Council of the Law Society of NSW v Andreone

NCAT Occupational|2014-02-18

INTRODUCTION 1These were disciplinary proceedings initiated by the Applicant against the Respondent seeking orders for his name to be removed from the Local Role of Lawyers and for him to pay the costs of the Applicant of and incidental to the proceedings.

GROUNDS OF THE APPLICATION 2In the Application the Grounds are stated as follows: Francesco Leonardo ANDREONE is guilty of professional misconduct in that he: (1)misappropriated trust monies (2)breached s.254 of the Legal Profession Act 2004 NSW ["the Act"] (3)breached s.255 of the Act (4)breached s.262 of the Act (5)breached s.263 of the Act (6)failed to pay counsels' fees (7)failed to account for monies entrusted to him (8)failed to remit to the Australian Taxation Office instalments of Goods and Services Tax ['GST'] and Pay As You Go Taxation ['PAYG'] (9)failed to make Compulsory Superannuation payments in respect of employees of his Incorporated Legal Practice 3The particulars of the Grounds of Complaint are largely admitted by the Respondent in his Reply.

THE EVIDENCE 4The evidence comprised: (1)Application filed 24 May 2013; (2)Reply filed 19 September 2013; (3)Affidavit of Anne-Marie Foord sworn 17 January 2013; (4)Affidavit of James Sofiak sworn 9 December 2011; (5)Affidavit of Martin John Green sworn 5 March 2012; (6)Affidavit of Martin John Green sworn 15 August 2013; (7)Affidavit of Michael John Teys sworn 12 February 2014; (8)Affidavit of Francesco Andreone sworn 17 February 2014.

