Council of the Law Society of New South Wales v Truong [2017] NSWCATOD 63 | Case summary

The Applicant's Submissions

In its Application for Disciplinary Findings and Orders filed on 12 May 2016 the applicant sought: 1. An order that the respondent's name be removed from the local roll; 2. An order for costs; and 3. Such other order as the Tribunal deems appropriate.
The applicant presses its application for the above orders.
The applicant relied upon the decision Council of the New South Wales Bar Association v Butland [2009] NSWADT 177 at [15] - [16] for the purpose of establishing the proposition that orders made by the Tribunal in matters of this kind are: 1. intended to "serve primarily to protect the public"; 2. to be used to mark the community's disapproval of lapses from the high standard legitimately expected by the public of legal practitioners; 3. orders which may act as a specific and as a general deterrent; 4. orders which concern the disciplinary jurisdiction of the Tribunal, which remains concerned with whether the legal practitioner is a fit and proper person to be held out as such to the public; and 5. where the conduct found to have been engaged in by a legal practitioner is serious, for example, because it involves dishonesty and it is not a single isolated incident, orders under s 562(2)(a) of the LP Act that the name of the practitioner be removed from the local roll may be appropriate.
The applicant also relied on a recent decision of the Court of Appeal in Health Care Complaints Commission v Do [2014] NSWCA 307 at [35] - [39] where the Court emphasised that the protective jurisdiction of the Tribunal "includes protecting the public from the similar misconduct or incompetence with other practitioners and upholding public confidence in the standards of the profession".
The applicant relied upon the decision in Law Society of New South Wales v Walsh [1997] NSWCA 185 where Beazley JA described the well-established purposes of disciplinary proceedings (see page 40, line 35 to page 41, line 20). That purpose is not confined to the protection of the public from further conduct by the particular practitioner who is the subject of disciplinary proceedings. It extends to protecting the public from similar defaults by other practitioners.
The applicant acknowledged that it had made no allegation, and that there was therefore no finding made, that the respondent intended to permanently deprive clients of their entrusted funds, was subjectively dishonest in his dealings with those funds or that the respondent gained financially from his misappropriation of entrusted funds.
The applicant submitted that the gravity of the respondent's misappropriation falls between the conduct occurring in the case of Council of the Law Society of NSW v Nicholls [2012] NSWADT 222 and the conduct in Council of the Law Society of NSW v Sehadie [2016] NSWCATOD 14. In the Nicholls case, the practitioner, who did not hold a trust account, placed trust funds in her office account pending the outcome of a dispute and drew office account cheques causing the balance of the office account to fall below the quantum of the entrusted funds in it. The lawyer was reprimanded and fined. In the Sehadie case, the practitioner acted for a vendor and caused a real estate agent to transfer into the practitioner's trust account the deposit on the purchase, which the practitioner then applied to his personal accounts to decrease the vendor's indebtedness to the practitioner. The lawyer was reprimanded, fined and suspended for one year. The applicant submitted that the gravity of the respondent's conduct falls between these two cases and of itself should not be the basis for the respondent's removal from the roll.
The applicant submitted that the Tribunal should be particularly concerned about the misappropriation concerning matters Wu and Ma, which conduct showed a breach of fiduciary duty and a failure to avoid a conflict of interest. The applicant referred to the decision of the New South Wales Court of Appeal in Johns v Law Society of New South Wales [1982] 2 NSWLR 1 in which the following was stated: "as a matter of principle, a trustee should not intermix his own property, with trust money or indeed mix the property of two separate trusts" (Mahoney JA at par 124); and The solicitor "quite deliberately and systematically", "treated trust money then held by him to the credit of his clients as a whole as available for himself and his clients generally.... Apart from any strict legal approach... there could not be, as a matter of common sense in relation to the facts and to proper dealing with other peoples' money, any justification for what was done. The wrongness of what was done was compounded by it being accompanied by the records of the solicitor being in a deplorable state where it would have been impossible to unravel the rights of his clients, if there had been some collapse of his own affairs or that of a particular client (Moffitt P)".
Here, the respondent did not apply entrusted monies for his own purposes, but he did intermix and misapply a sum of $153,500.00 of entrusted money for the purposes of clients who had no beneficial interest in the funds. The deplorable state of his book keeping and the loss of the Ma file render his conduct in breaching of ss 255 and 264 of the LP Act identical with that of Mr Johns in the above case. In that case, Moffitt P went on to say that the proven conduct of the solicitor "established that he was then unfit to be a solicitor, so that at the time it would have been appropriate to have removed his name from the roll" (par 15).
The applicant submitted that the respondent's proven conduct also casts serious doubts upon his competence. In Law Society Of New South Wales v Walsh Powell JA at [38] line 12 stated that: The phrases: "not of good fame and character" and "not... fit... to remain on the roll of legal practitioners" are not synonymous - for a person who is of good fame and character may be so lacking in competence as not to be a fit and proper person to remain on the roll of legal practitioners
