Council of the Law Society of NSW v Batalha

Introduction and procedural history

1. On 12 June 2018 the Council of the Law Society of New South Wales (the Law Society) commenced proceedings 2018/182407 against Luis Batalha (Mr Batalha), by filing an Application for Disciplinary Findings and Orders in this Tribunal.
2. On 2 October 2019 that application was dismissed by the Tribunal (not as currently constituted), with the consent of the parties and with no order as to costs. In its written submissions in the current proceedings, the Law Society said that the application was dismissed as a result of procedural defects of the nature identified in Council of the Law Society of New South Wales v DXW [2019] NSWCATOD 101.
3. On 28 January 2020 the Law Society commenced further proceedings against Mr Batalha by filing an Application (the Application), which attached the application in proceedings 2018/182407 and relied on the same grounds and particulars. The Application also sought orders: 1. As per attached Application in proceedings 2018/182407; and that 2. The material filed by the Applicant in proceedings 2018/182407 be deemed to have been filed in these proceedings.
4. Cl 23(5)(a) of Part 5 to Schedule 9 of the Legal Profession Uniform Law Application Act 2014, (Application Act), incorporated into the Application Act by the Justice Legislation Amendment Act (No 2) 2019 (Justice Amendment Act) provides that: Any proceedings commenced in a court or tribunal by an authorised delegate or subdelegate that were terminated on a relevant invalidity ground during the relevant period at the instigation of an authorised delegate or subdelegate - (a) may be recommenced under the authority of this clause by the same delegate or subdelegate in the court or tribunal on the basis of the applications and other documents by which those proceedings were last commenced.
5. In its Application the Law Society sought an order recommending that Mr Batalha's name be removed from the Roll. The grounds and particulars referred to four separate complaints against Mr Batalha and that he was guilty of professional misconduct in relation to each.
6. None of the complaints were initiated until after July 2015. Thus the applicable legislative regime is the Legal Profession Uniform Law (NSW) (Uniform Law). However two of the complaints related to Mr Batalha's conduct between February and April 2015, that is before the Uniform Law came into force on 1 July 2015. The Law Society characterised this conduct as a breaches of s 254 and of s 260 of the Legal Profession Act 2004 (LPA), rather than as breaches of the Uniform Law.
7. The proceedings were set down for hearing by video link on 22 September 2020. The Law Society was represented by its counsel. Mr Batalha appeared for himself. On 5 August 2020 the Tribunal had also made a direction that: The hearing listed on 22 September 2020 will be a hearing in respect of both Stage 1 (whether the allegations in the complaints relied upon in the application for disciplinary findings and orders are made out) and Stage 2, if necessary (what protective orders are appropriate (necessary only if at least one of the complaints is made out in Stage 1).

Outline of the Law Society's case

1. The first complaint against Mr Batalha was made by another solicitor to the Office of the Legal Services Commissioner and to the Law Society. The Law Society then carried out its own investigation into that complaint. The subsequent complaints were initiated by the Law Society itself. Each complaint was numbered separately and referred to multiple breaches of provisions in the LPA or the Uniform Law, or breaches of the general law, and particulars from one complaint were said to apply to others as well.
2. In its written submissions, the Law Society reformulated its claim as eight separate allegations, rather than as allegations one and two in the first complaint, one, two and three in the second complaint and so on. Mr Batalha accepted this formulation and we have adopted it in these Reasons for Decision.
3. The allegations are as follows:

Complaint by Michelle Collyer 1. Breach of Section 137 of the Legal Profession Uniform Law (NSW) 2. Release of trust funds without authority

Complaint by Law Society - File 42907 1. Misappropriation of trust funds 2. Breach of Section 137 of the Legal Profession Uniform Law (NSW) 3. Breach of Section 146 of the Legal Profession Uniform Law (NSW)

Complaint by Law Society - File 43558 1. Breach of Section 254 of the Legal Profession Act 2004 2. Breach of Section 260 of the Legal Profession Act 2004

Complaint by Law Society - File 43741 1. Misappropriation of trust funds

Outline of Mr Batalha's position

1. Mr Batalha filed two Replies in proceedings 2018/182407. He did not file a reply in the current proceedings, but the earlier pleadings were accepted as his response to the Application. His first reply was in the form of a submission, but the second document responded to the allegations in the Application, paragraph by paragraph, in the conventional way. This Reply contained some limited admissions, but denied the substantive allegations against him.
2. Before the hearing commenced on 22 September 2020, Mr Batalha informed the Tribunal that he now admitted, without qualification, allegations one, four, five, six and seven, leaving only three of the allegations, that is, allegations two, three and eight in issue. He submitted that the Tribunal should find that the admitted matters supported a finding of unsatisfactory professional conduct only, and that he was not guilty of professional misconduct, as alleged by the Law Society.