REASONS FOR REFUSAL OF ADJOURNMENT 5It is common ground that the Respondent was at all material times a director of the incorporated legal practice "Andreones Pty Ltd". At all material times he was the sole director. 6The Law Society first became involved with the Respondent in 2010 when the Firm's book-keeper notified the Society that on 20 January 2010 $80,000.00 of trust money in the trust account had been paid into the office account to pay wages. 7On 18 February 2010, the Law Society suspended the Respondent's Practising Certificate. 8On 26 February 2010, on a Creditor's Petition by the Australian Taxation Office ("ATO"), the company Andreones Pty Ltd was placed in liquidation. The debts claimed by the ATO were substantial amounts of GST and PAYG deductions, and also compulsory employer superannuation contributions that had not been paid. 9The Law Society became aware of certain trust account transactions of the law practice in 2009 regarding counsel's fees, which gave rise to some other grounds in the application. In March and April 2010 the Professional Conduct Committee of the Law Society informed the Respondent that it was considering disciplinary proceedings against him in respect of those transactions and invited him to provide submissions. It appears the Respondent made no submissions. 10On 14 October 2010 the Law Society wrote to the then solicitor for the Respondent, Mr Andrew Brown, listing 12 complaints against the Respondent, noting that the respondent had been invited to respond to the complaints previously but had not provided any response, and enclosing copies of material relating to each complaint. Mr Brown, in his reply of 8 April advised that Respondent had withdrawn his instructions from 28 March 2010. 11By letter of 12 July 2011 the Respondent told the solicitor for the Law Society Professional Standards Committee that he had arranged to obtain legal advice about his position and respond to the Law Society but he needed until 28 July to respond. The solicitor by letter of 14 July advised that she did not have power to extend the time for his submissions, but if he provided any submissions by 5pm on 20 July, she would ensure that they would be placed before the Committee at its meeting on 21 July, when his matter was to be further considered. 12The Respondent did not provide any evidence or submission for the meeting on 21 July. He wrote on 21 July and said: "In the circumstances I will not make any submissions about the resolutions of the Professional Conduct Committee of 30 June or the complaints. However, I reserve my right to make submissions when those complaints are more fully detailed in any action that is taken against me." 13On 7 November 2012, the Law Society wrote to the Respondent advising him that the Professional Conduct Committee of the Law Society at its meeting on 1 November, had considered allegations of non-payment of GST and PAYG deductions to a total of approximately $853,048.00, and in respect of failure to make compulsory superannuation payments in respect of employees in a total amount of approximately $1,101,870.00, and was proposing to recommend that disciplinary proceedings be taken against him alleging that such conduct was professional misconduct and seeking orders for him to be removed from the Roll and for him to pay the costs of the Law Society in the proceedings. The letter invited him to provide any submissions he wished to make in that regard on or before 22 November. On the evidence the Respondent did not make any submissions in response. 14On 15 January 2013, the Law Society wrote again to the Respondent and informed him of the decision of the Professional Conduct Committee on 13 December 2012, in relation to the other grounds in the Application and also the non-payment of GST and PAYG instalments and the failure to pay compulsory employer superannuation contributions. It informed him that the Committee had resolved that a disciplinary application be commenced seeking that he be struck off and that he pay the Law Society's Costs. 15The Application was filed on 24 May 2013 together with the Affidavit of Anne-Marie Foord of 17 January 2013, and the Affidavit of the Trust Account Inspector, James Sofiak, sworn 9 December 2011. It appears copies of those documents were served on the Respondent on or about 24 May 2013. He did not file any Reply. 16On 3 July 2013, there was a Directions Hearing. The Respondent had filed no Reply to the Application and no affidavit material. He was legally represented at the Directions Hearing and ordered to file and serve his Reply and any affidavit material by 31 July. He did not file a Reply and did not file any affidavit material. 17There was a further Directions Hearing on 6 August 2013. The Respondent had filed no Reply and no affidavit material. He was legally represented. He was ordered to file and serve a Reply by the close of business on 30 August. 18On 21 August 2013 about 7 months before the hearing date of 18 February 2014 the Law Society filed and served the last of the affidavits it relied upon, being an updating affidavit of the liquidator, Martin John Green sworn 15 August 2013. 19But on 4 September 2013, the Respondent had still not filed a Reply or any affidavit material. A third order was made for him to file a Reply and any other documents. He was ordered to file them by close of business on 18 September. The Respondent did not comply. He filed his Reply on 19 September almost 4 months after he was served with the application. It was prepared by his solicitors, TressCox Lawyers. He did not file any affidavit material. 20At the Directions Hearing on 2 October 2013 the Respondent was legally represented. The Respondent had not complied with order for filing of his evidence and he was ordered a fourth time to file and serve any evidence. He was given till the close of business on 15 November. The matter was listed on 4 December for a further Directions Hearing. 21At the Directions Hearing on 4 December, the Respondent was legally represented. It was noted that he had not filed any evidence. The proceedings were listed for hearing on 18 February 2014. The hearing date was confirmed in writing by the Registry. 22The Law Society received notice from TressCox on 5 February 2014 that they had: "been instructed to cease acting for Mr Andreone". 23On 12 February 2014, 6 days before the hearing, the present solicitors for the Respondent, Teys Lawyers, contacted the Law Society solicitor and advised that their client was seeking an adjournment of the hearing to enable him to rely on other evidence and sent a letter to the Registry by facsimile requesting an urgent listing of the matter on Friday 14 February to hear an application for an adjournment. The letter advised that the Law Society had informed the solicitor it would not consent to the adjournment. No written application was filed or enclosed with the request. 24The Registry, given that the Application was defended, declined to list the adjournment application on 14 February and instead advised the solicitor on 12 February that the adjournment application would have to be made at the start of the hearing on Tuesday 18 February. 25At the hearing on 18 February the Respondent had filed no affidavit for the hearing; merely 2 affidavits supporting his adjournment application. In seeking an adjournment to allow the Respondent to provide further evidence, his Counsel submitted: (1)Because the Respondent had changed solicitors and given late instructions to the new solicitors, they had insufficient time to prepare for the hearing. (2)The client had chosen and retained Senior Counsel, but that Senior Counsel was not available on 18 February. (3)Because of his suspension by the Law Society the Respondent had been unable to obtain employment providing him an adequate income to fund representation by TressCox Lawyers as they had indicated that they would not do any work on the matter without payment in advance. (4)He wished to obtain and rely upon expert accounting evidence in relation to explaining his financial difficulties and their impact, reconciling the unpaid superannuation entitlements, reconciling the amounts claimed in the Application, and reconciling the fact that the ATO Creditor's Petition was based on an accrual based assessment of income payable with the fact that this situation changed on liquidation with some debts not being recovered. (5)He wanted to respond to further evidence served by the Law Society on about 31 January 2014 (this evidence was not identified and it was not before the panel). (6)He wished to obtain expert medical evidence from his General Practitioner and a Specialist as to his health in 2009 and 2010, particularly a diagnosis of prostate cancer, and tests in January, February and March 2010 followed by a radical prostatectomy on 5 May 2010. (7)No public interest would be conflicted by the granting of an adjournment. 26Mr Teys in his Affidavit testified that in his experience as a solicitor since 1985, the hearing of the proceedings would take between 2 and 3 days; not 1 day as fixed for the hearing. 27Mr Teys said in his Affidavit: "If the hearing proceeds, the Respondent will be seriously prejudiced in the way in which evidence is presented on his behalf". 28Mr Teys informed the Tribunal the Respondent had obtained paid work at the end of January and had then contacted Mr Franco Corsaro SC, who said he could not appear on 18 February. Mr McManus, counsel for the Respondent, was not briefed until the night of Friday, 14 February, and did not meet the Respondent until they had a conference on 17 February, the day before the hearing. 29Counsel for the Respondent informed the Tribunal that the Respondent was willing to pay the costs of the Law Society thrown away by an adjournment. He sought an adjournment of 2 months. However, the Respondent's evidence was that he only obtained employment from 28 January for "several months" as a consultant (not in a legal practice) and from that source he proposed to pay his own legal costs (including junior and senior counsel and reports by a medical expert and an accountant) and he believed he will also have sufficient income from that few months to also pay the costs of the Law Society of the adjournment. 30But he did not disclose what his income will be from his work and provided no other evidence of his financial circumstances 31Without more detailed evidence the Tribunal is not persuaded that he is likely to be able to pay his own costs of the proceedings and the Law Society costs of the adjournment. 32Mr McManus told the Tribunal that the Respondent had a solicitor acting for him, Mr Andrew Brown, when investigations were under way. But throughout that period there was no substantive response by the Respondent, nor was there when TressCox were acting for him. 33The submission of the Law Society, which the Tribunal accepts, was also that the evidence offered by the Respondent did not indicate that there would be any significant difference in the figures of alleged non-payment of GST and PAYG instalments or of superannuation contributions and the amounts would still be substantial, even if reduced. 34It was also submitted on behalf of the Law Society that the adjournment would cause more inconvenience and expense to the Tribunal and inconvenience to the Law Society. It was also submitted on behalf of the Law Society that under sec.51 of the NCAT Act there is a broad adjournment power, but the guiding principle under sec.36 is that there be resolution of the proceedings that is just, but also, "quick and cheap". This submission is of substantial weight given the history of repeated adjournments already, because of the Respondent's failure to prepare and to comply with orders. 35Mr McManus in reply said that the evidence as sought would not just go to the ATO figures, but also to the circumstances surrounding the grounds and also deal with the Respondent's poor health and consequent stress and was likely to satisfy the Tribunal that he should not be struck off. 36The Respondent first became aware of problems (which became grounds in the Application) in early 2010, 2 years before the hearing date. The seriousness of that was demonstrated when the Law Society suspended his Practising Certificate on 18 February 2010. 37In the 2 years after that, the Respondent repeatedly delayed the proceedings (and increased the costs incurred by the Law Society, by himself and by the Tribunal) by failing to file any Reply and then continuing to fail to do that notwithstanding repeated orders by the Tribunal. He also did the same in relation to evidence. Although he was legally represented, he repeatedly failed to comply with orders for him to file and serve evidence. Even when he filed his Reply, he did not file any evidence. It was always open to him to personally prepare, file and serve an affidavit by himself. He did not do so. 38 There is no evidence he was not able to prepare some evidence himself for the hearing or that he was unable to obtain financial assistance or legal assistance. There was no evidence that he sought such assistance except in relation to TressCox and his present solicitors. It appears that he did not engage his present solicitors until 12 February, 6 days before the hearing. 39All of these failings on the part of the Respondent occurred in the context of very serious allegations, including misappropriation of substantial trust money. 40The respondent had been a solicitor for about 24 years. Over the 2 years since his suspension the Respondent did not display any diligence in protecting his own interests in the proceedings and occasioned considerable inconvenience and costs to the Law Society and the Tribunal. 41The Tribunal decided to refuse the adjournment. The first stage of the hearing (the grounds) could be conducted and if there are findings of unsatisfactory professional conduct or professional misconduct against him, the respondent would still then have an opportunity to provide evidence and submissions as to the appropriate outcome. 42The granting of an adjournment is not necessary to avoid an injustice to the Respondent. On the contrary, the Respondent is the author of his own predicament and the tribunal has given numerous opportunities for the Respondent to avoid that predicament, but the respondent has not. 43The Tribunal therefore was satisfied that any prejudice to the Respondent occasioned by refusal of his adjournment application would result from his own conduct and the refusal of the adjournment was not unfair to him. 44Insofar as the submissions from the Respondent's counsel filed on 25 February made factual submissions relevant to this stage of the hearing, but not supported by evidence otherwise before the Tribunal, those submissions have been disregarded in arriving at these reasons.

