By application filed 27 March 2015 the Council of the Law Society of New South Wales (the Council) seeks a finding that Loris Hendy (the Solicitor) is guilty of professional misconduct and consequential orders.
When the proceedings were commenced they were governed by the Legal Profession Act 2004 (the Act). Although that Act was repealed by s167(a) of the Legal Profession Uniform Law Application Act 2014 as from 1 July 2015, these proceedings may be continued in this Tribunal by virtue of cl. 26 of Schedule 4 to the Legal Profession Uniform Law Application Legislation Amendment Act 2015.
The grounds for the application as stated in it were that the solicitor failed to pay or cause to be paid a debt owed by the incorporated legal practice Garrett Walmsley Madgwick Pty Ltd (GWM) trading as GWM Law of which she was a legal practitioner director. The debt in question was owed to MJD Valuers. It was originally $47,505 but merged into a judgment in Gosford Local Court of $50,260.45 plus costs on 17 April 2012.
The solicitor, who was born on 31 December 1956, was admitted to practice as a Legal Practitioner on 9 February 1990 and became a solicitor director of GWM on 14 March 2002. At that time there was a co-solicitor director of GWM, namely Robert Gillroy (Mr Gillroy).
As it appears the Solicitor and Mr Gillroy effectively continued the practice of GWM Law in partnership until 30 June 2011 when Mr Gillroy failed to renew his practising certificate. Thereafter he continued to work in the practice for several months as a lay associate and the solicitor continued as the sole solicitor director of GWM. Significantly, according to ASIC records, he remained a director of GWM at least until September 2014.
In the meantime however, the solicitor and Mr Gillroy had come adversely to the attention of the Council. There were proceedings against them before the Administrative Decisions Tribunal (ADT) which related to their failure to make superannuation payments in respect of employees and their failure to pay Group Tax and Goods and Services Tax. The ADT found that, as at 30 June 2007, their failure involved over $200,000.
The Tribunal, on 1 April 1999, made a finding of professional misconduct against both the solicitor and Mr Gillroy. Each of them was publicly reprimanded and ordered to pay costs. In addition, in respect of Mr Gillroy only, the following order was made:
3. That Robert Wilcox Gillroy be permitted to continue practising as a Solicitor on the condition that he shall within 28 days of the date of this decision provide the Law Society of New South Wales with the following written undertakings:
(a) That he will undertake a course in Practice Management that is approved by the Society, such course to commence prior to 31 March 2011 (or if such a course is unavailable prior to that date, the first course thereafter), and will in any event complete the course to the satisfaction of the Society by 1 July 2011.
(b) That he will undertake a course in Ethics that is approved by the Society that commences prior to 31 March 2011 (or if such a course is unavailable prior to that date, the first course thereafter), and will in any event complete the course to the satisfaction of the Society by 1 July 2011.
(c) That he will on and from a date 28 days from the date of his undertakings participate in the Senior Solicitors Program or such other program of mentoring by a Solicitor of no less than 15 years admission as is approved by the Law Society, and will accept mentoring by a Solicitor nominated by the Society for that purpose for a period of no less than one (1) year from the date of his undertaking, and will confer and co-operate with that Solicitor in the conduct of that program.
(d) That he will bear the costs of the courses referred to in paragraphs (a) and (b) and the program referred to in paragraph (c).
The matter before us originated in a complaint by Mr Todd Hadley of MJD Valuers to the Legal Services Commissioner on 25 February 2014. The Legal Services Commissioner referred the complaint, which concerned the unpaid debt referred to above, to the Law Society for investigation.
In reply to a letter from the Law Society the solicitor wrote, on 5 August 2014:
RE: TODD HADLEY
I refer to the complaint by Todd Hadley of MJD valuations.
I understand that the complaint is a consumer dispute and that there are no allegations of unsatisfactory professional conduct or professional misconduct on my part. If I am incorrect in this regard I seek clarification and I reserve the right to respond further.