The relevant factual background

1. This is best explained by referring to the four separate transactions which underlie the complaints, and which involved the transfer of money to and from Mr Batalha's bank accounts. The following facts were common to each transaction: 1. Mr Batalha is and has been since 2 February 2004, the sole Legal Practitioner Director of Batallion Legal Pty Limited (the Law Practice); 2. At all relevant times: 1. the Law Practice operated a Business Transaction account with the Commonwealth Bank (the Office Account); and 2. Mr Batalha had other bank accounts with the Commonwealth Bank, including an Everyday [mortgage] Offset account (the Mortgage Account), an account described as a streamline account (the Streamline Account) and an account described as a MISA Account (the MISA Account #2). 1. The Law Practice did not maintain a general trust account.
2. We have taken these facts (except for the reference to the Streamline Account) from a document entitled Respondent's Statement of Facts. This was a document prepared by the Law Society with marked up amendments from Mr Batalha. The parties had been directed to file an agreed statement of facts, but they had been unable to reach a consensus on a common document. Nevertheless it is evident from this document that many of basic facts were agreed. The Streamline Account was not referred to in that document, but subsequently the parties appear to have agreed that Mr Batalha also held this account.
3. We now set out the specific facts relevant to each of the four transactions. We have taken these matters from the pleadings, as well as from the Statement of Agreed Facts.
4. The transactions, in date order, are as follows: 1. The Tan transaction 1. On 10 February 2015 Mr Batalha received the amount of $18,000 and the amount of $49,830 from his client Mr Halim Tan. These amounts were paid into the Office Account. The funds were settlement monies for a property purchase. 2. On the same day Mr Batalha forwarded a tax invoice to Mr Tan in the amount of $67,830. The invoice referred to professional costs of $500 and the balance of $67,380, as disbursements, including an item referred to as "settlement cheque". 3. On 11 February 2015 an amount of $67,158.32 was withdrawn from the Office Account, comprising settlement funds of $67,158.32 and $10 for a bank cheque. 1. The MVRC transaction 1. On 1 April 2015, Mr Batalha received the amount of $78,370 from his client, MVRC Property Group Pty Limited ("MVRC"). Again, the funds were deposited into the Office Account. 2. The funds were received following a request from Ms Chandni Singh, a director of MVRC, that Mr Batalha assist her in the settlement of a property purchase which required the tender of a bank cheque, by her paying the settlement amount to the Law Practice by EFT, and by Mr Batalha drawing a bank cheque on her behalf. 3. On 1 April 2015, and before the EFT transfer to the Office Account, Mr Batalha forwarded a tax invoice to Ms Singh in the amount of $78,370 which followed the same format as the Tan transaction, in that it claimed $200 plus GST as professional costs and described the balance of $78,150 as disbursements including an amount of $78,088.71 for "settlement funds". 4. On 1 April 2015, Mr Batalha withdrew an amount of $80,000 from the Office Account and deposited it into the Mortgage Account. (This was the allegation in the Application, however in its written submissions the Law Society said that the funds were in fact paid from the Office Account into the MISA Account #2. Nothing appears to turn on this point, and it appears to have been accepted by Mr Batalha). 5. On 7 April 2015 Mr Batalha withdrew the amount of $78,088.71 from the MISA Account #2, obtained a bank cheque for this amount and delivered it to the vendor. 1. The Hitiris transaction 1. On 1 September 2015 Mr Batalha received a request from a client, Mr Nick Hitiris, a director of Tracs RTO Pty Limited ("Tracs"), to assist Mr Hitiris in paying to another Tracs shareholder and fellow director, a dividend of $36,000 due from the company. Mr Batalha agreed to accept these funds and to make the payment to that shareholder and director because Mr Hitris advised him that the company did not have a cheque book. 2. On 4 September 2015 Mr Batalha issued a tax invoice to Mr Hitiris in the amount of $36,520, comprising professional costs of $450 plus GST, and disbursements of $36,025, which included the notation "cheque for ,,,,, dividend". 3. The same day Mr Batalha received a cheque for $36,570 and deposited it into the Office Account. 4. On 6 September 2015, Mr Batalha transferred $40,000 from the Office Account to the Streamline Account, and on the same day $41,000 from that account to the Mortgage Account. On 9 September 2015, Mr Batalha substantially reversed those transactions - that is to say, he paid $40,000 from the Mortgage Account to the Streamline Account and then $36,000 from that account to the Office Account. 5. On 7 September 2015, Mr Batalha drew a cheque on the Office Account in the amount of $36,000 payable to the other shareholder and director. The cheque was presented on 14 September 2015. 1. The Cornock transaction 1. On 3 September 2015, Mr Batalha received a bank cheque for $61,740 from the law firm, Peter Cornock & Associates. The cheque was made out to Batallion Legal Pty Limited and was a deposit for a conveyancing purchase. Mr Batalha's client, Abichandani Investments Pty Limited (Abichandani Investments) was the vendor. The money was deposited into the Office Account. 2. The contract for sale for the relevant property contained the following special condition: 30 Release of deposit: 30.1 The purchaser agrees to the release of all or any part of the deposit to the vendor, immediately upon the vendor requesting it, including, without limitation, upon exchange of contacts. The deposit may be released for any purpose the vendor requests. 1. On 9 September 2015 Mr Batalha transferred an amount of $50,000 from the Office Account to the Streamline Account and then transferred $50,000 from the Mortgage Account to the Abichandani Superannuation Fund. At that date, contracts had not been exchanged for the sale of the property. 2. On 11 September 2015 a further amount of $11,740 was transferred from the Office Account to the Streamline Account and then paid directly from that account to the Abichandani Superannuation Fund. Contracts had still not been exchanged for the sale of the property. 3. On 24 September 2015 Mr Batalha informed Ms Collyer, a solicitor from Peter Cornock & Associates' office who was acting for the purchaser in the transaction, that the deposit had been released to the vendor, although contracts were not exchanged. On 28 September 2015 Ms Collyer notified the Office of the Legal Services Commissioner and the Law Society. 4. On 28 September 2015 the amount of $61,740 was transferred by Mr Batalha from the Mortgage Account to Peter Cornock & Associates' trust account.

