Council of the Law Society of New South Wales v Terepo

The Solicitor's responses

1. The Solicitor has not filed a Reply to the Application. There is however an email form the Solicitor to the Law Society's Professional Standards Department ("Professional Standards") dated 4 November 2015 (being annexure "B" to the Affidavit of the Law Society's A M Foord sworn 3 March 2017, Exhibit D). There is a further letter of the Solicitor to the Law Society undated but received by it on 8 July 2016 (which appears at page 77 of Ms Foord's affidavit).
2. The Solicitor's 4 November 2015 email responds specifically to a letter of the Law Society of 14 October 2015 (which appears at page 7 of Ms Foord's affidavit) whereby the Solicitor is informed that a complaint had been initiated against her arising from a report of the trust investigator, Mr Michalski. The letter then details the complaint in similar terms to what became grounds 1, 2 and 5 the Law Society's Application. What the Solicitor says in answer to the complaint is dealt with in these Reasons under Consideration and Findings.
3. The Solicitor's second letter appearing at page 77 of Ms Foord's affidavit was in response to a further letter of the Law Society of 9 November 2015 (appearing at page 59 of Ms Foord's affidavit). The content of this further letter from the Solicitor is discussed below

Jurisdiction

1. The Application falls to be determined under the provisions of the Uniform Law, because the complaint the subject of the Application was made in October 2015; that is; after the July 2015 commencement of the Uniform Law.

Evidence

1. The Application first came before us for hearing on 18 August 2017. Mr Pierotti appeared for the Law Society. There was no appearance by or on behalf of the Solicitor, despite her being called outside the hearing room at the commencement of the hearing.
2. Following Mr Pierotti's concession that he was unable to prove service of the Application, the Presiding Member attempted to telephone the Solicitor on the office and mobile numbers appearing on pages 10 and 74 of Ms Foord's affidavit. Neither call was answered.
3. In the absence of proof of service of the Application, the 18 August 2017 hearing date was vacated.
4. The Application was ultimately re-listed for hearing on 23 February 2018. Mr Pierotti again appeared for the Law Society. There was, again, no appearance by or on behalf of the Solicitor.
5. On that occasion the Law Society tendered: 1. an Affidavit of Service of Jeffrey David Edwards affirmed 29 November 2017 (Exhibit A) 2. two letters to the Solicitor dated 11 December 2017 (Exhibit B) and 20 December 2017 (Exhibit C). 3. the Affidavit of Anne-Marie Foord ("Ms Foord") sworn 3 March 2017 (Exhibit D), 4. an affidavit of the trust account investigator, John Michalski ("Mr Michalski") sworn 3 February 2017 (Exhibit E); and 5. an affidavit of Robin Spencer Brooks ("Mr Brooks") sworn 1 June 2016 (Exhibit F).
6. Mr Pierotti did not read page 140 of Ms Foord's affidavit, nor the final 10 pages of Mr Brooks' affidavit. With those exceptions the tendered documents were admitted into evidence.
7. There is no affidavit of the Solicitor and no other evidence adduced on her behalf.

A. Has service been effected? Has the Solicitor been made sufficiently aware of the proceedings?

1. The Guideline governing proceedings in this Division of the Tribunal, which was issued in August 2017, requires an Applicant to give to a Respondent a copy of an Application stamped by the Tribunal as soon as practicable, and preferably within three working days. An Application, and any material relied on, is to be served by one of the methods set out in the Civil & Administrative Tribunal Rules 2014 ("Tribunal Rules").
2. The requirement for giving to a Respondent a sealed copy of an Application (and material relied upon) within three working days is repeated in clause 4.1 of Tribunal's Procedural Direction 4.
3. Clause 13.1 of the same Procedural Direction provides: Failure to appear 13.1 The Tribunal may conduct a hearing despite the failure of the Respondent to appear, if the following matters are proved to the satisfaction of the Tribunal: (a) service or substituted service on the Respondent of the Application and material relied on; (b) expiry of the period allowed for filing a Reply, or any extension ordered by the Tribunal, (c) expiry of the period allowed for compliance by the parties with any directions made by the Tribunal and (d) the provision to the Respondent of sufficient notice of hearing .
4. At the commencement of both the hearing on 18 August 2017 and the one on 23 February 2018 there was no appearance by or on behalf of the Solicitor, despite her name being called outside the hearing room on both occasions.
5. Attempts by the Presiding Member to telephone the Solicitor from the hearing room on 18 August 2017 were unsuccessful.
6. Mr Edwards in his affidavit (Exhibit A) deposes to delivering to the Solicitor personally at an address in north-western Sydney on 29 November 2017 a letter from the Law Society dated 26 October 2017, the Application for Disciplinary Findings and Orders filed with the Tribunal on 6 March 2017, the Law Society's written submissions, a blank form of Reply to Application for Disciplinary Findings, the affidavit of Ms Foord sworn 3 March 2017, the affidavit of Mr Michalski sworn 3 February 2017, and the affidavit of Mr Brooks sworn 3 August 2017. He says that at the time of the service he asked the person served whether she was Sesilia Fehoko Terepo, and the person replied "Yes. That's me. I already have these."
7. The Law Society also relies upon two letters that it caused to be forwarded to the Solicitor dated 11 and 20 December 2017. In addition, it noted that the Solicitor had not attended any Legal Profession Directions List mentions.
8. We are satisfied, on the basis of the uncontroverted evidence of Mr Edwards and the two December 2017 letters, that the Application has been personally served on the Solicitor and that the other documents referred to in that affidavit have also been personally served. We are further satisfied that: 1. the time provided for the filing of a Reply has expired 2. the time specified for compliance by the parties with our directions has expired, and 3. sufficient notice of the hearing has been given to the Solicitor.
9. On that basis, we proceeded with the hearing of the Application in the absence of the Solicitor.
10. However we subsequently made the direction to the Law Society set out in the final paragraph of these Reasons.