OBLIGATIONS OF DIRECTORS OF INCORPORATED LEGAL PRACTICE 45"Part 2.6 of the Act deals with incorporated legal practices and multi-disciplinary partnerships. A "legal practitioner director" is defined in s. 133 as "a director of an incorporated legal practice who is an Australian legal practitioner holding an unrestricted Practising Certificate". The Respondent falls within that definition in relation to the period since the incorporation of the law practice. Para 7(1)(a) provides that a legal practitioner director is for purposes of the Act included in the expression "associate" of the incorporated legal practice and para 7(3) (c) provides that a legal practitioner director is a "principal" of the law practice. At all material times the Respondent was the sole principal of the law practice. 46An incorporated legal practice must have at least one legal practitioner director (s.140 of the Act). Section 141 of the Act provides: 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. 47Section 143 deals with "obligations and privileges of practitioners who are officers or employees". It provides: 143 Obligations and privileges of practitioners who are officers or employees (1) An Australian legal practitioner who provides legal services on behalf of an incorporated legal practice in the capacity of an officer or employee of the practice: (a) is not excused from compliance with professional obligations as an Australian legal practitioner, or any obligations as an Australian legal practitioner under any law, and (b) does not lose the professional privileges of an Australian legal practitioner. (2) For the purposes only of subsection (1), the professional obligations and professional privileges of a practitioner apply as if: (a) where there are 2 or more legal practitioner directors of an incorporated legal practice-the practice were a partnership of the legal practitioner directors and the employees of the practice were employees of the legal practitioner directors, or
(b) where there is only 1 legal practitioner director of an incorporated legal practice-the practice were a sole practitioner and the employees of the practice were employees of the legal practitioner director. (3) The law relating to client legal privilege (or other legal professional privilege) is not excluded or otherwise affected because an Australian legal practitioner is acting in the capacity of an officer or employee of an incorporated legal practice. (4) The directors of an incorporated legal practice do not breach their duties as directors merely because legal services are provided pro bono by an Australian legal practitioner employed by the practice. 48Para 143(2)(b) applies to the Respondent. Legal profession rules that apply to Australian legal practitioners also apply to Australian legal practitioners who are officers or employees of an incorporated legal practice, unless the rules otherwise provide (s.148 of the Act).