The Law Society's Submissions and Evidence

1. The Law Society submitted that: 1. The Tan and MRVC transactions established that Mr Batalha had breached ss 254 and 260 of the LPA - allegations 6 and 7. The MRVC transaction also involved a misappropriation of trust funds - allegation 8; 2. The Hitiris transaction established that Mr Batalha had breached ss137 and 146 of the Uniform Law - allegations 4 and 5, and also involved a misappropriation of trust funds - allegation 3; 3. The Cornock transaction established allegations 1 and 2 - that Mr Batalha had breached s137 of the Uniform Law and that he had released trust funds without authority. It also involved a misappropriation of trust funds - allegation 3.
2. Although only allegations 2,3 and 8 were contested at the hearing, we still need to give some consideration to the admitted matters. This is because Mr Batalha submitted that his conduct in relation to those allegations amounted to unsatisfactory professional conduct only.
3. The Law Society's evidence consisted of the affidavits of James Sofiak, Anne-Marie Foord, Nadya Haddad and Anthony Lean. The exhibit to Ms Foord's affidavit contained a large bundle of documents relevant to each of the allegations, including correspondence between the parties from the time of the instigation of the first complaint. The Law Society also relied on written submissions, including, what it described as its "stage 2 submissions" in relation to penalty.

Mr Batalha's evidence

1. Mr Batalha relied on a detailed affidavit that he had sworn in March 2019. He also filed three affidavits in the week prior to the hearing. At the outset of the hearing he said that he did not intend to rely on the first of these affidavits, but it was later agreed that this affidavit should form part of the evidence. Mr Batalha also relied written submissions filed in the week before the hearing, which, he said, replaced the submissions he had filed in July 2020.

Our findings in respect of the admitted allegations

1. The Tan, MVRC and Hitiris transactions followed a similar pattern - that is, clients of Mr Batalha asked him to make payments to third parties on their behalf. That would have been a straightforward exercise if Mr Batalha had operated a trust account. Instead Mr Batalha paid the monies into his Office Account, rendered small tax invoices for processing the funds (that step was not in itself the subject of any complaint), and then described the payments as disbursements in those invoices.
2. Mr Batalha's initial response to these allegations, was that the funds received were either transit moneys, or that he had written directions to deal with the money otherwise than by depositing it into a general trust account. We do not propose to make findings in relation to these matters given his subsequent admissions. However we make the following observations.
3. S 254(1) of the LPA is in the following terms: (1) Subject to section 258A, as soon as possible 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 and on behalf of another person. Maximum penalty: 100 penalty units.
4. Transit money is defined in s 243 as: money received by a law practice subject to instructions to pay or deliver it to a third party, other than an associate of the practice.
5. S 257(1) provides that: (1) Subject to section 258A, a law practice that has received transit money must pay or deliver the money as required by the instructions relating to the money, (a) within the period (if any) specified in the instructions, or (b) subject to paragraph (a), as soon as practicable after it is received. Maximum penalty: 50 penalty units
6. S137 of the Uniform Law is in relevantly identical terms to s 254(1) of the LPA. S 128 also contains the same definition of transit money as is found in the LPA and s 140 is in relevantly similar terms to s 257 of the LPA.