B. Withdrawals from Trust Account; Misappropriation; statutory breaches (Application Grounds 1 and 2)

1. These are the Grounds referred to in the Application as "File 41771" and "File 41888" concerning misappropriation, causing a deficiency in trust funds, and breaches of sections 255, 255A, 263 and 264 of the 2004 Act.
2. The Law Society's trust account investigator Mr Michalski deposes to having conducted an inspection of the Solicitor's trust account records between 15 October 2014 and 14 September 2015 as a result of which he produced a report dated 14 September 2015.
3. In the course of his enquiries, Mr Michalski ascertained that the Solicitor's law practice maintained a general bank account (an account number ending in 931) and a general trust account (an account number ending in 794).
4. His enquiries revealed that the Solicitor had travelled overseas in November 2014 but had, before leaving, provided access to her Law Practice trust account to her husband, who was neither a solicitor nor an employee of the practice. Whilst she was overseas unauthorised withdrawals from the trust account totalling $13,020.50 were made.
5. Mr Michalski deposes to email communications between himself and the Solicitor between October 2014 and April 2015, and to the report of Andre Christian from Christian Fox Accountants, a firm that had been appointed by the Law Practice as External Examiner. Mr Christian's report for the year ended 31 March 2015 included the following revelations and recommendation: "It was advised and identified that $12,920.50 has been used from trust in error by husband of practitioner (not a lawyer) who wrongly assumed the trust was the practice's general account, of which he was a cheque signatory (Law Society not advised) while the practitioner was overseas on extended medical leave. The funds have since been returned to the trust and a new bookkeeper appointed to update records. We recommend a more comprehensive inspection of the records to be carried out."
6. Mr Michalski deposes to making arrangements with the Solicitor for him to attend the Law Practice on 5 August 2015 following his review of Mr Christian's report. Mr Michalski attended the practice on 19 August 2015 accompanied by a Simon Ward, trust investigator.
7. Mr Michalski deposes that the Solicitor confirmed to him that whilst she was overseas in November 2014 she provided access to her trust account to her spouse who was neither an employee of the practice nor a solicitor; further, that when the trust account was reconciled in June 2015 a deficiency of $9,000 was identified which had arisen from unauthorised withdrawals by her spouse; additionally, to an amount of $9,000 being deposited into the trust account on 29 June 2015 to cover the deficiency.
8. Mr Michalski then conducted a review of the trust account with Mr Ward and identified a number of unauthorised transactions which he details on pages 8 and 9 of the report exhibited to his affidavit ("JJM1"). Those withdrawals were for various amounts from $50 to $2,000, and they occurred between 3 November 2014 and 2 February 2015.
9. Copies of statements for the trust account of the practice appear at Tab 6 of the Exhibit to Mr Michalski's affidavit. It is an ANZ Bank account statement entitled "Sesilia Fehoko Terepo/ASLMJ Lawyers Law Practice Trust A/C". The account number ends with 794.
10. The first transaction that the Law Society contends is unauthorised and which appears on page 8 of the Exhibit to Mr Michalski's affidavit is a transfer dated 3 November 2014 being transfer number 055594 to an account number ending with 931 in the amount of $200. That transaction is shown in the ANZ trust account statement and records a transfer to an account number ending with the 931. Tab 7 to the Exhibit of Mr Michalski's affidavit contains ANZ Bank statements in respect of that account. It is styled "Sesilia Fehoko Terepo trading as LMJ Lawyers" and the statements indicate on page 4 a deposit of $200 being transfer number 055594 from the trust account.
11. Other entries on page 8 of Mr Michalski's Exhibit show the transfer of monies from the trust account to an account number ending with the numbers 173. That account is another ANZ Bank account. Copies of statements for that account are shown at Tab 7 to Mr Michalski's Exhibit and indicate that the account is in the name of Terepo Sesilia Fehoko.
12. Each of the transfers recorded on page 8 of Mr Michalski's Exhibit (except for a cash withdrawal of $850 on 9 December 2014) were deposited into either account bearing the last three numbers 931 (being the office account of the law practice) or account with the last three numbers 173 (being the Solicitor's personal account). A tracing of each of these allegedly unauthorised withdrawals from the trust account to either the office account of the Law Practice or the Solicitor's personal account reveals the same result. The one exception is the cash withdrawal of $850 which we will deal with shortly.
13. As indicated earlier in these Reasons, there was no affidavit or other evidence from the Solicitor and hence there is nothing before us to suggest that the withdrawals referred to in [40] were in any manner authorised by the persons on whose behalf the monies were received.
14. Ms Foord annexes to her affidavit a letter from the Law Society to the Solicitor dated 14 October 2015 (commencing at page 7 of the affidavit) together with a copy of an email allegedly from the Solicitor dated 4 November 2015 which makes reference to a "response for the claim being made against me for professional misconduct" being attached. The email commences: "From: Sesilia Latu, [mail to: sesilialatu.lmjlawyers@gmail.com]"
15. The document deposed by Ms Foord as being attached to the Solicitor's email is headed "Law Society Response". It is not signed. It contains 1. an assertion in the following terms: "In response to your findings against me for potential professional misconduct I agree with all facts that have been presented to you. There was a lot of discrepancies in our trust account due to unforeseen and unexpected circumstances"; 2. after referring to events in "the past year", an admission by the Solicitor that she: "gave authority to my husband to handle all my accounts at that time. I went overseas… which was when my husband used trust monies rather than office money"; and that she: "…was not made aware of these until later on in the year as I never thought to question it as there was not much happening with trust at that stage. My mistake was not keeping track on the trust account dealings…" 3. a statement in the following terms: "At the time I gave him authority I did not anticipate discrepancies it [sic] was for the purpose of having access to the accounts in case there was progress in the matters that had money in trust as I wouldn't be available, my husband at the time did not understand the seriousness of using any money in trust specifically and I didn't think to advise him as I didn't think he would need to as we had money at that time. My husband has apologised to me many times about the situation but I don't blame anyone but myself for allowing my personal life to override my responsibilities to my business and my clients" 4. her exculpatory explanation that:"…there was never any malice intention to use anyone's money my [sic] only mistake was not reading the Rules to allow only two of my employees to have access to the trust account etc as I now know that would have avoided this issue. My husband used money from trust with the understanding that it was LMJ Lawyers money not clients' money which he has learnt the hard way"; and 5. her statement that: "…it was just a mistake I had made in allowing access to non-legal people who didn't understand the concept of a trust account etc."
16. The Solicitor does not by her email, nor her "Law Society Response", assert or indicate that disbursal of monies from the trust account was in any way directed or authorised by the persons on whose behalf the money was received.
17. There is no evidence before us indicating the identity of any of the persons or clients whose monies was withdrawn without authority. The Law Society relies instead on the Solicitor's concessions summarised above, and the absence of any Reply refuting the contentions pleaded. It is relevant that the Solicitor's email of 4 November 2015, which attached the response containing the concessions appears to be a specific reply to the Law Society's letter to her of 14 October 2015.
18. That letter referred to: 1. the Law Society having initiated a complaint against the Solicitor under section 266 of the Uniform Law; 2. the complaint arising from Mr Michalski's report (being the Exhibit to what became his affidavit); 3. the report being enclosed with the letter; 4. the complaint being in respect of misappropriation, causing deficiency in trust funds, in breach of sections 255, 263 and 264 of the 2004 Act, as well breaching clause 66(2) of the 2005 Regulations; 5. the complaint being based on allegations that the Solicitor misappropriated monies (summarised on pages 8 and 9 of Mr Michalski's report) from the trust account to the office account of the Law Practice and to an account held by the Solicitor personally; 6. the monies so transferred being spent on personal expenses; 7. the Solicitor failing to hold trust money, in breach of section 255 of the 2004 Act 8. the Solicitor causing a deficiency in her trust account in breach of section 262 of the 2004 Act 9. the Solicitor failing to maintain her trust records from the commencement of her practice on 20 February 2014 until June 2015, in breach of section 264 of the 2004 Act and 10. the Solicitor failing promptly to provide written notice to the Law Society of the irregularities in her trust account on becoming aware of them, in breach of section 263 of the 2004 Act
19. As indicated above the Solicitor by her "Law Society Response" attachment to her email agreed with "all of the facts" presented; and conceded that her husband was given authority to handle all of her accounts and "used" trust monies.