The applicant also made submissions concerning the explanation offered by the respondent as recorded in our earlier decision (see pars 11 and 37). The applicant's submission was to the effect that the respondent's reasons for the conduct in breach of s 659 of the LP Act were insufficient and did not adequately explain the breach. Furthermore, the breach of s 659 is, according to the applicant, "problematical when one of the files requested but never produced was that of Ma, in which matter misappropriation of funds had occurred. This raises the question of whether the respondent "lacked frankness and candour".
The applicant refers to the respondent's explanation that he had tried his best to do the right thing and that he had not acted recklessly in the administration of his accounts. The applicant submits that if the respondent's stated willingness to maintain his trust account records is true and his multiple breaches of the LP Act were, in his words, unintentional, then there is an inescapable conclusion to be drawn from the fact that his trust account records were consistently in a deplorable state between June 2012 and February 2015. That conclusion is that he lacks sufficient knowledge and skill to keep them otherwise, and that he lacks sufficient insight in regarding his conduct as other than reckless.
The applicant referred to the respondent's eagerness to have the Law Society Trust Department supervise and audit his work in keeping his law practice trust records. However, the applicant submitted that this demonstrates his misunderstanding that the Law Society can and should offer the services of a "teacher or an apprentice master". The respondent holds himself out as the unrestricted principal of a law practice and the licence under which he practises deems him unrequired to be supervised. The applicant submits that there is "an inherent fraud on the public if a person in need of supervision is allowed to practice on their own account".
The applicant referred to the respondent's explanations concerning the fact that he was time poor and overworked with staffing issues and premises issues. The applicant submitted that these matters do not offer an excuse for not fulfilling legal professional obligations. Similarly, the applicant referred to the respondent's issues concerning the ill-health of elderly family members and submitted that, whilst those matters are distressing and time consuming, they do not provide an excuse for failing to fulfil legal professional obligations.
The applicant submitted that the pressure the respondent was under in 2012 does not appear to have abated and may have become worse. The applicant referred to the respondent's submission received on 27 January 2017 in which the respondent wrote to the applicant stating: I still find it hard to write this submission as I have no third party impartial lawyer to help me and to project the words that fairly representing me when I am not in and out of my emotional and depressive mind.
The applicant submits that the respondent does not demonstrate insight into his conduct. In his submissions received on 22 February 2017 the respondent stated that he regretted his actions in 2012 in: helping and feeling compassion towards clients that I know would be able to return the money borrowed from other clients in the trust account under my care... It is a flaw in me which I have since learned and stopped the flaw.
The applicant submits that not only is this statement self-serving but carries the suggestion that the respondent's problem is his good nature. The applicant submits that the respondent completely misses the point that in helping one client by misapplying the monies of another, he is actually not helping both clients. The respondent does not address the real issue raised in the proceedings, namely that he has fiduciary duties to both clients and to borrow from one to lend to the other involves a breach of those duties and a conflict of interest.
The applicant submits that in breaching s 260 of the LP Act by intermixing trust monies with non-trust monies, the respondent has demonstrated no understanding of the consequences of the exposure of trust monies in the office account to a trustee in bankruptcy should bankruptcy arise.
The applicant made reference to various statements made by the respondent concerning the respondent's regret and remorse.
The applicant submitted that the respondent lacked insight into his conduct. The applicant referred to the respondent's affidavit filed in the proceedings and dated 2 August 2016. In par 5 of the respondent's affidavit he stated: I cannot stress more that I viewed my obligations to keep the trust account up to date as a must in my practice. This goes hand in hand with my obligations to customers to have their conveyancing matters settled on time.
The applicant's submission was that the respondent equated his statutory obligations as a principal solicitor holding a trust account with his perceived obligations to keep his customers happy and that should be a matter of concern.
The applicant further submitted that there is scant evidence that the respondent understands the gravity of misappropriating and intermixing entrusted funds. In the submissions filed by the respondent on 22 February 2017 the respondent stated: I regret my actions in 2012 in helping and feeling compassion towards clients that I know would be able to return the money borrowed from other clients in the Trust Account under my care, which in these cases misapplied and misappropriated. It is a flaw in me which I have since learned and stopped the flaw.