AGREED CIRCUMSTANCES 49The parties are agreed that the solicitor was admitted to practice on 4 July 1986. On 1 July 2001 he commenced practice on his own account under the Firm name "Andreones Lawyers" ["the Firm"]. 50On 16 October 2001 the Firm became an Incorporated Law Practice owned by Andreones Pty Ltd ["the Company"]. The solicitor was a director of the Company. 51At all material times the Firm conducted it's trust account with Macquarie Bank by an account styled "Andreones Pty Ltd - Law Practice Trust Account" ["the trust account"]. 52At all material the Firm conducted its Office Account with Macquarie Bank by an account styled "Andreones Pty Ltd" ["the office account"]. 53On 18 February 2010 the Council of the NSW Law Society suspended the solicitor's Practising Certificate. On 26 February 2010 by order of the Federal Court of Australia, Martin John Green was appointed Official Liquidator of the Company ["the Official Liquidator"]. 54As at 26 February 2010 the solicitor was the sole director and secretary of the Company. 55On 1 March 2010 the Council of the NSW Law Society appointed Raymond John Collins as Manager of the Firm pursuant to s. 623 of the Legal Profession Act 2004. 56On the dates set out in the table below, the solicitor received from or at the direction of certain clients, funds to pay fees owing to Counsel, briefed by the solicitor on behalf of those clients: DATE CLIENT COUNSEL $ AMOUNT 21/08/2009 Owners Strata Plan 62327 Jackman S.C. $4,400.00 02/09/2009 Owners Strata Plan 58068 Jackman S.C. $43,257.50 02/09/2009 Owners Strata Plan 58068 Young $13,956.25 19/08/2009, 09/11/2009 Owners Strata Plan 62254 Jackman S.C. $12,980.00 TOTAL $74,593.75

57Those funds were deposited to the office account of the Firm. 58In consequence of a Creditor's Petition brought by the Australian Taxation Office ["ATO"], the Federal Court of Australia on 26 February 2010 appointed the Official Liquidator of Andreones Pty Ltd. 59The Creditor's Petition specified a figure of $853,048.00 in respect of GST and PAYG instalments not remitted by the Firm to the ATO. In these proceedings the Respondent denies that amount was correct. 60The Creditor's Petition also specified a figure of $1,101,870.00 in respect of compulsory superannuation contributions not made by the Company in respect of its employees. The Respondent denies that the figure specified was the amount the Company owed.

SECTIONS OF THE LEGAL PROFESSION ACT 2004 REFERRED TO IN THE GROUNDS 61The following are the sections of the Act referred to in the Grounds in the Application: 254 Certain trust money to be deposited in general trust account (1) Subject to section 258A, as soon as practicable after receiving trust money, a law practice must deposit the money in a general trust account of the practice unless: (a) the practice has a written direction by an appropriate person to deal with it otherwise than by depositing it in the account, or (b) the money is controlled money, or (c) the money is transit money, or (d) the money is the subject of a power given to the practice or an associate of the practice to deal with the money for or on behalf of another person. Maximum penalty: 100 penalty units. (2) Subject to section 258A, a law practice that has received money that is the subject of a written direction mentioned in subsection (1) (a) must deal with the money in accordance with the direction: (a) within the period (if any) specified in the direction, or (b) subject to paragraph (a), as soon as practicable after it is received. Maximum penalty: 100 penalty units. (3) The law practice must keep a written direction mentioned in subsection (1) (a) for the period prescribed by the regulations. Maximum penalty: 50 penalty units. (5) A person is an "appropriate person" for the purposes of this section if the person is legally entitled to give the law practice directions in respect of dealings with the trust money. 255 Holding, disbursing and accounting for trust money (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. Maximum penalty: 50 penalty units. (2) Subsection (1) applies subject to an order of a court of competent jurisdiction or as authorised by law. (3) The law practice must account for the trust money as required by the regulations. Maximum penalty: 50 penalty units. 262 Deficiency in trust account (1) An Australian legal practitioner is guilty of an offence if he or she, without reasonable excuse, causes: (a) a deficiency in any trust account or trust ledger account, or (b) a failure to pay or deliver any trust money. Maximum penalty: 200 penalty units. (2) A reference in subsection (1) to an account includes a reference to an account of the practitioner or of the law practice of which the practitioner is an associate. (3) In this section: "cause" includes be responsible for. "deficiency" in a trust account or trust ledger account includes the non-inclusion or exclusion of the whole or any part of an amount that is required to be included in the account. 263 Reporting certain irregularities and suspected irregularities (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 practice's trust accounts or trust ledger accounts, the associate must give written notice of the irregularity to: (a) the Law Society Council, and (b) if a corresponding authority is responsible for the regulation of the accounts concerned-the corresponding authority. Maximum penalty: 50 penalty units. (2) If an Australian legal practitioner believes on reasonable grounds that there is an irregularity in connection with the receipt, recording or disbursement of any trust money received by a law practice of which the practitioner is not a legal practitioner associate, the practitioner must, as soon as practicable after forming the belief, give written notice of it to: (a) the Law Society Council, and (b) if a corresponding authority is responsible for the regulation of the accounts relating to the trust money concerned-the corresponding authority. Maximum penalty: 50 penalty units. 62(3) An Australian legal practitioner is not liable for any loss or damage suffered by another person as a result of the practitioner's compliance with subsection (1) or (2).

UNSATISFACTORY PROFESSIONAL CONDUCT AND PROFESSIONAL MISCONDUCT 63The relevant legislative provisions in relation to these issues are set out below: 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. 497Professional 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.