MJD were instructed to do valuations by Bob Gillroy in August 2011. The valuations were evidence of loss in a litigation claim commenced by Bob on behalf of a client who ostensibly had a claim against Bankwest. At the time MJD valuations were instructed I had no involvement in the litigation. Attached is a copy of the instructions requested by Todd Hadley and given by Bob.
The litigation was speculative and I had made it clear to Bob that I would support the litigation provided that the firm was not liable for any disbursements. The litigation was always conducted subject to the advice of Counsel and I was led to believe the case had merit and good chances of success.
Bob worked increasingly in Sydney on this litigation from early 2011. Soon after that he indicated he no longer wished to be a lawyer and did not renew his practising certificate on 1 July 2011. This left me with the carriage of the litigation and the firm. I was left with debts that I thought had either been paid or of which I was unaware. Bob abandoned the practice in November 2011. In April 2013 Bob was struck off the Role of Solicitors in relation to other matters.
As I am the only remaining solicitor director of GWM I can only assume that is why I am the subject of Mr Hadley's complaint.
At all stages I was advised by Bob and the client that MJD would be paid. I was advised on many occasions that an arrangement for payment had been made with Todd Hadley. MJD obtained judgement against the firm in April 2012 when they also issued a creditors statutory demand. MJD have been in a position to wind the company up since that date but have not done so.
As a result of the decision of Bob and the failure of the client to pay anything towards the costs of his litigation I have had to sell my home and have lost everything I have worked for in the last 30 years. My marriage has broken down and I am in the process of closing the business (which is no longer trading) as I have had to reduce costs to such a level where I cannot meet the costs of running the business.
I have had many conversations with Todd Hadley where I have explained the situation to him. He has had recourse to the usual debt recovery procedures. I have indicated that I am working towards recovering outstanding debts to be able to pay him. I am still in that process.
I take my duties as a solicitor very seriously which in part is why I am in the position I am in. The litigation commenced by Bob in the firm name had to be maintained and I had a duty to both the court and to the client. I withdrew from the record prior to the decision being handed down but the litigation was not successful notwithstanding the assurances of Bob and Counsel.
In response:
1. I understand that the complaint is a consumer dispute only.
2. I concede the debts are owed to Mr Hadley by GWM.
3. The matter in which GWM were acting was in the hands of another solicitor, and my former co-director, Bob Gilroy, until he abandoned the practiced November 2011.
4. I took over all of Mr Gilroy's files, including the file relating to the matter in which Mr Hadley remains unpaid on and from November 2011;
5. I never engaged or Mr Hadley, nor was I responsible for the matter until about November 2011 when, as with most of Mr Gilroy's other matters, it became my responsibility by default. I did deal with Mr Hadley from that date, and made attempts to acquire funding from the client without success.
6. If the matter had been with me from the start I would not have instructed Mr Hadley on behalf of the firm unless I had made appropriate financial arrangements.
7. I nonetheless acknowledge in full the debts claimed by Mr Hadley andam doing everything within my power to meet them. Mr Hadley has been kept fully informed of my efforts in this regard, which remain ongoing.
Yours faithfully
GWM Lawyers & Conveyancers
(signed)
Loris Hendy - Solicitor
At the hearing before us, the Council sought to prove its case by reading the affidavit of Anne-Marie Foord sworn 19 March 2015 and tendering (Exhibit "A") the bundle of documents exhibited to the affidavit. The affidavit and documents establish the underlying facts outlined above to our comfortable satisfaction. However, nothing in the Council's evidence undermined the explanation given by the solicitor in her letter of 5 August 2014.
Mr Brigden, who appeared for the solicitor, read her affidavit of 26 May 2015 upon which she was cross-examined. The paragraphs of the affidavit which we regard as relevant to the matter before us are:
7. In early 2011 Bob had taken on a large litigation matter against Bankwest. The client came to us through Bartercard which Bob had introduced to the business and which we took on in order to expose the business to a different source of clients. I was happy for him to take on the matter and to act on a speculative basis on condition that the matter did not cost the firm in any other way, and the client to pay any disbursements. Bob agreed with these conditions. The litigation was speculative, and the Respondent consented to Bob acting in the matter conditional upon the ILP incurring no liability for disbursements, and that these were to be the sole responsibility of the client(s).