The applicant made submissions concerning the respondent's expression of remorse and in the course of so doing the applicant quoted a number of passages from the respondent's submissions filed on 22 February 2017. Some of those passages state the following: As I took on the task of building up my business over the years my main aim was always to provide good services to customers, managing customers fairly and fulfil my duties to them by providing good customer service... I regret to not keeping the trust account up to date as it reflected badly against me. I regret my actions in 2012 in helping and feeling compassion towards clients that I know would be able to return the money borrowed from other clients in the Trust Account under my care... which in these cases misapplied and misappropriated. It is a flaw in me which I have since learned and stopped the flaw. I do wish that I can wind back time and not making mistakes that are human mistakes. I have been on the straight and narrow line of keeping my Trust Accounting record and I have been trying to show to the Law Society Trust Accounting Department that I do not repeat the mistakes that I had made in 2012. It has been a steep learning curve for me. I made mistakes and I regretted them and I am moving on improving myself and my practice.
The applicant's submissions is that the above passages appear to be directed to the respondent's perception of his personal diminution in standing and appear to be fuelled by a fear that he may no longer practice law. The applicant submits that in the context of the respondent not stealing the trust funds for his own purposes (see par 4 of the respondent's affidavit), clients not knowing about the mistakes and defalcations (see Exhibit A and F 1 at page 15 par 1), clients' sales being completed without losing money (the respondent's affidavit par 7), the respondent's statement that he helped his clients satisfy their dreams (the respondent's submissions received 22 February 2017), it is open for the Tribunal to form the view that the respondent has expressed a slavery to the needs of his clients. The Tribunal may also form the view that he may be more remorseful about the interventions of the Law Society and the progress of these proceedings than any potential loss caused by his conduct to his clients.
The applicant submits that the respondent does not recognise the impact of his own conduct on the public or the profession as a whole. The applicant submits that there is an important distinction between remorse for the consequences of findings of misconduct and remorse for the conduct itself.
The applicant made submissions concerning the likelihood of the respondent reoffending. The applicant referred to par 8 of the respondent's affidavit in which the respondent stated that the respondent would never again experience pressure and would always keep client money as clients' money. The applicant's submission is that that statement provides an assurance that the respondent will not steal client funds but does not address the issue of intermixing trusts. The applicant submits that whilst a practitioner's expressed intention not to reoffend is relevant to mitigation; it will have little weight unless accompanied by an understanding of the wrongfulness of the conduct which is the subject of the disciplinary charge.
The applicant draws attention to the fact that the respondent has not lead or tendered any testimonial evidence.
The applicant submits that the lapses found by the Tribunal as set out in our earlier decision are lapses from the high standard legitimately expected by the public of legal practitioners and are of the kind where orders are appropriate to mark the community's disapproval. For these reasons, the misappropriation carried out by the respondent, particularly when taken together with his other conduct, justifies a prima facie finding that he is not a fit and proper person to remain on the roll and that his name should therefore be removed. Such an action is not because the respondent is of poor fame and character, but because his defalcations demonstrate a lack of competence in his application of the legal profession statutory regime and lack of awareness of and adherence to the fabric of fiduciary duties and the avoidance of a conflict of interest that prescribe legal practice.
The applicant asks whether the position today is likely to be any different in the future from the position at the time of the defalcations? There is no evidence to suggest that the respondent has grasped the seriousness of his misconduct. Even if the Tribunal were to be confident the respondent can master the data entry and banking aspect of trust accounting, there is no basis upon which the Tribunal can be confident that there will be no reoccurrence of the intermixing of trusts by way of misuse of entrusted funds for the convenience of other clients together with the breach of fiduciary duties and the conflict of interest that that conduct entails.
The applicant submits that where a solicitor lacks a visceral sense of their fundamental duties and lacks knowledge and skill in relation to the legislation that prescribes legal practice, then, for the purposes of protecting the public against the practices of incompetent solicitors, noting the unacceptability of the conduct involved, educating other members of the profession as to the necessity of maintaining proper standards; and maintaining public confidence in the profession, that person's name should be removed from the roll: NSW Bar Association v Meakes [2006] NSWCA 340. An order that the respondent's name be removed from the roll would be consistent with authority as being the appropriate order: Johns v Law Society of New South Wales; Law Society Of New South Wales v Walsh.
The Law Society seeks its costs pursuant to cl 23 of Sch 5 of the Civil and Administrative Tribunal Act 2013 (NCAT Act).