Allegations 4 and 6

1. Our understanding is that transit money is money received by a law practice, usually in the form of a cheque, which is payable to a third party in order for it to be forwarded to that third party. In other words the money is not capable of payment into the law practice's trust account, although strictly, the money has been entrusted by delivery to that practice. If a wider definition of transit money were to be accepted, it would be difficult to distinguish transit moneys from trust moneys in the ordinary course, in that trust moneys are invariably received subject to instructions, express or implied, to be paid to a third party. Thus we agree that the funds that Mr Batalha received from his clients Mr Tan, Ms Singh and Mr Hitiris, and payable to the Law Practice cannot be construed as transit monies. There was also no evidence put forward by Mr Batalha that he had received written directions from any of these clients authorising him to deal with the money otherwise than by depositing it in a trust account, and in relation to this issue, he had the onus to establish those matters.
2. The funds received were trust moneys and were required to be deposited into a general trust account and not into the Office Account. As Mr Batalha did not have a trust account, and in the absence of written directions from his clients, he should not have accepted the payments.
3. The Law Society's alternative submission was that even if the funds received by Mr Batalha were to be construed as transit moneys, that did not prevent a finding that there had been breaches of s 254(1) of the LPA or s137 of the Uniform Law. The definition of trust money in both statutes includes transit money, so that, although Mr Batalha may not have been obliged to pay this money into a trust account, he was still obliged to otherwise deal with the money as if it were trust money.
4. We have already held that the deposits were trust monies, so it is not necessary for us to determine this submission. However, we doubt that it is correct. S 254 of the LPA and s137 of the Uniform Law are concerned only with the circumstances in which trust money must be deposited into a general trust account, and the receipt of transit money is an exception to the general obligation. It may be that by first transferring the funds to one or more of his other accounts, Mr Batalha's failed to pay these moneys "as soon as practicable" to their intended recipients and that this constituted a breach of the transit money provisions in the LPA and the Uniform Law, but it is difficult to construe this conduct as a breach of s 254 or s137 of the relevant statutes if the funds were truly transit monies.

Allegations 5 and 7

1. The Law Society also alleged that the Tan, MRVC and Hitiris transactions, involved the intermixing of Mr Batalha's clients' funds with other moneys.
2. S 260 of the LPA is in the following terms: (1) A law practice must not, otherwise than as permitted in subsection (2), mix trust money with other money. Maximum penalty: 100 penalty units. (2) A law practice is permitted to mix trust money with other money to the extent only that is authorised by the Law Society Council and in accordance with any conditions imposed by the Law Society Council in relation to the authorisation.
3. The Office Account was the trading account for the Law Practice. By depositing the Tan, MVRC and Hitiris monies into that account, Mr Batalha was intermixing those trust funds with other monies, and thereby in breach s 260 of the LPA (or for the Hitiris deposit, s146 of the Uniform Law which has similar, though not identical wording to s 260 of the LPA).

Allegation 1

1. The last admitted allegation is allegation 1 - that, when paying the deposit funds received from Peter Cornock & Associates into the Office Account, Mr Batalha breached s137 of the Uniform Law. The initial payment of the deposit into the Office Account in the transaction follows a similar pattern to the breaches that we have found to be established in relation to the Tan, MVRC and Hitiris transactions. The only difference was that the funds were received from a third party, that is, from Peter Cornock & Associates' client, rather than from Mr Batalha's clients.
2. In his Reply Mr Batalha had said that the bank cheque for the deposit had been drawn in favour of the Law Practice and not his trust account, and for this reason he was entitled to pay it into the Office Account. However, correctly in our view, this argument was not pressed at the hearing.
3. He also submitted that, as in the Tan, MRVC and Hitiris transactions, the funds were transit monies. We have already rejected that argument. The deposit received by Mr Batalha from Peter Cornock & Associates was trust money and should not have been paid into the Office Account.

Do the admitted allegations constitute professional misconduct

1. This Tribunal has held that breaches, even multiple breaches of the trust account provisions in the Uniform Law or the LPA, do not always constitute professional misconduct. Recent decisions to that effect are Council of the Law Society of New South Wales v Thornton NSWCATOD [2020] 103 and Council of the Law Society of New South Wales v Thadsanamorthy [2019] NSWCATOD 96, where findings of unsatisfactory professional conduct have been made following findings of breaches of this nature. However in these proceedings we have no doubt that the breaches that have been established do amount to professional misconduct on the part of Mr Batalha.
2. This is not a case (except in relation to the Tan transaction), where Mr Batalha simply deposited trust monies into the Office Account and then paid the funds from the Office Account to their intended recipients. Instead the funds were transferred first to one or more of Mr Batalha's personal accounts, before ultimately being paid to their intended recipients. Mr Batalha gave no plausible explanation for transferring the funds internally in this way except to say that he regarded the Mortgage Account as a de facto trust account. The transfers were not made to benefit his clients, nor Peter Cornock & Associates' client nor any of the intended recipients of the funds, but may have benefitted Mr Batalha personally.
3. Furthermore, the amounts of the internal transfers did not match exactly the initial deposits into the Office Account. The only explanation given by Mr Batalha for these discrepancies was that there was a daily limit of $50,000 on the amount that he could transfer between his accounts. This may explain why $50,000 and then separately, $11,740 was transferred from the Office Account to the Streamline Account in the Cornock transaction, but not the other transfers.
4. Also there are the tax invoices that Mr Batalha issued to his clients in relation to the Tan, MVRC and Hitiris transactions, describing the deposits as disbursements. When cross examined about this issue, Mr Batalha said that that it provided his clients with evidence that he had received their deposits. We do not regard that to be a credible explanation. To achieve that purpose Mr Batalha could have issued a simple pro forma receipt. The Law Society did not allege, at least in relation to these allegations, that by documenting the transactions in this way, Mr Batalha had attempted to disguise their true nature or committed any other offence in relation to the transactions. Thus we do not propose to take the invoices into account in relation to determining whether the admitted allegations amount to professional misconduct.