MISAPPROPRIATION - BARRISTERS' FEES 64The funds listed in para 56 were provided by or on behalf of clients to the law practice for payment of barrister's fees as detailed in para 56. The barrister's fees were included as disbursements in bills to the clients but had not been paid by the Firm, so the funds provided by the clients in payment of the bills were, to the extent of the amounts of the barristers' fees, trust money paid to the Firm for payment to the barristers. 65The funds (total $74,593.75) were by 5 payments. The Respondent says in his Reply they were paid by the clients by electronic funds transferred to the office account. But there is evidence in the Firm's records that two of the payments were by a single cheque, which the Firm deposited to the office account. 66The evidence is that the Counsel's fees had not been paid by the Firm when each of the amounts were received. The funds were for payment of Counsel's fees and were therefore trust funds. If they were paid to the Firm other than by direct transfer, then the decision to deposit the funds in the office account was a misappropriation by the Firm. 67If the funds were paid by the clients by direct electronic funds transfer to the office account, that raises a question of how the 3 payments of funds over the period 21 August 2009 to 9 November 2009 by 2 different clients were all paid by electronic transfer to the office account of the Firm, instead of to the trust account. 68At pages 60-61 of the Affidavit of Anne-Marie Foord there is a copy of the bill for one of the clients: "The Owners - Strata Plan No. 58068". The cover page of the bill is a printed format, which includes a "payment slip". Under the invoice number, total amount due, and due date, is an instruction, "Please turn over for how to pay". 69There is no copy of the reverse side of the payment slip in evidence. 70On all the evidence, it appears that the instruction for direct payment on the reverse side of the payment slip identifies the account to which the funds were to be directly deposited using the account number of the office account, rather than the trust account. In other words, the Firm instructed the clients to pay the money to the office account, even where they were or included trust money. The Tribunal is comfortably satisfied that by that method or other means the clients who made those 3 payments were instructed by the Firm to pay them to an account of the Firm that was the Office Account. 71At pages 66 - 68 of the affidavit of Anne-Marie Foord there is evidence that on 17 August 2009 the law practice received into its office account a payment $15,416.50 part payment of costs and disbursements. The disbursements included Counsel's fees of $12,980.00 for Mr Jackman. On 9 November 2009 Settlement funds of $630,719.37 were received from the Owners SP 62254 into the trust account and on the same day $119,280.63 of those trust funds were transferred to the office account for the balance of costs and disbursements. But none of Mr Jackman's fees of $12,980.00 were paid. The receipt of $15,416.50 into office account and transfer of $119,280.63 from the trust account to the office account were a misappropriation of the client's trust money to the extent of Mr Jackman's fees of 12,90.00 72In relation to the transaction on 21 August 2009, there is evidence at page 59 of the affidavit of Anne-Marie Foord that the Firm included Fees of Mr Jackman of $4,400.00 in its bill and received the full amount of the bill ($5,875.87) by direct deposit into its office account. It did not pay Mr Jackman. The receipt of the trust money to pay Mr Jackman into the office account, apparently at the direction of the Firm, was a misappropriation of those trust funds of $4,400.00. 73The 2 amounts in para 47 dated 2 September 2009 were $43,257.50 for Mr Jackman and $13,956.25 for Mr Young. There is evidence at pages 60-65 of the affidavit of Anne-Marie Foord. The fees of Mr Jackson and Mr Young and the applicable GST were included in the bill to the client of 28 August 2009 for a total of $116,778.98 of which the fees of Mr Jackman and Mr Young (including GST payable to them) was $57,231.75. The client paid precisely that amount by cheque as part payment of the bill on 2 September 2009. On the evidence that payment was for payment of the 2 barristers, and was trust money for that purpose. But neither of the barristers were paid. Instead the Firm deposited that cheque into the office account. That was a misappropriation of the trust funds paid by the client for payment to the barristers. 74The $74,593.75 of trust money to pay barristers' fees was misappropriated because instead of using it to pay the barristers, the Firm deposited it into the overdrawn Office Account, thereby using it to reduce the Firm's debt to its bank. We are comfortably satisfied that the Respondent was aware that the cheque was or included trust money and knowingly caused it to be deposited to the office account. Similarly the direct deposits by the clients to the office account were a result intended by the Respondent by causing the provision of direct deposit payment instructions on the bills to the clients that specified the number of the Office Account instead of the Trust Account. His conduct in relation to each amount was dishonest and fraudulent. It was prohibited by the Act and under the criminal law. It was clearly professional misconduct