Consideration

In our earlier decision we found that each of the five grounds brought by the applicant had been made out. Ground 1 concerned the failure of the respondent to provide documents and information to the applicant between November 2012 and June 2013. Ground 2 concerned a failure to hold entrusted monies exclusively for the persons on whose behalf that money was received. Ground 3 concerned the transfer of monies totalling approximately $153,000.00 and in the circumstances those transfers constituted a conversion of clients' property. Ground 4 concerned a failure to keep trust records during the period from June 2013 until April 2014 and from December 2014 to February 2015 as required by s 264 of the LP Act. Ground 5 concerned a deficiencies in the trust account revealed in March 2014 which the respondent rectified in May 2014. Ground 6 concerned the intermixing of trust monies in 2014.
The above summary shows that the respondent's conduct extended over a lengthy period. In particular, there was a failure to punctually deal with the requirements of the applicant in late 2012 and a failure to comply with statutory obligations in 2013 and 2014.
The failure of the respondent to deal with and correct the trust account records and his trust account practices throughout this lengthy period is a matter of considerable concern. Such failure makes it fair to conclude (as we do and as the applicant contended we should) that the respondent lacks both sufficient knowledge and skill to enable him to comply and/or lacks sufficient insight or understanding that his conduct had been wrong. It was wrong, in our view, because it breached his statutory obligations, breached his obligations as a fiduciary and it was reckless in that it put clients' funds at risk.
The respondent's assertion that he had changed his ways and is now fully compliant with his obligations is, in our view, not convincing. It is not convincing because: 1. He appears to have continuing reliance on the applicant's trust account department "whenever something is new that I and my staff are not familiar with" (respondent's submissions received 22 February 2017); 2. The pressure he was under previously does not appear to have been abated, although the source of that pressure may have changed. He still refers to suffering depression according to both his written and oral submissions and he has not sought assistance from the medical profession. Nor has he sought the assistance of a member of the legal profession in assisting him in relation to these proceedings; and 3. He still maintains a passionate desire to help clients and contends that he "always put their matters first before my own" (respondent's submissions of 22 February 2017). While such an attitude made by seen as impressive at one level, the fact remains that a client's interests must be secondary to legal, professional and fiduciary obligations to all clients.
We acknowledge the accuracy and force of the applicant's submissions that: 1. That our role is to ensure the protection of the public (see Buckland); 2. The Tribunals' order ought to mark the community's disapproval of the respondent's conduct (see Buckland); 3. An additional purpose of Tribunal orders is to protect the public from similar defaults by other practitioners (see Walsh); 4. Here, the respondent's conduct was grave even though he did not seek to gain financially in a direct sense from his conduct; and 5. The respondent's conduct, including the length of time it took him to become compliant leads to the conclusion that the respondent is not competent (see Walsh).
We agree with the submissions of the applicant as recorded earlier in these reasons and, as a consequence, we are not confident that the public would be protected by any order other than one which removes the respondent from the roll of practitioners. Despite the respondent's assurances, we cannot be confident that the respondent would not reoffend given his depressive state, apparent lack of a desire to consult with a member of the medical profession and his apparent continuing need to consult with the trust account division of the applicant.