The alleged withdrawal of $850 by the Solicitor personally

1. We have indicated earlier that all of the withdrawals (bar one) referred to on page 8 of Mr Michalski's Exhibit were deposited into either the office account of the Law Practice or into an account held by the Solicitor personally. The exception was a withdrawal recorded as having occurred on 9 December 2014 in an amount of $850. The Law Society alleges that, unlike all the other withdrawals, this withdrawal was made by the Solicitor personally and in cash.
2. Following receipt by the Law Society of the Solicitor's 4 November 2015 email and her "Law Society Response" attached to it, the Solicitor was notified, by letter of 9 December 2015, of a further complaint being initiated against her being a breach of section 255A of the 2004 Act based on this withdrawal by her personally of the $850. She was provided with a copy of an ANZ Bank withdrawal slip with a bank report showing the withdrawal having occurred on 9 December 2014 and indicating that it was a cash withdrawal. The Law Society asked the Solicitor to respond and to provide information, additional to that provided in her 4 November 2015 email, as to the dates when she was overseas, the date which she was made aware that her husband had used trust monies, and details of any action taken in consequence of becoming aware.
3. The withdrawal slip referred to by the Law Society appears at page 18 of Ms Foord's affidavit. Although the slip has not been photocopied clearly, it appears to record the name of the Solicitor, details of a NSW driver's licence, the date 9 December 2014, an amount of $850, a signature, and that the account debited was " Sesilia Fehoko Terepo trading as LMJ Lawyers". Page 19 of Ms Foord's affidavit is a bank report. It indicates on the fourth line that the 9 December 2014 $850 withdrawal was a withdrawal made in cash and was from the Solicitor's trust account. Tab 6 of the Exhibit to Mr Michalski's affidavit shows the 9 December $850 withdrawal from the trust account; Tab 6 being the ANZ trust account statements.