FAILURE TO PAY COUNSEL'S FEES 75With regard to the Counsel's fees listed in paragraph 56, the Tribunal is comfortably satisfied that the Respondent and the Firm failed to pay each amount of Counsel's fees. 76There are numerous decisions establishing the personal duty of a solicitor to pay fees of a barrister retained by the solicitor on behalf of a client. It has also been established that "wilful or persistent refusal to pay Counsel's fees can amount to professional misconduct on the part of a solicitor" (Re: Robb (1996) 134FLR294 at page 310; Law Society v McCarthy (2003) NSWADT 58 at para 43; and Council of the Law Society of NSW v Beazley [2012] NSWADT 153). 77In Law Society of NSW v Davidson [2007] NSWADT 264, the solicitor delayed for periods of 1 - 4 months the payment of barrister's fees and consultant's fees for a total of 6 different people. The Tribunal found that the delays were: "Not a mere matter of oversight or misapprehension as to the solicitor's obligation to pay those disbursements". It found that the delays were deliberate. It found that he: "Failed to pay third parties within a reasonable time". It held: "... persistent delay in the payment of moneys due to third parties constitutes professional misconduct". It held that the solicitor was guilty of professional misconduct in relation to the delayed payment of each of the 6 persons. 78In Council of the Law Society of NSW v Beazley [2012] NSWADT153, in the particular circumstances of the failure of Mr Beazley to pay barrister's fees, the Tribunal held that his conduct was neither professional misconduct nor unsatisfactory professional misconduct. The solicitor there had not signed the costs agreement for an appeal. He had sent it to the client for signing. 79Here there were failures to pay 5 amounts of counsel's fees billed to clients all in about August & September 2009. That is a pattern. It is now approaching 5 years since the bills, but the Respondent has paid no part of the barristers' fees. His failure to pay is wilful and persistent. 80The Tribunal finds that the 5 occasions of failure to pay barrister's fees constituted professional misconduct as it was unsatisfactory professional conduct involving substantial failure to maintain a reasonable standard of competence and diligence. 81The deposit of these amounts of trust money to the office account in each case also constituted a breach of s. 254(1) of the Act (the requirement to deposit trust money to a trust account). The failure to use the trust money to pay the relevant barristers' fees was in each case a breach of section 255(1) (the requirement to hold trust money exclusively for the person on whose behalf it is received and to disburse it only in accordance with a direction given by the person).