Taking all matters into account as submitted by the applicant, our conclusion is that the respondent is not a fit and proper person to engage in legal practice and remain on the roll of practitioners.
In coming to this conclusion, we have taken into account the comments of the High Court in NSW Bar Association v Evatt [1968] HCA 20 as per par 12: The Supreme Court was, however, in error in not appreciating that its findings of misconduct demonstrated the unfitness of the respondent to be a barrister, and compelled the conclusion that he should be disbarred. The facts proved and found demonstrated unfitness to be a member of the Bar - not some isolated or passing departure from proper professional standards amounting to something less than proved unfitness. The Court did regard certain matters as extenuating circumstances but none of them really bears upon the vital issue, viz. whether the findings of misconduct, which were made, proved the unfitness of the respondent to be a barrister. The Supreme Court thought, moreover, that as the exercise of its disciplinary powers was, to some extent, a punishment for wrongdoing, mercy might be shown towards a young man who had not understood the error of his ways. The power of the Court to discipline a barrister is, however, entirely protective, and, notwithstanding that its exercise may involve a great deprivation to the person disciplined, there is no element of punishment involved. This has already been pointed out by this Court in Clyne v. N.S.W. Bar Association (1960) 104 CLR 186, at pp 201, 202. The respondent's failure to understand the error of his ways of itself demonstrates his unfitness to belong to a profession where, in practice, the client must depend upon the standards as well as the skill of his professional adviser. (at p184)
Here, the findings we have made compel the conclusion that the respondent should be removed from the roll. In addition, our lack of confidence that the respondent will not repeat the offences gives further force to our conclusion that removal from the roll is necessary.
During the hearing, we raised with both the applicant and the respondent whether an appropriate order might be that the respondent be prohibited from practising as a principal but be permitted to practise as an employee under supervision with no access to the trust account of his employer. The applicant did not support such an order but acknowledged that it may serve to protect the public. The respondent submitted that we should consider making such an order but did not otherwise elaborate.
The difficulty of allowing the respondent to continue to practice, albeit as an employee is that such an order does not, in our view, adequately address the requirement for the order to act as a deterrent in the sense described in the Walsh case. Nor would such an order be consistent with our finding that the respondent is not competent. In our view, an employee must understand the statutory and fiduciary obligations concerning the operation of trust accounts even though they may not be able to effect deposits to, or withdrawals from, the trust account, because access to the trust account is reserved to the principal.
We propose to make the orders sought by the applicant and orders are made accordingly.
We note that the applicant seeks an order for costs under cl 23 of Sch 5 of the NCAT Act. The respondent did not make any submissions with respect to costs. The effect of cl 23 is that the Tribunal must make an order requiring a respondent lawyer whom it has found to have engaged in unsatisfactory professional conduct or unprofessional conduct to pay the costs of the applicant unless the Tribunal is satisfied that exceptional circumstance exist. Neither party identified exceptional circumstances and nor can we. Accordingly, a costs order must be made.

Council of the Law Society of New South Wales v Truong

At a glance

Court

Decision date

Source

Judgment (7 paragraphs)

Parties

Cases Cited (7)