The section 371 Notice

1. The Law Society asked for a response to its letter of 9 December 2015 by 23 December 2015. When none was forthcoming by that date it sent a further letter to the Solicitor dated 29 February 2016, which confirmed that fact and enclosed a draft notice under section 371 of the Uniform Law requiring a response by 14 March 2016.
2. The draft section 371 notice required in schedule 1 that information be provided by the Solicitor as to whether she made the $850 cash withdrawal, and if so, whether she knew when making the withdrawal that such action was prohibited under section 255A of the 2004 Act, to whom the $850 was given or whether it was spent; the purpose for the monies use, and an explanation for the making of the withdrawal. It also enquired as to whether the Solicitor held a NSW driver's licence (of the same number recorded in the withdrawal slip), and if so, the circumstances by which that license was able to be used by someone other than herself to make the withdrawal.
3. When there was no further response by the Solicitor, the Law Society sent a further letter to her dated 29 June 2016 advising of a further complaint being made against her for failing to comply with a requirement under section 371 of the Uniform Law and failing to assist an investigator in the investigation of a complaint. The letter was sent to the PO box of LMJ Lawyers at Ingleburn and also to an address in North Nowra, NSW.
4. The Solicitor responded to the Law Society's 29 June 2016 letter by letter undated but bearing a received stamp of 8 July 2016. That response appears at page 77 of Ms Foord's affidavit. The Solicitor says in relation to the $850 withdrawal slip that it "looks exactly like" her signature; that she did "…remember taking out money…" but did not "… recall ever taking it out from the trust account".
5. As to the questions concerning her driver's licence the Solicitor said: "When I went to renew my license at the RTA in December 2015 I was advised by the lady at the Registry the license I had in my possession was not valid and they had posted to me a new one which was the valid license but I did not know of it at the time. I then remembered that I had called them to send me a new license as I "thought" I had misplaced my current license but then I found it and forgot about the one that I had requested to be sent and totally forgot about it until I had to renew my license when it had expired."
6. It is evident on reading the Solicitor's letter that she is in fact responding, using the same paragraph numbering, to the Law Society's 9 December 2015 letter (appearing at page 24 of Ms Foord's affidavit) rather than the numbered paragraphs in the section 371 notice. So much is evident by her response to question 7 of the 9 December letter where the Law Society asks her to specify the dates when she was overseas in 2014. The Solicitor's reply was that she was overseas "from August 2014, not sure of exact dates and again in November or December…". In this instance, although she concedes being not sure of the exact dates, she contends that she was overseas in December 2014 ie the month when the $850 cash withdrawal was made.
7. The Law Society wrote again to the Solicitor on 8 July 2016, referring to her undated letter received on 8 July, and noted that the Solicitor's letter purported to answer the Law Society's letter of 9 December 2015 but not the section 371 Notice. It then wrote a further letter on 19 July 2016 enclosing copies of the bank statements of the Solicitor's personal account held with ANZ Bank and also the office account of the Law Practice with the Bank. The statements show the Solicitor's personal account had between 4 and 11 December 2014 a balance of between $16.11 and $18.71. The account balance in the period 10 to 12 December 2014 for the office account was between $9.82 and $95.83. The letter referred to the Solicitor's concession of remembering taking money out but not recalling it being taken out of the trust account and invited her to explain the basis on which she believed she was withdrawing $850 in cash from any account other than the trust account.
8. There is no evidence before us of the Solicitor having made any response at all to the Law Society's 19 July 2016 letter.
9. The relevant provisions in sections 255, 255A, 263 and 264 of the 2004 Act are as follows: Holding, disbursing and accounting for trust money 255(1) A law practice must: (a) hold trust money deposited in a general trust account of the practice exclusively for the person on whose behalf it is received, and (b) disburse the trust money only in accordance with a direction given by the person (2) … (3) … Manner of withdrawal of trust money from general trust account 255A(1) A law practice must not withdraw trust money from a general trust account otherwise then by cheque or electronic funds transfer (2) without limiting (1) the following are specifically prohibited: (a) cash withdrawals (b) … (c) … (3) … (4) … Reporting certain irregularities and suspected irregularities 263(1) As soon as practicable after a legal practitioner associate of a law practice becomes aware that there is an irregularity in any of the practices trust accounts or trust ledger accounts, the associate must give written notice of the irregularity to: (a) the Law Society Council (b) … (2) … (3) … Keeping trust records 264(1) A law practice must keep in permanent form trust records in relation to trust money received by the practice (2) the Law practice must keep the records: (a) in accordance with the Regulations, and (b) in a way that at all times discloses the true position in relation to trust money received for or on behalf of any person, and (c) in a way that enables the trust records to be conveniently and properly investigated or externally examined, and (d) for a period determined in accordance with the Regulations."
10. The Law Society's pleas in ground 1 (file 41771) of misappropriation and causing a deficiency in trust funds require consideration of who caused each of the relevant amounts to be transferred into either the office account or the Solicitor's personal account and as to who withdrew the $850 in cash.
11. The evidence before us does not permit us to make , with any confidence, findings as to 1. whether (and if so when) the Solicitor was overseas, 2. if she was at any material time overseas. Whether she had access to, or was capable of operating, her trust account.
12. The Solicitor does not give any precise details in the response attached to her 4 November 2015 email as to when she was overseas other than by suggesting that when the trust account withdrawals were made she had given authority to her husband to handle her accounts "at that time" and on an undisclosed date "went overseas to try and have a break". The response suggests strongly that it was whilst she was overseas that her husband used the trust monies. We believe that to be a reasonable imputation, on any reasonable view of the evidence, but we proceed on the basis that there is no specific evidentiary foundation for it. Ultimately the imputation has no effect on our conclusions as to the Solicitor's conduct.
13. It is the Law Society's case that the unauthorised withdrawals took place between 3 November 2014 and 2 December 2015. In response to the Law Society's specific enquiry (letter dated 9 December 2015) as to the dates when the Solicitor was overseas in 2014 it was given the unhelpful reply "I was overseas from August 2015, not sure of exact dates and again in November or December….". A person in the position of the Solicitor ought have no difficulty in examining passport and other records so as to be in a position to given the Law Society a complete and unambiguous answer.
14. However, due to the Solicitor's failure to provide detailed evidence of what occurred and her apparent inability to provide suitably detailed and diligent responses to the Law Society, which we must take as indicating a lack of professional candour on her part, we cannot be satisfied that it was the Solicitor's husband who made the unauthorised withdrawals. We have no evidence from the husband and no evidence on oath from the Solicitor to that effect. The only evidence before us is the incomplete, unverified, and largely unhelpful "Law Society Response", referred to at [43] and the Solicitor's undated letter received by the Law Society on 8 July 2016.

