ORDERS
Having found that the conduct of the Respondent particularised in the Agreed Statement of Facts below amounts to professional misconduct within the meaning of s 297(1)(a) of the Legal Profession Uniform Law (NSW) (Uniform Law) and unsatisfactory professional conduct within the meaning of s 296 of the Uniform Law, the NSW Civil and Administrative Tribunal makes the following orders by consent:
• The Respondent be reprimanded;
• The Respondent be fined in the sum of $5,000;
• The Respondent pay the Applicant's costs as agreed or assessed;
• Pursuant to section 64 of the Civil and Administrative Tribunal Act 2013 (NSW), the disclosure of the name of any client of the Respondent referred to in the pleadings and evidence and Instrument of Consent filed by the parties, or any material fact or information that could identify those clients, is prohibited.
AGREED STATEMENT OF FACTS
DEFINITIONS
A means ACN yyy - Pty Ltd (in liquidation) (formerly AX Pty Ltd)
C means ACN zzz - Pty Ltd (in liquidation) (formerly CX Pty Ltd)
Law Practice means the law practice of Hoffmann & Koops (FN: 20561) located at Level 9, 185 Elizabeth Street Sydney NSW 2000
Office Account means the Commonwealth Bank of Australia Business Transaction Account in the name of "Harland Koops trading as Hoffman & Koops Lawyers" - [account details redacted]
Trust Account means the Commonwealth Bank of Australia account in the name of "Hoffman & Koops Trust Account - [account details redacted]
Uniform Law means the Legal Profession Uniform Law (NSW)
FACTS
• Since 29 January 2009, the Respondent has been the Principal of the Law Practice.
• The Office Account was used by the Respondent for the business transactions of the Law Practice.
• At all relevant times the Respondent maintained and used a separate savings account for his day-to-day personal expenses and transactions.
• From time to time, the Respondent made withdrawals from the Office Account that were in the nature of personal drawings.
• The Trust Account was opened by the Law Practice on 20 July 2017.
XY Litigation Matters
• In or about 2014, the Respondent was retained to act for Mr XY, members of Mr XY's family, and associated XY family companies in various proceedings in the Federal Court of Australia, including proceedings brought by or against the Commissioner of Taxation, the liquidators of: XYZ1 Pty Limited; XYZ2 Pty Limited; XYZ3 Pty Limited; and XYZ4 Pty Limited (the XY Litigation Matters). Mr XY and his family resided overseas.
The Payment Conversation and Mr XY's Instructions
• In the second half of 2015, shortly after Mr XY's engagement of the Respondent and at an early stage of the XY Litigation Matters, Mr XY had a conversation with the Respondent (the Payment Conversation) during which Mr XY:
• informed the Respondent that he wished to pay the Law Practice lump sum payments in advance for the legal work relating to the XY Litigation Matters (Upfront Payments);
• directed the Respondent not to hold any the Upfront Payments on trust for him and not to deposit the Upfront Payments into a trust account;
• informed the Respondent that he would pay the Upfront Payments directly to the Law Practice's Office Account.
(Mr XY's Instructions).
• During the Payment Conversation, Mr XY advised the Respondent that one of the reasons for Mr XY's Instructions was that he feared that the Australian Taxation Office might freeze money held on his behalf in his solicitor's trust account, which would stultify his ability to defend the XY Litigation Matters. This was notwithstanding that, at an early stage of the XY Litigation Matters, Mr XY had provided voluntary undertakings to maintain a minimum level of assets both in Australia and overseas, the terms of which expressly included a carveout which permitted Mr XY to pay his reasonable legal expenses.
• Mr XY's Instructions as per the Payment Conversation were not ever the subject of a written direction pursuant to s 137(a) of the Uniform Law to the effect that the Respondent was to deal with the Upfront Payments otherwise than depositing them into a trust account.