8. Bob became very involved in the matter and spent increasing amounts of time in Sydney with the client and the barrister. Bob himself paid the barrister a significant amount of money for fees which led me to believe that the case had merit. I was told by Bob and the client that the barrister had given advice that the case had good prospects.
9. In around July 2011 there were numerous complaints about Bob by clients, in circumstances where Bob had failed to act for them in an ethical manner. I believe that Bob realised that if he continued in practice he would be taken to task by the Law Society.
10. Bob determined that he would not continue in practice. I was somewhat relieved by that as trying to manage him and the unhappy clients was very time consuming and frustrating as I did not have all answers and was certainly not getting assistance from Bob to resolve the issues.
11. Bob did not renew his practising certificate in July 2011. I agreed to put my name as solicitor on the record for the Bankwest litigation but not to fund the litigation. I asked Bob and the client repeatedly to give me a comprehensive briefing on the matter but this was never forthcoming. I nevertheless kept an eye on the pleadings and the court dates as best I could.
12. As a result of Bob's departure from practice we took further cost cutting measures.
13. Bob remained a non active director of GWM following the lapsing of his practising certificate. He had promised that his role from then on would be to source work for the firm. It had never been my intention or desire to be a sole principal of a law firm but that was what I was left with.
14. Todd Hadley Pty Ltd and Sean McGill Pty Ltd t/as MJD Valuers ("MJD") were instructed to do valuations by Bob in August 2011. The valuations were to evidence loss in the litigation claim against Bankwest. The terms of engagement are evidenced in an email from Bob to MJD on or about 9 August 2011, which is included at page 47 of Exhibit "AMF-1".
15. I was not copied in on this email. Bob engaged MJD on 9 August 2011, after his practising certificate had expired. I had neither knowledge of, nor involvement in the engagement or its terms until after liability for the debt had arisen. I was not privy to it until 27 January 2012 when Todd Hadley of MJD contacted the office to speak with "a partner regarding an outstanding account which was 5 months overdue".
16. Upon becoming aware of the claim and the judgement, I immediately liaised with the complainant, the client and Bob, in an effort to ascertain the terms of the engagement and to facilitate payment. I sent emails and made phone calls to ascertain what they proposed to do about paying Todd Hadley and why this debt had been incurred in the first place. At the time Bob engaged Todd Hadley the firm was in no position to pay such a disbursement and I have no doubt that Bob believed that the client would pay the cost of the valuations as they were vital for his claim.
…
21. It became apparent that the client would not pay the debt.
…
23. GWM has no capacity to pay the judgement debt. If the case were otherwise, it would be paid. GWM is no longer actively trading. Its sole function at present is the recovery of outstanding debts with a view to meeting its financial commitments, including the judgement the subject of the complaint, before being either wound up or placed into administration or liquidation.
24. In addition, and consequent upon cessation of trading, I have no capacity to pay personally. In fact, all my substantial personal assets have been disposed of or encumbered and I have had to borrow money to pay debts. I have substantial debts. I didn't draw any substantial wages from GWM since before Bob left. My marriage of 20 years has also broken up due to the financial pressure we have endured as a result of the failure of the business and the loss of the family home. I have no substantial assets, and at a time in my life where I might be considering retirement, I have substantial debts.
In cross-examination the solicitor acknowledged that Mr Gillroy refused to be mentored following the decision of the ADT and that in effect she did nothing about this. She answered "probably" to the suggestion that if she had acted affirmatively and properly after 1 July 2011 no problem would have arisen, agreeing that she should have acted sooner.
It should be noted that the exchange of email referred to in para 14 of the solicitor's affidavit indicates that the engagement of MJD Valuers involved the valuation as at two separate dates viz. 3 November 2008 and 'current market' of some 15 properties. It would have been obvious to anyone that a substantial fee was being incurred.
Sections 140 and 141 of the Act are relevant to this case:
140 Incorporated legal practice must have legal practitioner director
(1) An incorporated legal practice is required to have at least one legal practitioner director.