Our Findings on These Aspects of the Matter

1. We are comfortably satisfied that the Law Society has established to the requisite standard of proof for proceedings such as these, that: 1. the Solicitor was the sole proprietor of the Law Practice and, hence, responsible for the conduct of the trust account of that practice 2. the sums referred to in paragraph 3 of the Application (being the amounts referred to on page 8 of Mr Michalski's Exhibit) were withdrawn from the trust account of the Law Practice without the authority of persons on whose behalf the moneys were initially received into that account 3. The Solicitor, at some point in 2014, gave her husband access to the trust account of the Law Practice.
2. As discussed at [64], we cannot be satisfied as to the identity of the person who made the withdrawals other than the $850 cash withdrawal.
3. So far as the $850 cash withdrawal is concerned, we view it as highly unlikely that anyone other than the Solicitor attended the St Mary's branch of the ANZ Bank on 7 December 2015, produced a NSW Driver's Licence of the Solicitor (a licence that would have had the Solicitor's photo ID on it) and make a cash withdrawal from the trust account of the Law Practice. The Solicitor's comments in her letter received on 8 July 2016 lead us to comfortably conclude that it was indeed the Solicitor that made that cash withdrawal. She concedes in the letter that the withdrawal slip signature looked "exactly like" hers; further, concedes remembering that money was taken out. The comments in the letter regarding the invalidity of the licence she had in her possession, the licence being misplaced then found, and as to whether or not she was overseas in December 2014 are implausible. As indicated earlier in these Reasons, the Solicitor was capable of producing conclusive evidence as to when she was overseas. She did not respond to the Law Society's section 371 Notice and in particular, those questions in the Notice, asking whether the Solicitor referred to the NSW Police the $850 cash withdrawal if it is her contention that she did not make it. Additionally, there is the very persuasive (and unanswered) enquiry made by the Law Society in its 19 July 2016 letter as to how the Solicitor could have believed that she was withdrawing the $850 from any account other than the trust account given that both the office account and her personal account had minimal funds in them; in either case insufficient to have satisfied an $850 withdrawal.
4. The allegations of misappropriation and of causing a deficiency in trust funds in ground 1 are common law concepts requiring evidence of intent. Mr Pierotti referred us to Brereton v Legal Services Commissioner [2010] VSC 378, a decision of the Supreme Court of Victoria being an appeal from orders made by the Victorian Civil and Administrative Appeals Tribunal. There a legal practitioner was the subject of disciplinary proceedings, the most serious of which being that he had misappropriated trust money in connection with a property development. The issue on appeal was whether or not it was necessary for the Tribunal to have found that he had acted dishonestly. Bell J said: "…the word "misappropriation" in its ordinary sense involves a mental element. Misappropriation is dishonestly misapplying property, including money, held on behalf of another. Because dishonesty is a mental element of misappropriation in its common law sense it is necessary to consider what dishonesty means, remembering here we will be doing so in a civil context. While an allegation of dishonesty requires consideration of the person's mental state, in neither the criminal nor the civil context is it necessary to establish that the person subjectively new or believed that the actions concerned were dishonest. What must be established is that the person subjectively intended to do the acts which are said to be objectively dishonest by the ordinary standards of reasonable and honest people. The steps involved in this formulation are: 1. identify the knowledge, belief or intent which is said to render the acts dishonest 2. determine whether the accused (or defendant in the civil context) subjectively had that knowledge, belief or intent, and 3. determine whether, on that account, the acts were objectively dishonest according to the standards of ordinary and decent (that is reasonable and honest) people. When applying these principles in a civil case, the civil standard of proof on the balance of probabilities apply. Of course, where the allegation in a civil case is of misappropriation, a high standard of probability is required due to the gravity of the allegation."
5. While different considerations apply in respect of the statutory breaches which we will come to shortly, on the allegations of misappropriation and of causing a deficiency in trust funds, we are not sufficiently persuaded that the evidence establishes subjective intent on the part of the Solicitor dishonestly to misapply money held on behalf of other clients or intend to cause a deficiency in trust funds. At best the evidence (other than in respect of the $850 cash withdrawal which we refer to below) demonstrates that the Solicitor albeit recklessly and in breach of the 2004 Act, gave her husband access to and authority over the trust account of the Law Practice whilst she was overseas. There is insufficient evidence to enable us to determine it was the Solicitor or someone else caused the withdrawal (other than the $850) to be made. Hence we are unable to find that the Solicitor herself intended to misapply the monies held in her trust account, or that she subjectively intended to cause a deficiency in trust funds.
6. We are, however, comfortably satisfied that, when withdrawing the $850 in cash on 9 December 2014, the Solicitor subjectively intended to misapply that trust money to her own benefit. Hence, in respect of the $850 cash withdrawal we are comfortably satisfied that there has been misappropriation by the Solicitor and, consequently, a causing by her of a deficiency in the trust funds of the practice.

