Council of the Law Society of NSW v Etherington

Council of the Law Society of NSW v Etherington - [2016] NSWCATOD 31 - NSWCATOD 2016 case summary — Zoe

[5]

Professional Misconduct under the Common Law

The Law Society put its case on the basis that the failure to pay his employees' superannuation on time amounted to professional misconduct under the common law. It did not submit that the conduct came within the definition of professional misconduct in s497 of the Legal Profession Act 2004. Common law professional misconduct is said to be conduct which would be regarded as disgraceful and dishonourable by reputable members of the legal profession.
This form of words, commonly described as the Allinson test, was adapted from the decision of Lopes LJ in Allinson v General Council of Medical Education and Registration [1894] 1QB 750 (at 763). The formulation was first applied to professional misconduct on the part of a solicitor in Re a Solicitor; Ex parte Law Society [1912] 1KB 30, and restated more broadly in the decision of the House of Lords in Myers v Elman [1940] AC 282, where Viscount Brougham said: Apart from statutory grounds……a solicitor may be struck off the rolls or suspended on the grounds of professional misconduct, words which have been properly defined as conduct which would be regarded as disgraceful or dishonourable by solicitors of good repute and competency.
In Australia the principle was confirmed by the High Court in Kennedy v Council of the Incorporated Law Institute of New South Wales (1939)13 ALJ 563, where Dixon J said; fitness to continue on the roll must be judged by his conduct and his conduct must be judged by the rules and standards of his profession; his unfitness appeared when he did what solicitors of good repute and competency would consider disgraceful or dishonourable.
And in different language, but to the same effect by Rich J who said: A charge of misconduct as relating to a solicitor need not fall within any legal definition of wrong doing. It need not amount to an offence under the law. It was enough that it amounted to grave impropriety affecting the Practitioner's professional character and was indicative of a failure either to understand or to practise the precepts of honesty or fair dealing in relation to the courts, clients or the public.
The appropriateness of the Allinson test in relation to current professional standards for the legal profession has been questioned. First the rather formal Victorian language of "disgraceful or dishonourable" has been described as "a ritualistic formula" - Edmonds Misconduct of Australian Lawyers, Monash University Law Review (Vol 39, No3 801). Secondly when the test was propounded in 1894, and until the decisions in Kennedy and Myers v Elman, the legal profession was almost completely self- regulating, unlike the position today.
Nevertheless the Allison test continues to be used as the test for professional misconduct under the general law, and it has been applied in all of the recent cases before this Tribunal and its predecessor, to which we refer below, relating to the failure by practitioners to pay employee superannuation contributions.
The parties also agreed that this was an "all or nothing" case, in the sense that either there should be a finding of professional misconduct or the complaint should be dismissed. We were not invited to consider whether, in the alternative, a finding of unsatisfactory professional conduct under the general law, according to the formulation set out most recently in De Pardo v Legal Practitioners Complaints Committee [2000] FCA 335, might be appropriate.

[6]