Allegation 2

1. Allegation 2 is that Mr Batalha had released trust funds without authority, when he paid the Cornock deposit in two instalments to his client, Abichandani Superannuation Fund on 9 and 11 September 2015, and before contracts for the sale of the relevant land were exchanged. Mr Batalha did not dispute that he had made the payments as alleged, but said that he had authority to do so.
2. The Law Society had also alleged that not only did Mr Batalha pay the deposit without authority, but that he paid it to the trustee of the Abichandani Superannuation Fund and not to his client, Abichandani Investments. Mr Batalha's response was that Abichandani Investments and the trustee were related corporations and that Abichandani Investments was a custodian entity holding the property on behalf of the trustee. Ultimately this additional claim was not pressed by the Law Society.
3. In relation to his authority to make the payments, Mr Batalha's initial response was that before he had transferred the money, his client had informed him that he had signed the contract for sale. He relied on a file note dated 9 September 2015 of a telephone conversation that day with Mr Manoj Abichandani, in which Mr Abichandani said that he would either post his signed copy of the contract to the Law Practice or would bring it in the following Tuesday.
4. However in his March 2019 affidavit, he had the come to the view that: I should not have released the deposit until such time as I had actually received the physical contract. When cross examined he also conceded that he had no evidence that contracts had been exchanged before he paid the deposit to his client.
5. Alternatively, he maintained that special condition 30.1 in the contract for sale entitled him to release the deposit even before contracts had been exchanged. He regarded the clause as couched in the widest possible language, and that it was plainly intended to provide his client with the fullest possible access to the deposit.

Our findings in respect of allegation 2

1. Mr Batalha's argument that special condition 30.1 entitled him to release the deposit when he did, cannot be correct. It displays a fundamental misunderstanding of basic contractual principles. There was no contract in existence at the time Mr Batalha made the payment, so the construction of special condition 30.1 does not arise for consideration. Thus we do not accept that this explanation provides any justification for his conduct.
2. Allegation 2 in the Application was said to give rise to a charge of Release of trust funds without authority. During the hearing we expressed doubt that such a charge existed under the general law. The Law Society's counsel informed us that it was "not a common sort of complaint" and, although analogous to the charge of misappropriation, it did not require us to make a finding of dishonesty. We asked counsel why the charge had been drafted in this way and to provide us with any decisions of this Tribunal or its predecessors where the issue had been considered. We were not referred to any relevant decisions during the hearing, nor in the list of authorities provided to us by the Law Society after the hearing had concluded.
3. Counsel said that the charge could also be read as an allegation of a breach of s138(1) of the Uniform Law. That section provides that: Except as otherwise provided by this Part, a law practice must - (a) hold money deposited in the law practice's general trust account 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. Civil penalty: 50 penalty units
4. The payment of the deposit to the trustee of Abichandani Supperannuation Fund before the exchange of contracts appears to constitute a breach of s 138(1) of the Uniform Law. However we are not inclined to read the charge in this way. The Application sets out, separately, the statutory breach allegations and the general law misappropriation allegations and then this allegation against Mr Batalha. If allegation 2 was intended to be a statutory breach allegation, it could easily have been drafted in that form, as allegations 1,4,5 6 and 7 had been drafted, but it was not. Furthermore the Law Society did not seek leave to amend its Application after the issue had been raised during the hearing.
5. The guiding principle in s 34 of the Civil and Administrative Tribunal Act 2013 (NCAT Act), is that the Tribunal's role is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. Nevertheless, in Legal Services proceedings, where the professional livelihood of the practitioner is in issue, we consider that a degree of formality and precision is required.