MISAPPROPRIATION OF TRUST FUNDS OF $80,000 82The evidence in relation to this Ground comes largely from the Affidavit of the trust account investigator, Mr James Sofiak, sworn 9 December 2011. 83On 20 January 2010, $80,000.00 was transferred from the trust account of the Firm to the office account. The transfer was effected electronically by the Respondent. 84The office account had an overdraft limit of $550,000.00. The Respondent says that from time to time the Bank has agreed to extend that limit temporarily. On 20 January 2010 the office account was in overdraft to the extent of $543,291.21. There is no evidence that at that time the Bank had agreed to any extension of the overdraft. On that day when the $80,000.00 of trust money was transferred to the office account, wages of $78,881.85 were paid the same day to employees of the Firm, leaving an overdraft balance of $542,153.05. 85The transfer of $80,000.00 resulted in a deficiency of $80,000.00 in the trust account. 86At the time the $80,000.00 was transferred from the Trust Account the Respondent was negotiating with the Australian Taxation Office in respect of unpaid amounts of PAYE Tax and Goods & Services Tax and also in respect of compulsory employer contributions to superannuation of employees. Indeed, after the deposit of the $80,000.00 into the office account on 20 January 2010 a cheque for $50,000.00 drawn on the office account payable to the Australian Taxation Office was presented the following day and dishonoured, presumably because the trust account was already overdrawn $564,553.76. 87On Monday, 1 February 2010, the part-time book-keeper for the Firm e-mailed the Respondent in relation to the $80,000.00 transaction and asked: "What matter does the $80,000.00 transferred from trust on 20 January 2010 relate to?" 88Subsequently, the Respondent told the book-keeper that the transfer was in error and should have been from another account. She was not aware of any other account on which $80,000.00 could be transferred. On 8 February, a week later, the book-keeper ascertained that the $80,000.00 deficiency in the trust account had not been rectified and in an e-mail to the Respondent she said: "Have you contacted the Law Society regarding this issue? The money has still not been replaced. I will print out a possible trust to office transfer to see if I can validate some of the transfer. Not sure what else I can do or say." 89The Respondent in a response to that e-mail sent at 9.37am said: "I have spoken to the Law Society and this is now covered until the end of the week when I am to have rectified everything, so we can fix the accounting stuff next Monday". 90The book-keeper then contacted the Law Society by telephone and then reported the matter by e-mail at 10.30am on 8 February 2010. The Respondent had not notified the Law Society in respect of the transaction or the deficiency in the trust account. 91Later on 8 February the trust account investigator contacted the Respondent by telephone. The Respondent told the investigator that he would rectify the deficiency and provide notice of the deficiency to the Law Society under s. 263 of the Act as soon as possible. The investigator told the Respondent that if he did not receive evidence of the rectification and provision of the notice by close of business on 8 February, he would visit the Firm on 9 February. 92The investigator in the telephone conversation with the Respondent informed the Respondent: "It needs to be fixed immediately and you are required to notify the Law Society under the provisions of s.263". The Respondent said: "I will get onto it A.S.A.P." 93There was no further response from the Respondent on 8 February so the investigator visited the office of the Firm the following morning unannounced. He was told that the Respondent was not in the office at the time. The Respondent subsequently telephoned the investigator and told the investigator he would be back at the office at 1pm. The investigator arranged to meet the Respondent at the office at that time. 94When the meeting occurred, the Respondent said that he had not rectified the deficiency. He said: "Not yet, I'm working on it." 95When asked how the deficiency occurred, the Respondent told the investigator: "I was short in the office account, so I tried to get money out of my private property trust account. The trust account, my office account and my private account are all with the Macquarie Bank. In error, I took it from the trust account." 96At the request of the investigator, the Respondent printed copies of the statements for the trust account, the office account and the "Nortia Trust" account, all of which were with the Macquarie Bank. The investigator noted that the balance of the Nortia Trust account as at 20 January 2010 was only $109.21. When he informed the Respondent that there were insufficient funds in that account to cover the $80,000.00, the Respondent said: "The account is linked to my personal overdraft account and my credit facility account with the Macquarie Bank. The facility account gives me access to $100,000.00." When the investigator then requested a print-out of the bank statements for the overdraft account and credit facility account, the Respondent said: "They don't have bank statements". 97The investigator asked the Respondent: "If you had this money available to you why didn't you rectify the deficiency immediately using these facilities?", to which the Respondent said: "What happened was that by the time I found out, I had already made payments for investments from the credit facility, so that there was insufficient funds to rectify the deficiency." When asked why he did not get the money back from the other investments, he said: "You can't do that immediately, it takes time." 98The investigator told the Respondent that he wanted him to understand how serious his conduct was. He told the Respondent that he would leave the office and return to his office to prepare a report. He told him that he wanted copies of documents sent to him by e-mail that day and wrote down a list. He said he would be submitting his report some time on 10 February, "and if you have not rectified the deficiency, I will recommend the appointment of a Receiver". The Respondent said: "I will have the money back in tomorrow by 12". The investigator instructed him: "Telephone me as soon as it is in". 99On 10 February 2010 at 9.09am the Respondent forwarded notification to the Law Society under s. 263 and his explanation as to how the deficiency occurred. He said in that explanation: "As I explained the mistake and transfer occurred when I was transferring money electronically to cover the payment of wages for January 2010. The company operates trust accounts and the office account with Macquarie Bank Ltd. I also operate a personal account and a private discretionary trust account (The Nortia Trust) with Macquarie Bank Ltd. All of these accounts are accessed via the same electronic banking portal. On 20 January 2010 there was insufficient clear funds in the office account so I determined to pay $80,000.00 from my discretionary trust to Andreones Pty Ltd to cover those payment. I am able to do that because my various arrangements with Macquarie Bank Ltd mean that they allow me to operate formal and informal overdraft facilities and will honour payments exceeding formal limits for short periods on the basis of prompt repayment. However, whilst rushing to make the payments before close of business I inadvertently selected the office trust account rather than my discretionary trust account and effected the transfer. I then made payments of wages as planned." 100The relevant bank statement for the account of the Nortia Trust shows that at no time in January 2010 did the credit balance of that account exceed $14,850.00. As at 29 January 2010 there was $110.79 in the account from which a service charge of $16.60 was deducted that day and the then balance of $94.19 was the same till the end of the month for January. 101It was not until after 12.20pm on 10 February 2010 that the Respondent deposited a personal cheque for $80,000.00 in the trust account for the purpose of rectifying the deficiency. When the investigator prepared his report of 10 February that cheque had not yet been cleared. 102The Respondent did not provide the investigator with any corroboration of his allegation that Macquarie Bank would have accommodated him transferring $80,000.00 from the Nortia Trust account when it had a balance of only $94.19. Nor has he provided any such evidence to the Law Society subsequently or to the Tribunal. 103The Respondent made submissions to the Law Society on 18 February 2010 where he again said that the transfer of the funds was an error. He did not repeat in that letter the allegation that the Macquarie Bank would have accommodated the transfer of $80,000.00 from the Nortia Trust account notwithstanding that it had an account balance of less than $100.00. 104The Respondent did not provide to the Law Society or to the Tribunal any evidence to substantiate his explanation of the delay in notifying the trust account deficiency, which was that after the wages had been paid, he had used funds available to him by his "personal overdraft account" and "credit facility account" with the Macquarie Bank for investments. 105We note that he did not have the funds to pay the Australian Taxation Office, but he sought to explain his delay in rectifying the deficiency by saying he was using the funds that would have been available to rectify the deficiency for investments because he was unaware of the deficiency. 106The Tribunal is comfortably satisfied that the Respondent knew when he made the electronic transfer that he was transferring the money from the trust account and knew that it was not being transferred from the Nortia trust account. 107The Tribunal is comfortably satisfied that when the Respondent transferred the $80,000.00 he knew that he was transferring trust money to the office account, and he knew that that was prohibited by law and created a deficiency of $80,000.00 in the trust account. 108The transfer of $80,000.00 of trust money into the overdrawn office account offset the trust money against the overdraft balance and was a misappropriation of trust money. It was fraudulent. It was clearly professional misconduct. 109The conduct of the Respondent in relation to the $80,000.00 also constituted breach of s.255 (disbursing trust money from a trust account without client authority), breach of s. 262 (causing deficiency of $80,000.00 in trust account) and breach of s.263 (2) (failure of a legal practitioner associate to notify Law Society in writing as soon as practicable of irregularity in connection with disbursement of trust money).