(2) Each legal practitioner director of an incorporated legal practice is, for the purposes of this Act only, responsible for the management of the legal services provided in this jurisdiction by the incorporated legal practice.
(3) Each legal practitioner director of an incorporated legal practice must ensure that appropriate management systems are implemented and maintained to enable the provision of legal services by the incorporated legal practice:
(a) in accordance with the professional obligations of Australian legal practitioners and other obligations imposed by or under this Act, the regulations or the legal profession rules, and
(b) so that those obligations of Australian legal practitioners who are officers or employees of the practice are not affected by other officers or employees of the practice.
(4) If it ought reasonably to be apparent to a legal practitioner director of an incorporated legal practice that the provision of legal services by the practice will result in breaches of the professional obligations of Australian legal practitioners or other obligations imposed by or under this Act, the regulations or the legal profession rules, the director must take all reasonable action available to the director to ensure that:
(a) the breaches do not occur, and
(b) appropriate remedial action is taken in respect of breaches that do occur.
(5) A contravention of subsection (3) or (4) or both by a legal practitioner director is capable of being professional misconduct.
(6) Nothing in this Division derogates from the obligations or liabilities of a director of an incorporated legal practice under any other law.
(7) The reference in subsection (1) to a legal practitioner director does not include a reference to a person who is not validly appointed as a director, but this subsection does not affect the meaning of the expression "legal practitioner director" in other provisions of this Act.
141 Obligations of legal practitioner director relating to misconduct
(1) Each of the following is capable of being unsatisfactory professional conduct or professional misconduct by a legal practitioner director:
(a) unsatisfactory professional conduct or professional misconduct of an Australian legal practitioner employed by the incorporated legal practice,
(b) conduct of any other director (not being an Australian legal practitioner) of the incorporated legal practice that adversely affects the provision of legal services by the practice,
(c) the unsuitability of any other director (not being an Australian legal practitioner) of the incorporated legal practice to be a director of a corporation that provides legal services.
(1A) A legal practitioner director is not guilty of unsatisfactory professional conduct or professional misconduct under subsection (1) if the director establishes that he or she took all reasonable steps to ensure that:
(a) Australian legal practitioners employed by the incorporated legal practice did not engage in conduct or misconduct referred to in subsection (1) (a), or
(b) directors (not being Australian legal practitioners) of the incorporated legal practice did not engage in conduct referred to in subsection (1) (b), or
(c) unsuitable directors (not being Australian legal practitioners) of the incorporated legal practice were not appointed or holding office as referred to in subsection (1) (c),as the case requires.
(2) A legal practitioner director of an incorporated legal practice must ensure that all reasonable action available to the legal practitioner director is taken to deal with any unsatisfactory professional conduct or professional misconduct of an Australian legal practitioner employed by the practice.
(3) (Repealed)
Ms Groenewegen submitted that the facts proved demonstrate multiple breaches by the solicitor of sections 140 and 141, particularly of ss140(3) and (4) and s141(2). As we understand her submissions Ms Groenewegen puts the Council's case on the basis that the failure to pay the debt due to MJD Valuers evidences rather than of itself constitutes breaches of the sections. If the solicitor had properly fulfilled her responsibilities, Gillroy would not have been able to act as he did.
For the solicitor, Mr Brigden pointed to the fact that Mr Gillroy, in contracting for the valuations acted contrary to the instructions of the solicitor and outside the scope of his express authority. He also referred to the circumstance that, as the solicitor was aware, Mr Gillroy was conducting the litigation with the advice of Senior Counsel. It is also relevant, we think, to take account of the fact that Mr Gillroy at the time he contracted the liability was a former solicitor of considerable experience and had been for some years the (presumably trusted) partner of the solicitor.
We were referred to two cases; Council of the Law Society of NSW v Xenos [2012] NSWADT283 and Council of the Law Society of NSW v Narayanasamy [2014] NSWCATOD 18, but the facts in those cases are far removed from this case and we find the decisions of little assistance.
We are satisfied that, in the period post July 2011, the solicitor was on notice that Mr Gillroy, as an employee of the firm, required close supervision. This notice was derived from the findings of the ADT against him, his failure to comply with his undertaking to accept mentoring, and his decision not to renew his practising certificate.