Allegations 3 and 8 - the misappropriation allegations

1. We now turn to the misappropriation allegations. In the course of the four transactions Mr Batalha made three series of transfers, which, in the Law Society's submission, amounted to the misappropriation of trust funds. These were: 1. The transfer of $50,000 from the Office Account to the Streamline Account, and then $54,000 transferred from that account to the Mortgage Account on 9 September 2015, in the course of the Cornock transaction - allegation 3. 2. The transfer of $36,000, being part of the $40,000 transferred from the Office Account to the Streamline Account, and then the transfer of $36,000, being part of the $41,000 transferred from the Streamline Account to the Mortgage Account on 6 September 2015, in the course of the Hitiris transaction - also part of allegation 3. 3. The transfer of $78,000 being part of the $80,000 transferred from the Office Account to the MISA Account #2 on 1 April 2015, in the course of the MVRC transaction - allegation 8.
2. The Law Society accepted that it had the onus of proving "dishonesty" in relation to the misappropriation allegations. As to what constitutes dishonesty in this context, it referred us to the following passage in Brereton v Legal Services Commissioner [2010] VSC 378, where Bell J said: [53] 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 knew 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 honest by the ordinary standards of reasonable and honest people... Thus the course to be adopted in determining whether conduct is dishonest was explained by Toohey and Gaudron JJ in Peters v R [1998] HCA 7 as follows: In a case in which it is necessary for a jury to decide whether an act is dishonest, the proper course is for the trial judge to identify the knowledge, belief or intent which is said to render that act dishonest and to instruct the jury to decide whether the accused had that knowledge, belief or intent and, if so, to determine whether, on that account, the act was dishonest....If the question is whether the act was dishonest according to ordinary notions, it is sufficient that the jury be instructed that that is to be decided by the standards of ordinary decent people. [54] 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.

The Law Society's evidence and submissions regarding the misappropriation allegations

1. In relation to the first stage of the test outlined in Brereton, the Law Society had set out, in considerable detail in its submissions, the knowledge belief or intent said to render the acts dishonest. It also identified the evidence which, in its view, established that Mr Batalha subjectively had the knowledge and belief or intent that his actions were dishonest and thirdly, the reasons why his conduct should be viewed as objectively dishonest.
2. The Law Society had also alleged that between 1 April and 7 April 2015 and between 6 and 14 September 2015, the balance in the Office Account had fallen below the amount necessary to pay the intended recipients in relation to each of the four transactions. However this allegation was not pressed at the hearing presumably because when the monies in Mr Batalha's other accounts were a taken into account, it could not be sustained.

Mr Batalha's evidence and submissions in relation to the misappropriation allegations

1. In his March 2019 affidavit at [48] Mr Batalha said that: a. My subjective intention in transferring the monies to the Mortgage Account was to use the Mortgage Account as a de facto trust account; b. the misapplication of the monies was done without dishonest intent; c. the duration of the misapplication of the monies was short (and had ended well before the matter had come to the attention of the Law Society); and d. the misapplication of the monies did not involve any loss to the client and involved only negligible benefit to the client.
2. To establish that each of the intended recipients of the deposits were paid in full, he also tendered his bank statements, annotated with his comments and also diagrams to show the flow of the funds.
3. He noted that the Law Society's trust account inspector, Mr Sofiak, who attended the Law Practice in October 2015 following the initial complaint from Ms Collyer, stated in the executive summary to his report that the circumstances are such that it is recommended that no further action be taken and that I recommend that no further action be taken by the Professional Standards Department.
4. Lastly, he referred to the statutory declarations that he had obtained from Mr Abichandani and Mr Hitiris. Both stated that they were happy with the service that he had provided and, in particular, that they were comfortable with the manner in which he had dealt with their funds.

The Judgment in Carr v Council of the Law Society of New South Wales

1. On 10 November 2020, after we had reserved our decision, the Law Society wrote to the Registrar to inform the Tribunal that it recently became aware that it had reasonable grounds to believe that a judgment delivered by the Court of Appeal on 4 November 2020, Carr v Council of the Law Society of New South Wales [2020] NSWCA 276, was directly in point against the Law Society's misappropriation case in these proceedings against Mr Batalha.
2. On 30 November 2020, the Tribunal received a further written submission from the Law Society's counsel. The submission noted that: 3. The Court of Appeal relevantly held that the Tribunal's finding that Mr Carr had misappropriated certain monies should be set aside, as there was no misappropriation of any property or any money belonging to the client because upon deposit, the money ceased to be the client's property and became the property of Mr Carr's bankers, being transferred into a debt owed by the bankers to Mr Carr. 4. The complaints of misappropriation against the Respondent in the present proceedings involved deposits made to the Respondent's Office Account. Applying the Carr judgment, the deposits were transformed into choses in action, ceased to be the property of the clients and became the property of the Respondent's bankers. The Respondent's dealings with those deposits did not result in the misappropriation of any property or any money. While the Society considers that there may be a basis to distinguish the Carr judgment on the facts in certain cases, it cannot press its complaint of misappropriation. 5. Consequently, the Society withdraws the following complaints of misappropriation against the Respondent: (these were allegations 3 and 8).
3. Although the Law Society has now withdrawn these allegations, we propose to make some findings in relation to the misappropriation evidence because these findings will be relevant to the consequential orders that we are required to make in "stage 2" of these proceedings.
4. We accept that neither Mr Batalha's clients or any other party suffered any financial loss as a consequence of his actions. However, in relation to the statements in Mr Sofiak's report, it is apparent that when he prepared his executive summary, Mr Sofiak was not aware that Mr Batalha operated other bank accounts in addition to the Office Account. When cross examined, Mr Batalha conceded that he did not inform Mr Sofiak about the existence of these accounts or the transfers to and from them. Also, when Mr Abichandani and Mr Hititis provided their statutory declarations, neither were aware of the internal transfers between those accounts.