• During the Payment Conversation, the Respondent:
• informed Mr XY that the Law Practice did not operate a trust account; and
• agreed to accept the Upfront Payments on the basis that, in accordance with Mr XY's Instructions, the Upfront Payments would:
• not be held on trust or deposited into a trust account; and
• be paid directly to the Office Account
• The Respondent and Mr XY intended that the Upfront Payments would be treated as the Respondent's property to deal with as he saw fit, subject to the following conditions:
• The Respondent would keep a written record of: (a) credits or payments received by or on behalf of Mr XY; (b) debits or payments from that money for associated legal fees and disbursements; and (c) the balance at any given time;
• The Respondent would keep Mr XY apprised or: (a) future estimated legal costs and disbursements; and (b) presently payable legal costs and disbursements, at regular and appropriate intervals; and
• With Mr XY's authority, the Respondent would manage and pay all costs associated with the XY Litigation Matters as and when they became due.
(the Conditions).
• The Respondent considered that:
• his ethical and legal obligations to his client would be discharged in the event that:
• he paid legal costs and disbursements for the XY Litigation Matters as and when they fell due; and
• he complied with Mr XY's Instructions and the Conditions; and
• he was at liberty to treat the Upfront Payments from Mr XY as payments to which he was presently entitled, and Mr XY shared that understanding (which he did).
• The Respondent was of the incorrect view that all moneys paid by Mr XY into the Office Account, including payments in advance for legal services, were not "trust money".
Upfront Payments made by Mr XY and the Respondent's handling of them
• During the period 24 September 2015 and 15 June 2017, 31 deposits totalling $2,377,926.49 were made by or on behalf of Mr XY directly into the Office Account in respect of the XY Litigation Matters.
• The Respondent did not understand that $2,277,926.49 of the $2,377,926.49 deposited by or on behalf of Mr XY into the Office Account was, by reason of s 129(1)(a) of the Uniform Law, deemed to be trust money on the basis that, although it was not money "entrusted" by Mr XY to the Respondent to hold for him on trust, it was "money received by the law practice on account of legal costs in advance of providing the services".
• The $2,277,926.49 deemed to be trust money comprised:
• $1,427,926.49 for legal costs and disbursements in advance of the services being provided by the Law Practice; and
• $850,000 (paid in two tranches of $100,000.00 and $750,000.00 on 14 March 2017), being part of the sum of $1,000,000.00 payable by Mr XY to A and C on 23 March 2017 pursuant to a Deed of Settlement in Federal Court of Australia proceedings xxx of 2016.
• At all relevant times the Respondent held the mistaken belief that the sums referred to in paragraph 16 above were not trust moneys.
• The Respondent's belief was based on a misunderstanding of the operation of the trust accounting requirements in NSW.
• In the period 21 September 2015 to 27 June 2016:
• Seven deposits totalling $1,040,070.09 were made by or on behalf of Mr XY in connection with the XY Litigation Matters into the Office Account (and not a trust account) and the Respondent was aware of this;
• $940,070.09 of the sum of $1,040,070.09 deposited by or on behalf of Mr XY was for legal costs and disbursements in advance of the Law Practice providing those services and had been deposited into the Office Account, in accordance with Mr XY's Instructions, and the Respondent was aware of this;
• The Respondent was aware that the Office Account was not a "trust account" (as per s 128 of the Uniform Law); and
• $624,546.03 was disbursed by the Law Practice from the Office Account to the following people or entities associated with the XY Litigation Matters:
• Law Practice: $388,162.33;
• AB SC: $130,000.00;
• CD (of counsel): $60,000.00; and
• VWZ Solicitors: $46,383.70.
• In the absence of a written direction from Mr XY pursuant to s 137(a) of the Uniform Law confirming the terms of Mr XY's Instructions, the Respondent was required to deposit the Upfront Payments received from Mr XY (specifically, those identified at paragraph 19(b) above) into a trust account and disburse them strictly in accordance with the provisions of the Uniform Law.
• As at 27 June 2016 the balance of the Office Account was $391,263.33.
• The Respondent made the following withdrawals totalling $375,000.00 from the Office Account in the period 28 June 2016 to 14 July 2016:
• $200,000.00 on 28 June 2016;
• $125,000.00 on 5 July 2016; and
• $50,000.00 on 14 July 2016.
(the Withdrawals).
• At the time of the Withdrawals, the Respondent was the sole principal of the Law Practice.
• The Respondent intended to make each of the Withdrawals.