Conclusions as to ss 255 and 255A

1. We are similarly satisfied that the Law Society has made good its plea in respect of sections 255 and 255A of the 2004 Act.
2. Section 4 of the 2004 Act defines "law practice" to mean a law firm or an Australian legal practitioner who is a sole practitioner. The Solicitor at all material times was a sole practitioner. Hence, the statutory obligation imposed upon her was to hold trust money. Unlike the findings that we are required to make of subjective intent when considering a common law misappropriation plea, we find the Solicitor in breach of section 255 in failing to hold trust money deposited into the trust account of the practice exclusively for the persons on whose behalf such monies were received, and in disbursing the monies referred to on page 8 of Mr Michalski's Exhibit other than in accordance with a direction given by the person or persons on whose behalf the trust money was held. We make this finding both in respect of the $850 cash withdrawal as well as in respect of the other misappropriated transfer funds.
3. The Law Society submits, and we find, that the Solicitor was also in breach of section 255A of the 2004 Act in respect of the $850 cash withdrawal.
4. We further find the Law Society's plea of breaches by the Solicitor of section 264 and 263 of the Legal Profession Act proven.
5. Mr Michalski deposes in his affidavit to having conducted an inspection of the trust records of the Law Practice between 15 October 2014 and 14 September 2015, and having produced a report as a result of his inspection. He found during the course of his inspection that the trust account for the Law Practice was opened on 20 February 2014; that the account was manually maintained and not compliant with the 2004 Act or the 2005 Regulations. He further found that no bank reconciliations or trial balances had been prepared since the trust account was opened in February 2014. He refers on page 4 of his report (being the Exhibit to his affidavit) to the Solicitor receiving six monthly bank statements for her trust account and to his advice to her that trust account statements should be received monthly; further, that she should contact her bank to make arrangements for that to happen. He further deposes to the Solicitor advising him that she had acquired LEAP software which had a facility to record trust transactions and that she requested time to complete the task of recording her transactions on LEAP.
6. Mr Michalski then records on pages 4, 5, 6 and 7 of his report an email exchange between himself and the Solicitor concerning the Solicitor's progressing of bank reconciliation and trial balance through LEAP, reminding her that he considered her trust records deficient when he attended the Solicitor's practice in December 2014.
7. Mr Michalski goes on to record in his report that an amount of $9,000 was deposited into the trust account of the practice on 29 June 2015 to cover what had then been a trust account discrepancy.
8. There being no evidence of the Solicitor to rebut Mr Michalski's evidence, and there being no Reply filed by the Solicitor, we find that the Solicitor has breached section 264 of the 2004 Act in that during the period at least 20 February 2014 to 29 June 2015 the trust records of the Law Practice were not kept in such a manner as to disclose their true position. Additionally, we find the Solicitor in breach of section 263 of the Act in that, contrary to sub-section (1) of that section she has not, as soon as practicable after becoming aware that there was an irregularity in the trust account, given written notice of the irregularity to the Law Society.
9. Even if we were to take as correct and truthful the Solicitor's "Law Society Response" attached to her 4 November 2015 email, she concedes that she became aware of her husband's improper use of the trust monies "later on in the year" of her travelling overseas, namely, 2014. That is inconsistent with what the Solicitor said in the letter referred to earlier received by the Law Society on 8 July 2016. In that letter she responds to the Law Society's enquiry as to when she was made aware that her husband had used the trust money, by saying "the following year early"; which must be a reference to early 2015. Even if one were to take the date of awareness as "early" 2015, Mr Michalski's report on page 7 indicates a first notification to him on 19 August 2015. There is no evidence of the Solicitor notifying the Law Society prior to 19 August 2015.