The Original Orders sought by the Law Society

1. On the understanding that the Tribunal would find the misappropriation charges to be established, the Law Society had sought an order under s 302(1)(f) of the Uniform Law, recommending that Mr Batalha's name be removed from the roll of practitioners kept by the Supreme Court of New South Wales. During the hearing, the Law Society's counsel submitted that even if the charges were upheld, it it would be open for us to suspend Mr Batalha from practice for a period of time, rather than to recommend removal from the roll.
2. We were referred to Council of the Law Society of New South Wales v Zhukovska [2020] NSWCA 163, where Leeming JA at [146] said that ..... a case of dishonesty or misappropriation ......will ordinarily result in removal from the roll, and to Kumar v Legal Services Commissioner [2015] NSWCA 161, where Leeming JA observed that even a temporary use by a solicitor of his client's funds without prior approval, amounts to a serious and deliberate dishonesty.

The Law Society's position after the Carr Judgment

1. In its further submission received on 30 November 2020, the Law Society said that following its withdrawal of the misappropriation allegations, and on the assumption that the Tribunal found the other complaints to be established, it now sought orders that Mr Batalha receive a reprimand, that he undergo further education (in the terms that we have set out below), and that he pay the Law Society's costs.

The Law Society's submissions on the appropriate penalty

1. Although the Law Society's position has changed significantly since the Carr judgment, we propose to refer to some of the material in its "stage 2" submissions and to Mr Batalha's responses. This is because these submissions traverse each of the allegations against Mr Batalha, not only to the misappropriation charges.
2. Firstly, it was said that Mr Batalha's overall response to the complaints and to the proceedings generally, displayed a lack of insight into the appropriateness of his conduct. By way of example, the Law Society pointed out that in his July 2020 written submissions, he had said: The risk of money being in the Respondent's mortgage offset account was actually lower than placing money in the Respondent's office account. and that his "wrongs": if carefully considered, in the scheme of things, were not so serious.
3. Also it was submitted that Mr Batalha had shown only limited evidence of remorse for his conduct. In his submission filed just before the hearing, he stated: I have apologised, despite the lack of wrongdoing.
4. The Law Society also pointed out that in his July 2020 submissions, Mr Batalha had questioned the motives of the Law Society in pursuing the complaints against him, and that by commencing the 2020 proceedings after proceedings 18/182407 had been dismissed, he had been placed in a position of "double jeopardy". Again this was put forward as evidence of his ongoing lack of insight.

Mr Batalha's submissions in response

1. In his March 2019 affidavit, Mr Batalha had said, at [23] - [26]: 23 Since the start of these proceedings, I have obtained the opportunity to obtain professional legal advice (which I did not obtain during the course of my dealings with the Law Society). I now understand that because I was not able to bring an objective approach to what I considered to be personal attacks against me, the tone of my correspondence was, in instances, inappropriate. 24 As at the date of swearing this affidavit, I accept: a. that the Law Society was simply applying its view of the law to my case; b. that the tone of my correspondence to the Law Society was frequently inappropriate and unhelpful to the advancement of my case; and c. during the course of this correspondence, I did not display the insight (which I now have), that despite what I considered to be (the) unreasonable making of the initial complaint, it was necessary for me to engage with any proper allegation of breach of the relevant legislation. 25 Although I do not expect that I will ever find myself in the position of being subject to a complaint by the Law Society again, I now understand that taking professional legal advice at an earlier stage would have helped me to understand the nature of my obligations to the matters in relation to the matters which the Law Society was investigating. Accordingly, if I am ever the subject of another complaint by the Law Society, I would do it very differently to the way that I dealt with the complaints which are the subject of the present application. 26 I now appreciate that my response to the Law Society indicated a lack of insight into the conduct which the Law Society was investigating. Although I plainly did not have sufficient insight into those matters at the time that the Law Society was investigating them, I now consider that (having had the opportunity to obtain independent legal advice, which has allowed me to understand the professional conduct issues with an objectivity that may have been lacking in my earlier correspondence) that I do have insight into these matters which have led to the current application, as set out by my evidence in this affidavit.
2. In relation to his contrition, Mr Batalha said: The respondent is genuinely sorry for his conduct in 2015. The conduct was unacceptable and for that he sincerely apologizes to the Society and to the Tribunal.