FAILURE TO PAY GST and PAYE DEDUCTIONS 110The Firm was required by law to remit to the ATO GST billed against clients in respect of charges for the work done for them and PAYE deductions from employees' wages. It is common ground that the Respondent and the Firm failed to do this and the failure was a continuing breach of the law which at the time of the Creditor's Petition by the ATO on 26 February 2010 involved a total of $853,048.00. It is clear that the failure to pay these amounts commenced in 2009 and continued in 2010. Given the amount it is clear it occurred over numerous months. Payment of these amounts was required by law and was part of the Respondent's civic duties. 111The evidence of the Official Liquidator of Andreones Pty Ltd sworn on 15 August 2013 is that the amount of $853,048.00: "reflects accurately a taxation debt owed by the company to the Australian Taxation Office". 112The pattern of conduct of the respondent in failing to remit PAYE deductions and GST billed involved him preferring his own financial interests (including continuance of the law practice) over those of the employees of the practice and the taxpayers. That conduct fell within the provisions of paragraph 497(1)(a) of the Act in that it was a substantial failure to maintain a reasonable standard of competence and diligence. The conduct also fell within the description of professional misconduct contained in the English Court of Appeal's decision in Allinson v General Council for Medical Education and Registration [1894] 1 QB 750 as "something ..which would be reasonably regarded as disgraceful or dishonourable by professional brethren of good repute and competency" 113The Tribunal is comfortably satisfied that the Respondent's failures to remit PAYE deductions and GST were professional misconduct.

UNPAID COMPULSORY EMPLOYER CONTRIBUTIONS FOR EMPLOYEES' SUPERANNUATION 114By the Superannuation Guarantee Charge Act 1992 (Cth) the Firm was required to contribute compulsory contributions to the superannuation of its employees calculated as 9% of the employee remuneration. It appears that the failure to make these payments commenced during 2009 and continued in 2010. 115In its Creditor's Petition the ATO alleged that the amount owing was $1,101,870.00 in respect of compulsory superannuation payments which the company failed to pay in respect of its employees. However, more recent evidence is provided by the Official Liquidator of the company and in his Affidavit of 15 August 2013 he said that the amount of "non-remitted superannuation based on the evidence provided to me is between $200,000.00 and $255,000.00." 116He says that the reason for the uncertainty is that he is still awaiting further evidence from some employees. He said in his Affidavit: "I can state that at least $200,000.00 is owed by the company to the ATO in respect of non-remitted superannuation and that this sum is currently proved on the evidence available to me." 117The Tribunal is comfortably satisfied that the Respondent knowingly failed to pay compulsory superannuation contributions that the Firm was liable to pay for its employees. 118In NSW Bar Association v Cummins [2001] NSWCA 284 Spigelman CJ (with whom Mason P and Handley JA agreed ) held that the barrister's failure to pay money for employee superannuation, PAYE tax deductions and GST was "an inexcusable pattern of illegal conduct in complete defiance of his civic duties" and constituted professional misconduct. 119There have been numerous subsequent decisions by the disciplinary tribunal where a solicitor who had a legal obligation to pay compulsory employer superannuation contributions in respect of an employee or employees was found guilty of professional misconduct. Examples are Council of the Law Society of NSW v Bouzanis [2006] NSWADT 55; Law Society of New South Wales v Vosnakis [2007] NSWADT 42; Law Society of New South Wales v Somerfield [2008] NSWADT 235; Law Society of New South Wales v Koffel ]2010 NSWADT 149; Law Society of New South Wales v Gillroy [2010] NSWADT 232; Council of the Law Society of NSW v Dalla [2011]NSWADT 130; Council of the Law Society of NSW v Adams [2011] NSWADT 177; and Council of the Law Society of NSW v Kingston [2014] NSWCATOD 21. In almost all of those decisions the amount of the default was less than $50,000. In only one of them did the amount exceed $100,000.00. In some of them the solicitor had paid all or most of the money before the disciplinary hearing. 120In these proceedings the amount involved is at least $200,000.00. The conduct of the Respondent involved a breach of his civic obligations and his obligations to his employees. Breach of those obligations was ongoing over numerous months. He has not since discovery of his default paid any part of the amount. The conduct fell within the provisions of paragraph 497(1)(a) of the Act in that it was a substantial failure to maintain a reasonable standard of competence and diligence. 121The conduct also fell within the description of professional misconduct contained in the English Court of Appeal's decision in Allinson v General Council for Medical Education and Registration [1894] 1 QB 750. The Tribunal concludes that the Respondent's conduct in failing to pay compulsory employer contributions to his employee's superannuation was professional misconduct.

FAILURE TO ACCOUNT FOR MONEYS ENTRUSTED TO THE RESPONDENT 122The Tribunal is comfortably satisfied that on each occasion of the failures to pay Counsel's fees, the Respondent and the Firm failed to account to the client for the trust moneys entrusted to them for payment of Counsel's fees. They also failed to account to the counsel on whose behalf they received each such amount. This conduct constituted a series of such failures to account. It was deliberate. It was motivated by an intention to conceal misappropriation of the funds. It was professional misconduct.

FURTHER CONDUCT OF THE PROCEEDINGS 123Given the above findings conduct there should be an opportunity for further evidence or submissions on the question of the appropriate orders that the Tribunal should make. Accordingly the Tribunal makes the following orders: (1)The Respondent is guilty of professional misconduct. (2)The Applicant must file and serve within 14 days of receipt of these reasons any further submissions or evidence it seeks to rely upon as to what orders the Tribunal should make. (3)Within 28 days of receipt of these reasons the Respondent must file and serve any further submissions or evidence he seeks to rely upon as to what orders the Tribunal should make.

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: 07 May 2014

At a glance

Court

Decision date

Catchwords

Source

Catchwords

Judgment (17 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (2)

Cited By (6)