That she failed to supervise him adequately was made manifest by the unfunded, and substantial, liability to which he exposed the legal practice.
The question is whether, in the circumstances, the solicitor's breach of sections 140 and 141 of the Act constitutes either unsatisfactory professional conduct or professional misconduct. Sections 496,497, and 498 of the Act throw light upon the issue:
496 Unsatisfactory professional conduct
For the purposes of this Act:
unsatisfactory professional conduct includes conduct of an Australian legal practitioner occurring in connection with the practice of law that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent Australian legal practitioner.
497 Professional misconduct
(1) For the purposes of this Act:
professional misconduct includes:
(a) unsatisfactory professional conduct of an Australian legal practitioner, where the conduct involves a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence, and
(b) conduct of an Australian legal practitioner whether occurring in connection with the practice of law or occurring otherwise than in connection with the practice of law that would, if established, justify a finding that the practitioner is not a fit and proper person to engage in legal practice.
(2) For finding that an Australian legal practitioner is not a fit and proper person to engage in legal practice as mentioned in subsection (1), regard may be had to the matters that would be considered under section 25 or 42 if the practitioner were an applicant for admission to the legal profession under this Act or for the grant or renewal of a local practising certificate and any other relevant matters.
498 Conduct capable of being unsatisfactory professional conduct or professional misconduct
(1) Without limiting section 496 or 497, the following conduct is capable of being unsatisfactory professional conduct or professional misconduct:
(a) conduct consisting of a contravention of this Act, the regulations or the legal profession rules,
(b) charging of excessive legal costs in connection with the practice of law,
(c) conduct in respect of which there is a conviction for:
(i) a serious offence, or
(ii) a tax offence, or
(iii) an offence involving dishonesty,
(d) conduct of an Australian legal practitioner as or in becoming an insolvent under administration,
(e) conduct of an Australian legal practitioner in becoming disqualified from managing or being involved in the management of any corporation under the Corporations Act 2001 of the Commonwealth,
(f) conduct consisting of a failure to comply with the requirements of a notice under this Act or the regulations (other than an information notice),
(g) conduct of an Australian legal practitioner in failing to comply with an order of the Disciplinary Tribunal made under this Act or an order of a corresponding disciplinary body made under a corresponding law (including but not limited to a failure to pay wholly or partly a fine imposed under this Act or a corresponding law),
(h) conduct of an Australian legal practitioner in failing to comply with a compensation order made under this Act or a corresponding law.
(2) Conduct of a person consisting of a contravention referred to in subsection (1) (a) is capable of being unsatisfactory professional conduct or professional misconduct whether or not the person is convicted of an offence in relation to the contravention.
The Common Law test for professional misconduct propounded in Allinson v General Council of Medical Education and Registration [1894] 1 QB 750 and followed in a multitude of cases in this state is also helpful : conduct which would reasonably be regarded as disgraceful and dishonourable by professional brethren of good repute and competency.
Although the solicitor's breach of the two sections of the Act is capable of constituting professional misconduct (s498(1)(a)), in our opinion her conduct falls far short of the test propounded in Allinson. In effect, her conduct is confined to a lack of adequate supervision of an employee to whom she had given explicit instructions and whom she had some reason to trust. This occurred over a relatively short period. On that basis, we are not satisfied that professional misconduct is established.
However, having particular regard to the fact that the solicitor knew that Mr Gillroy had not honoured his undertaking to the ADT regarding mentoring, we do find her guilty of unsatisfactory professional conduct. We are satisfied that a reprimand (which is the sanction sought by the Council), is appropriate.
As we have made a finding of unsatisfactory professional conduct and there is no evidence of 'exceptional circumstances', the Council is entitled to payment of its costs in accordance with s566(1) of the Act.
[2]
Finding and orders
1. That the solicitor is guilty of unsatisfactory professional conduct.
2. The solicitor is reprimanded.
3. The solicitor to pay the Council's costs of and incidental to these proceedings as agreed or assessed.
[3]
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
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Decision last updated: 23 February 2016