Our findings in relation to the Stage 2 submissions

1. Even if the misappropriation allegations had been pressed and upheld by the Tribunal, we would not have recommended that Mr Batalha's name be removed from the roll. We had formed the view that he was not presently, nor permanently or indefinitely unfit to practise. Nevertheless, consistent with the Tribunal's decisions in Council of the Law Society of New South Wales v Nasr [2015] NSWCATOD 70 and Council of the Law Society of New South Wales v Davidson [2020] NSWCATOD 71, we would have given consideration to making an order that he be issued with a restricted practising certificate.
2. During the hearing we asked the Law Society's counsel why the Law Society had not taken action earlier if it believed that Mr Batalha was unfit to practise, given that all the conduct relied upon had occurred in 2015. We were informed that there had been extensive correspondence between the parties before the Application had been filed, that Mr Batalha had been tardy in filing his Reply and that the decision in DXW had caused further delay.
3. We do not regard those matters as providing a satisfactory answer to our question. The Law Society has other weapons in its arsenal in relation to the issuing of practising certificates which it could have, but did not employ. Also we regard the delay of three years from the receipt of the first complaint until the commencement of proceedings 18/182407 to be unreasonable.
4. Whilst Mr Batalha's March 2019 affidavit gave a very detailed response to the charges against him and displayed evidence of his insight and contrition, it was apparent that in his July 2020 submissions, he had taken a more combative stance. However at the start of the hearing Mr Batalha informed the Tribunal that he did not rely on those submissions and he did not refer to them again. He asked us to rely only on his further written submissions and on his oral evidence and we will therefore not take these earlier submissions into account.
5. We were also able to observe Mr Batalha when giving his evidence under oath and when cross examined by the Law Society's counsel. Initially, we found his responses unsatisfactory in some respects. Rather than answering "yes" or "no", when the question allowed for this form of answer, he tended to give a rambling account of all the facts that he thought relevant to the issue. When this was brought to his attention, he did make a conscious effort to respond directly to the question.

Costs

1. Cl 23(1) of Schedule 5 to the NCAT Act requires the Tribunal to make orders requiring an Australian legal practitioner whom it has found to have engaged in professional misconduct or unsatisfactory professional conduct, to pay the costs of the Law Society, unless it is satisfied that exceptional circumstances exist. The Law Society had submitted and continued to submit even after it had determined not to press the misappropriation charges, that there were no exceptional circumstances and that it should be entitled to its costs.
2. Mr Batalha had raised a number of matters which he said constituted such circumstances. All, except one, in our view, were not relevant. That circumstance was Mr Batalha's claim that he was entitled to seek a costs order against the Law Society when proceedings 18/182407 were dismissed, but chose not to press this claim. As we have already observed, Mr Batalha was legally represented at that time and the proceedings were dismissed by consent and with no order as to costs. There is no materal in Mr Batalha's affidavits or in his oral evidence to support this claim - just his bare assertion that he chose not to ask for his costs. Even if there were evidence in support, it is unlikely that we would have regarded this as constituting an exceptional circumstance.
3. Mr Batalha now submits that the withdrawal of the misappropriation charges constitutes further exceptional circumstances which justify the displacement of the usual costs rule. We agree with that position. The Law Society should only be entitled to its costs in respect to those charges which have been established, and Mr Batalha should be entitled to his costs in relation to the allegations withdrawn after the hearing and also in relation to allegation 2 which we have dismissed. If the misappropriation charges had been withdrawn before the hearing and not fully argued, Mr Batalha might not have been entitled to his costs in relation to those matters, but that is not what occurred. Furthermore, when we reserved our decision on 22 September 2020, the Law Society did not inform the Tribunal that the decision in Carr was pending, although it had been heard in the Court of Appeal on 30 June 2020.
4. In Council of the Law Society of New South Wales v Wehbe [2018] NSWCATOD 14, the Tribunal observed, when awarding costs, that it was not uncommon for the Law Society to fail to establish every element of its case, whilst succeeding overall. That was a very different situation to what has occurred in these proceedings where a very significant part of the Law Society's case has been unsuccessful, or not pressed and only after the Tribunal had reserved its decision. Whilst it is difficult to assess precisely how costs should be apportioned in these circumstances between the successful and the unsuccessful charges, we estimate that not less than 50% of the Law Society's costs were incurred in relation to the misappropriation charges and allegation 2.

Orders

1. The orders we make are as follows: 1. The Respondent is guilty of professional misconduct. 2. The Respondent is reprimanded. 3. The Respondent is to undertake further education as follows: 1. at his own expense, complete within 12 months of the date of these orders, an appropriate course in practise management which includes trust accounting (Course) as approved by the Director, Legal Regulation of the Law Society (Director) and therein achieve a pass mark of not less than 70% (Pass Mark); 2. within 7 days of the receipt of notification of the result of his participation in the Course, provide the original or a legible copy of such notification to the Director; 3. should the Respondent fail to achieve the Pass Mark, he must complete a further course as approved by the Director until he achieves the Pass Mark in any further nominated course; and 4. should the Respondent not achieve the Pass Mark within the period prescribed in (i) above, any practising certificate then held by him shall be suspended (or if not holding a current practising certificate, no such certificate shall be issued to him) until such time as he achieves the Pass Mark.

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: 22 December 2020