C. Failure to comply with section 371 Notice; failure to assist in an investigation (Application Ground 3)

1. This is the ground referred to in the Application as file 42425 involving failure to comply with a requirement under section 371 of the Uniform Law and failure to assist an investigator in the investigation of a complaint.
2. The Law Society pleads that during the course of the investigation of complaints against the Solicitor it issued to her a Notice under section 371 of the Uniform Law; the notice having been preceded by letters dated 9 December 2015 and 29 February 2016 to which the Solicitor had not responded. It further pleads that the section 371 Notice was served on the Solicitor on 30 May 2016, requiring compliance by 21 June 2016. It pleads non-compliance.
3. We have discussed earlier in these Reasons the Law Society's letter to the Solicitor of 14 October 2015, her response of 4 November 2015 (which included the "Law Society Response" document), and the Law Society's 9 December 2015 letter. Ms Foord's affidavit deposes to a draft section 371 notice being attached to a letter dated 23 February 2016 (which appears at page 23 of her affidavit) forwarded to the Solicitor requiring compliance by 14 March 2016. She annexes a further letter to the Solicitor dated 29 June 2016 which outlined additional complaints namely failure on the Solicitor's part to comply with the requirement of section 371 of the Uniform Law, and failure to assist an investigator in the investigation of a complaint. The letter annexes a further copy of the earlier 29 February 2016 letter. A response was required by 20 July 2016. Another letter had been sent to the Solicitor dated 20 May 2016 enclosing a copy of the 16 March 2016 section 371 Notice.
4. The Solicitor responded with her undated letter received 8 July 2016 which we have referred to earlier in these Reasons. By its terms that letter did not respond to or comply with the section 371 Notice; rather, it responded - at least in part - to the questions that the Law Society had posed in its earlier 9 December 2015 letter.
5. At page 105 of Ms Foord's affidavit is a further letter to the Solicitor referring to the section 371 Notice requiring a response within 21 days and that the response had to be verified by statutory declaration. The letter pointed out that the Solicitor had not complied with the timeframe required under the Notice nor a response by way of statutory declaration.
6. There is no evidence before us of any further correspondence from the Solicitor dealing with or responding to the section 371 Notice.
7. Section 371 of the Uniform Law relevantly provides: "Requirements - complaint investigations 371(1) For the purpose of carrying out a complaint investigation in relation to a lawyer or law practice, an investigator may, by notice served on the lawyer or a legal practitioner associate of the law practice (as the case requires), require the lawyer or associate to do any one or more of the following - (a) to produce, at or before a specified time and at a specified place, any specified document (or a copy of the document); (b) to provide written information on or before a specified date (verified by statutory declaration if the requirement so states) (c) to otherwise assist in, or co-operate with, the investigation of the complaint in a specified manner. (2) … (3) A person who is subject to a requirement under sub-section (1) must comply with the requirement (4) … (5) …"
8. The evidence before us demonstrates that the Solicitor has received a Notice under section 371 of the Uniform Law. We are comfortably satisfied that the Solicitor has breached section 371(1)(a) and (b) by failure to provide the written information and documentation sought in the Notice, either within the timeframe specified in the Notice or at all.
9. Whilst the Solicitor did provide some limited information in her "Law Society Response" document, and in her letter received on 8 July 2016, the information supplied: 1. Did not in many respects specifically respond to the questions that the Law Society had posed, 2. Was vague and imprecise, and 3. Did not provide full information and disclosure in circumstances where such full disclosure was capable of being provided.
10. We find the Solicitor in breach of section 371(1)(c) - in failing to assist in, or co-operate with, the investigation of the complaints that the Law Society has made against her.

D. Use of Trust Account by unauthorised person (Application Ground 4)

1. This is referred to in the Application as file 41771. The Law Society alleges against the Solicitor breach of regulation 66(2) of the 2005 Regulations. That provides: "Payment by electronic funds transfer 66(1) This clause applies to the withdrawal of trust money from a general trust account of a law practice by electronic funds transfer (2) Electronic funds transfer must be affected by, under the direction of, or with the authority of: (a) an authorised principal of the law practice or (b) if a principal referred to in paragraph (a) is not available: (i) an authorised legal practitioner associate; or (ii) an authorised Australian legal practitioner holding an unrestricted practising certificate authorising the receipt of trust money, or (iii) two or more authorised associates jointly (3) … (4) … (5) … (6) … (7) In this clause: (a) an associate means an associate of the law practice (b) authorised means authorised by the law practice to effect, direct or give authority for electronic funds transfer from the general trust account".
2. The Law Society alleges that the withdrawals referred to in paragraph 11 of the Application (being the withdrawals referred to on page 8 of Mr Michalski's Exhibit) were in breach of regulation 66(2) as the Solicitor had permitted her husband to operate the trust account of the Law Practice when he was not a person authorised by regulation 66 to operate that account.
3. As we have explained earlier in these Reasons we are unable to be satisfied that the Solicitor's husband did effect the withdrawals from the trust account. It is not however necessary to do that in order for us to be satisfied that a breach of regulation 66 has occurred.
4. We confirm our finding that the electronic transfers referred to in paragraph 3 of the Law Society's Application (other than in respect of the $850 cash withdrawal) were made. There is no evidence to establish that the person who transferred each of the amounts from the trust account was a legal practitioner associate, or was otherwise authorised by the Law Practice to effect the transfers. It is mandatory that these conditions be met in respect of each such transfer. They were not.
5. It must follow that there has been breach by the Solicitor of clause 66.

E. Professional misconduct or unsatisfactory professional conduct in respect of each of the Application grounds - findings

