order the plaintiff to pay the defendant's costs of the proceedings. 3. Note that the stay ordered by Cavanagh J on 12 August 2021 is hereby dissolved.

Amendments 22 September 2021 - "9 May 2021" replaced by "9 August 2021" - coversheet, [1] and [88] 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: 22 September 2021

Legal Profession Act 1987(NSW)

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Cases Cited (22)