• Each of the Withdrawals were made by the Respondent:
• for business and investment related purposes;
• for purposes unrelated to the operation of the Law Practice; and
• at the discretion of the Respondent.
• Tax invoices corresponding with the disbursal of $624,546.03 to the people or entities referred to in paragraph 19(d) above were held by the Law Practice and the Respondent had sought and obtained approval from Mr XY in respect of those payments.
• The Respondent was aware that but for the deposits made by or on the behalf of Mr XY in the period 21 September 2015 to 27 June 2016, the Respondent could not have made any of the Withdrawals.
• The Withdrawals were made:
• for investment purposes at the Respondent's discretion;
• in circumstances where the Respondent believed that the money had been paid by Mr XY, subject to the Conditions and in accordance with Mr XY's Instructions, for the Respondent to use as his own and as he saw fit; and
• consistent with the Respondent's practice to periodically withdraw (as drawings which he believed he was entitled to) surplus funds accumulating in the Office Account.
Grounds 2-5 - XY Litigation Matters
• The Respondent's errors, namely:
• his misunderstanding of the relevant trust account provisions; and
• his failure to obtain a written direction from Mr XY confirming the terms of Mr XY's Instructions,
amounted to breaches of ss 136, 137, 146 and 147 of the Uniform Law in relation to the XY Litigation Matters.
• The Respondent's breaches of the said provisions were not reckless, deliberate or wilful but were the result of his mistaken belief that the Upfront Payments were not trust moneys.
• The Respondent's conduct as a whole in relation to the XY Litigation Matters fell substantially short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer and hence was professional misconduct within the meaning of s 297(1)(a) of the Uniform Law.
M Matter
• In about 2017, the Respondent was retained to act for M (M) in proceedings against the N Inc (M Matter).
• On 10 April 2017, the Law Practice entered into an agreement with H Pty Ltd (H) to provide expert evidence in the form of a property valuation report for the M Matter (H Agreement) and:
• It was a term of the H Agreement that H would provide the property valuation report for a fixed fee of $49,500.00 inclusive of GST.
• It was a further term of the H Agreement that an upfront fee equivalent to 50% of the fixed fee (being $24,750.00 inclusive of GST) was required to be paid to H before commencing work.
• On 10 April 2017, the Law Practice sent a tax invoice for legal costs and disbursements in the amount of $133,614.17 to M. That invoice included a disbursement of $49,500.00 described as "H" (the H Disbursement), which was the total amount sought by H under the H Agreement.
• On 12 April 2017, M paid the 10 April 2017 invoice in full by depositing the sum of $133,614.17 into the Law Practice's Office Account by electronic funds transfer.
• On 13 April 2017, the 50% upfront fee of $24,750.00 requested by H pursuant to the H Agreement was paid by the Law Practice by cheque drawn on the Office Account.
• On 10 July 2017, the remaining 50% balance of $24,750.00 was paid by the Law Practice to H by cheque drawn on the Office Account.
• The H Disbursement was "trust money" within the meaning of s 129(1) of the Uniform Law.
• The Respondent at all times held the mistaken view that the H Disbursement was not trust money.
Grounds 2-5 - M Matter
• As a result of the Respondent's mistaken belief that the H Disbursement was not trust money, the Respondent breached ss 136, 137, 146 or 147 of the Uniform Law.
• The Respondent's conduct as a whole in relation to the M Matter fell short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer and was hence unsatisfactory professional conduct within the meaning of s 296 of the Uniform Law.
SIGNATURES
Signed by
Name Anthony Lean
On behalf of The Council of the Law Society of New South Wales
Date February 2021
Signed by
Name Jennifer Shaw
On behalf of The Respondent
Date February 2021
REGISTRY DETAILS
NCAT Administrative and Equal Opportunity Division and Occupational Division
Postal address: PO Box K1026, Haymarket NSW 1240
DX 11539 Sydney Downtown
Street address: Level 10 John Maddison Tower, 86-90 Goulburn Street, Sydney NSW 2000
Telephone: 1300 006 228
Email: aeod@ncat.nsw.gov.au
Website: www.ncat.nsw.gov.au