1. The Law Society alleges that the Solicitor is guilty of professional misconduct in respect of Application grounds 1, 2 and 3, and unsatisfactory professional conduct in respect of Application ground 4.
2. Section 297 of the Uniform Law provides: Professional misconduct 297(1) For the purposes of this Law, professional conduct includes: (a) unsatisfactory professional conduct of a lawyer, where the conduct involves a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence; and (b) conduct of a lawyer whether occurring in connection with the practice of law of occurring otherwise than in connection with the practice of law that would, if established, justify a finding that the lawyer is not a fit and proper person to engage in legal practice. (2) For the purpose of deciding whether a lawyer is or is not a fit and proper person to engage in legal practice as referred to in sub-paragraph (1)(b), regard may be had to the matters that would be considered if the lawyer were an applicant for admission to the Australian legal profession or the grant or renewal of an Australian practicing certificate and any other relevant matters.
3. The Law Society alleges that the Solicitor is guilty of professional misconduct in respect of grounds 1 to 3, being the grounds referrable to misappropriation; causing a deficiency in trust funds; breaching sections 255, 255A, 263 and 264 of the 2004 Act; failing to assist the investigator in the investigation of the complaint; and failure to comply with section 371 of the Uniform Law.
4. The common law concept of professional misconduct includes conduct in pursuit of professional activities which would reasonably be regarded as disgraceful or dishonourable by professional colleagues of good repute and competency [Council of the NSW Bar Association v Sahad [2007] NSW CA 145.
5. The High Court in Kennedy v The Council of the Incorporated Law Institute of NSW [1939] 13 ALJ 563 said: "…a charge of misconduct as relating to a solicitor need not fall within any legal definition of wrongdoing. It need not amount to an offence under the law. It was enough that it amounted to grave impropriety affecting his professional character and was indicative of a failure either to understand or to practice the precepts of dishonesty or fair dealing in relation to the courts, his clients or the public. The particular transaction the subject of the charge must be judged as a whole and the conclusion whether it betokened unfitness to be held out by the public as a member of the profession in whom confidence could be placed, or on the other hand, although a lapse from propriety, was not inconsistent with general professional fitness and habitual adherence to moral standards, was to be reached by a general survey of the whole transaction."
6. Meagher J A has set out the relevant principles with reference to, but not restricted to, trust account obligations in The Prothonotary of the Supreme Court of NSW v Dimitrious [2015] NSWCA 258 where he said: "Legal practitioners are expected to act and must act with scrupulous honesty when discharging their obligations generally, and specifically with respect to the receipt and payment of monies on behalf of clients. There is an unqualified expectation that they adhere to those standards. The position was stated plainly by Ipp J A in Barwick v The Council of the Law Society of NSW [2004] NSW CA 32: 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 accounts for their own benefit"
7. We find the Solicitor guilty of professional misconduct on 1 to 3, for the following reasons: 1. The Solicitor, at the very least, was recklessly indifferent to the possibility of monies that had been entrusted to her by clients and placed in the trust account of the Law Practice might be misappropriated, by giving access to the trust account to a person who to her knowledge was not Australian legal practitioner, an associate of the Law Practice, or an employee of the Law Practice. 2. The Solicitor misappropriated an amount of $850 on 9 December 2014. By making that withdrawal without the authority of the persons on whose behalf the money was received into trust, the Solicitor was in breach of section 255 of the 2004 Act 3. In making the withdrawal referred to in (2) by way of cash withdrawal, the Solicitor was in breach of section 255A of the 2004 Act 4. The conduct in (1) to (3) above involved, we find, a substantial failure to maintain a reasonable standard of competence and diligence; is conduct that demonstrates that the Solicitor is not a fit and proper person to engage in legal practice, and is conduct that would reasonably be regarded as disgraceful or dishonourable by professional colleagues of good repute and competency 5. As stated earlier in these reasons, the Solicitor has breached sections 263 and 264 of the 2004 Act; conduct that itself involves a substantial failure to maintain a reasonable standard of competence and diligence, and demonstrates that the Solicitor is not a fit and proper person to engage in legal practice 6. The Solicitor has failed to assist the investigator in the investigation of a complaint and has failed to comply with a Notice served pursuant to section 371 of the Uniform Law. Although the Solicitor has provided certain limited information the specific questions posed by the section 371 Notice have not been the subject of response. No explanation has been offered by the Solicitor for that failure 7. The conduct referred to (6) involves, we find, a substantial failure to maintain a reasonable standard of competence and diligence, demonstrates that the Solicitor is not a fit and proper person to engage in legal practice; further, is additionally professional misconduct pursuant to section 466(1)(d) and 466(6) of the Uniform Law.
8. We find the Solicitor guilty of unsatisfactory professional conduct on ground 4 of the Application.
9. Section 296 of the Uniform Law provides: Unsatisfactory professional conduct 296 For the purpose of this law, unsatisfactory professional conduct includes conduct of a lawyer 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 lawyer.
10. The breach by the Solicitor of Regulation 66 of the 2005 Regulations was conduct that, we find, fell short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer.
11. If the Solicitor's "Law Society Response" attached to her 4 November 2015 email is correct in its assertion of her husband making the unauthorised withdrawals, then as proprietor of the Law Practice she is responsible for the breach of Regulation 66(2) as well as sub-clauses (3) and (4). The transfers were not effected under the direction or authority of an authorised principal of the law practice, no written record of the required particulars was kept, and no written record was kept sufficient to enable the accuracy of the particulars to be verified.
12. Whilst we are unable to conclusively determine the identity of the person responsible for the majority of the unauthorised withdrawals, we have found that the Solicitor herself withdrew the $850 cash and that alone is sufficient to constitute a breach by her, of sub-regulations (3) and (4) of Regulation 66.

F. Further consideration as to appropriate disciplinary orders

1. We will proceed by way of separate hearing to consider what disciplinary orders should be made.

Orders and Directions

1. We make the following orders and directions: 1. We find the Solicitor guilty of professional misconduct, on the basis of our findings that grounds 1, 2 and 3 have been made out. 2. We find the Solicitor guilty of unsatisfactory professional conduct on the basis of our finding that ground 4 has been made out. 3. We direct the Law Society to undertake all reasonable steps to give to the Solicitor a copy of these Reasons, 4. We direct that the matter be listed on 1 August 2018 at 10:30 am for directions and for a date to be fixed for determination by us of disciplinary orders.

I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal. Registrar 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 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: 02 July 2018