The Statutory Framework regarding Employer Superannuation Contributions

Employers' obligations to make employee superannuation contributions are contained in the Superannuation Guarantee (Administration) Act 1992 (the Administration Act") and the Superannuation Guarantee Charge Act 1992 ("the Charge Act"). In Council of the Law Society of NSW v Kingston [2014] NSW CATOD 21, the following statements from the judgment of Heydon J in Roy Morgan Research Pty Limited v Commissioner of Taxation [2011] HCA 35 about the operation of this legislation, are set out at paragraph 116: 53 There is no general duty on private employers to pay superannuation contributions to superannuation funds for the benefit of their employees. But particular obligations to pay superannuation contributions can arise in various ways. They may be created by an award or certified agreement. They may be created by contract. 54 Section 5 and 6 of the (Charge Act), impose a superannuation guarantee charge on all employers. It is calculated by reference to an employer's "superannuation guarantee shortfall" as defined in the Administration Act (s17). That shortfall is the difference between nine percent of a given employer's total salary or wages for a quarter and what the employer contributed to a retirement account or certain types of superannuation fund for the employee's benefit, plus a nominal interest component and an administration component. The function of the interest component is to compensate for fund earnings foregone by the failure to pay the nine percent. The function of the administration component is to recover expenses associated with administering the superannuation guarantee charge. The legislation creates an obligation on the employer to pay the charge to the Commissioner of Taxation which is enforceable as a debt due to the Commonwealth…. . 57 The superannuation guarantee charge provides an incentive to employers to make superannuation contributions at the rate of nine percent of employees' wages. It ensures that in relation to employees of employers who fail to do so there will be payments into approved superannuation funds equivalent to those which the employers did not make. There are significant factors influencing employers to make superannuation contributions directly to superannuation funds for their employees' benefit rather than paying the superannuation guarantee charge. Direct superannuation contributions are tax deductible; payments of the superannuation guarantee charge are not. Payments of direct superannuation contributions avoid the nominal interest and the administration component of the superannuation guarantee shortfall….

[10]

The Solicitor's Financial Position

Senior counsel then submitted that we should consider as a relevant circumstance, the Solicitor's overall financial position during the relevant period. There was a considerable amount of evidence in relation to this issue contained in the Solicitor's two affidavits filed in the proceedings. He also was cross-examined on these matters by the Law Society's counsel.
The following matters were raised: (a) His practice had conducted two large litigation matters commencing in 2003 and 2005 respectively, on a speculative fee basis, such that the practice would not be paid until they had been satisfactorily concluded; (b) The departure of his partner in 2008 to enter politics, which required the Solicitor to take on greater administrative and practice management responsibilities and to undergo less fee paying work following his departure; (c) The unexpected departure of an employed solicitor, which led to the loss of a major client;
The first of those speculative litigation matters, the Mead proceedings, was settled on 12 December 2013, and the Solicitor received approximately $245,000 soon thereafter. After payment of loans to the St George Bank in respect of the debts of the pre 2008 partnership, the balance of this money was used to pay the outstanding employee contributions. It was submitted that the Solicitor had no other funds available to him to make the superannuation entitlements until that time, and that this was the reason for the payments being made at that time, not the inspection by Mr House.
The Solicitor's affidavits also disclosed that his wife, a medical practitioner, had made loans of $200,000 to the practice in May 2010, $20,000 in June 2011, and a further $400,000 in October 2012, to assist the firm's cash flow problems. The first two loans were used reduce the firm's overdraft and the third to pay the Solicitor's personal taxation liabilities.
The Solicitor had paid back $20,000 in respect of the first loans by July 2013. In May 2013 he also paid back $124,658.81, in relation to the third loan from a distribution from his late mother's estate. He later repaid a further amount of that loan, so that by August 2013, $151,658.81 had been repaid. There was no evidence that these repayments were made pursuant to any demand. When cross-examined the Solicitor said the balance of the loans remained outstanding but no interest was accruing on them.
There was also evidence that during this period that the unit trust which owned the strata unit in which his firm carried on its business, was significantly in arrears in relation to the payment of its strata levies. The Solicitor, who was a beneficiary of that unit trust, said that by withholding payment of part of these levies, he was able to divert money towards the payment of the wages for his employees, even if not their superannuation contributions. The Law Society's counsel submitted that the Solicitor had no direct liability to pay the levies. When cross examined the Solicitor said the unit trust had no other income or assets. In any event the Tribunal does not consider that this issue directly assists us in our determination of the matter, as there was no suggestion that any of the moneys that were paid as strata levies during this period, came from the practice.
Thirdly in the relevant period, the Solicitor's made some personal drawings to himself were said to be "modest". They amounted to: June 2011 $74,336.47 June 2012 $70,711.26 June 2013 $49,485.49 June 2014 $164,313.74

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Judgment (15 paragraphs)

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