Solicitor- discipline- borrowing from client- professional misconduct
Legislation Cited: Legal Profession Act 2004
Revised Professional Conduct and Practice Rules 1995
Cases Cited: Law Society of NSW v Harvey [1976] 2 NSWLR 154
Law Society of NSW v Moulton (1981) 2NSWLR 736
NSW Bar Association v Evatt (1968) 117 CLR 177
Source
Original judgment source is linked above.
Catchwords
Solicitor- discipline- borrowing from client- professional misconduct
Legislation Cited: Legal Profession Act 2004Revised Professional Conduct and Practice Rules 1995
Cases Cited: Law Society of NSW v Harvey [1976] 2 NSWLR 154Law Society of NSW v Moulton (1981) 2NSWLR 736NSW Bar Association v Evatt (1968) 117 CLR 177(Ziems v the Prothonotary of the Supreme Court of NSW (1957) 97 CLR 279Clyne v NSW bar Association(1960 104 CLR186Lord Westbury Tyrrell v Bank of London (1862) 10 HLC 26Law Society of NSW v Barwick and Deshnicz [2002] NSWADT 66Council of the Law Society of NSW v Mavrakis [2010] NSWADT 103Council of the Law Society of NSW v Stormer [2010] NSWADT 240Council of the Law Society of NSW v White [2011] NSWADT 11Council of the Law Society of NSW v Lyons [2012] NSWADT 166Council of the Law Society of NSW v Laftsidis [2010] NSWADT 317Council of the Law Society of NSW v Dona [2014] NSWCATOD 27Alison v General Council of Medical Education and Registration (1894) 1QB 750Dona v the Council of the Law Society of NSW [2014] NSWCA 444Law Society of NSW v Vosnakis [2007] NSWADT 42The Council of the Law Society of NSW v Downie [2014] NSWCATOD 60
Legal Services Commissioner v O'Donnell [2015] NSWCATOD 17
Council of the Law Society of NSW v Martin [2015] NSWTATOD 13
Council of Law Society of NSW v Doherty [2009] NSWTATOD 155
Council of the Law Society of NSW v Doherty [2010] NSWCA 177
Judgment (13 paragraphs)
[1]
Introduction
On 15 November 2012 the respondent solicitor borrowed $10,000.00 from Mr Nethery, who had been his client since September 1965.
The relevant Solicitor's Rules that applied in NSW at that time were the Revised Professional Conduct and Practice Rules 1995. Rule 12 generally prohibited a solicitor from borrowing from his or her client.
These are disciplinary proceedings commenced by the Law Society of NSW against the solicitor alleging his conduct amounted to professional misconduct and seeking the Tribunal to reprimand the solicitor and order that he pay the costs of the Law Society.
The solicitor has admitted most of the circumstances alleged by the applicant. He admits that he borrowed the money and admits that the lender was a client. He denies that his conduct amounted to professional misconduct.
It is common ground that although the Legal Profession Uniform Law (NSW) (2014 no.16A) commenced on 1 July 2015, the law to be applied in these proceedings is the Legal Profession Act 2004 (hereinafter called "the Act")and the Revised Professional and Conduct Rules 1995.
The solicitor submitted that the complaint should be dismissed without further order or there be a finding of unsatisfactory professional conduct only and a reprimand.
[2]
The evidence
The solicitor was admitted to practice on 7 February 1964. At all material times he was principal of a law practice. From 1965 till late 2013 the client retained the law practice to provide legal services in many matters including wills, a trust deed, a mortgage to secure a loan of $12,000.00 by the client to another person, numerous loan agreements where the client lent money to other people, debt recovery matters, loan agreements in 2009 and 2010 whereby the solicitor lent money to the client, a traffic matter, various conveyancing matters, and the purchase of a property by contract for sale dated 16 August 2012.
It was also admitted the loan was made on 15 November 2012 but there was no formal agreement encompassing the terms of the loan agreement and the only document was a receipt whereby the solicitor acknowledged receiving "a loan of $10,00.00 today repayable on demand"
It was admitted that the solicitor deposited the loan monies into his private account and that he breached Rule 12 of the Rules.
In a letter dated 17 July 2013 the solicitor forwarded a cheque for $4,134.00 payable to the client as a repayment of the balance to the loan and it also enclosed a reconciliation statement explaining that the amount of the payment was the loan after deduction of $2,906.00 for stamp duty paid by the solicitor on the client's behalf, $970.00 owing to the solicitor for costs and disbursements on a conveyance and $2,000.00 outstanding monies previously borrowed by the client from the solicitor. It was admitted that the cheque was presented and paid on 7 August 2013.
[3]
The Evidence
The evidence comprises: -
1. The application filed 20 February 2015;
2. The Reply of 29 April 2015;
3. Affidavit of Anne-Maree Ford of 2 February 2015 and Annexure AMF 1;
4. Affidavit of Gregory William Livermore of 13 February 2015 and Exhibit GWL 1;
5. Affidavit or Paul Raymond Glisson of 13 May 2015;
6. Affidavit of the applicant sworn 1 June 2015;
7. Affidavit of Shandra Datt of 1 July 2015
[4]
The relevant law
Rule 12 of the revised Professional Conduct and Practice Rules 1995 applied at the time of the loan and provides:-
12. Practitioner and client - Borrowing transactions
A practitioner must not borrow any money, nor assist an associate to borrow any money from a person -
who is currently a client of the practitioner, or the practitioner's firm;
for whom the practitioner or practitioner's firm has provided legal services, and who has indicated continuing reliance upon the advice of the practitioner, or practitioner's firm in relation to the investment of money; or
who has sought from the practitioner, or the practitioner's firm, advice in respect of the investment of any money, or the management of the person's financial affairs.
This clause does not prevent a practitioner, or an associate of a practitioner borrowing from a client whish is a corporation or institution described in the Schedule to this Rule, or which may be declared by the Council of the Law Society to be exempted from this Rule.
A practitioner must not maintain a private finance company and invite, directly or indirectly, the deposit of money with the company on the basis of a representation that -
the money is repayable on call, or on a short notice, if that is not assured when the money is deposited: or
that the deposit of the money is, or will be, secured by the instrument identifying the lender, the amount deposited and the security.
A practitioner must not borrow ant money, or permit or assist an associate to borrow any money, from a private finance company which is operated or controlled by the practitioner or associate of the practitioner.
A practitioner must not cause or permit a private finance company to pay any depositors of money to the company at a rate of interest on their deposits which is less than the rate charged by the company to borrowers.
[5]
The Schedule
1. A banker duly authorized to carry on banking business.
2. An insurance company duly authorized to carry on insurance business.
3. A company registered under the Life Insurance Act 1945 of the Commonwealth.
4. A building society registered under the Co-operation Act 1923 or listed in the second schedule to that Act.
5. A building society governed by the Financial Institutions Code 1992.
6. A credit union governed by the Financial Institutions Code 1992.
7. A trustee company mentioned in the first part of the Third Schedule to the Trustee Companies Act 1964.
8. The Public Trustee.
9. A non-bank financial institution which is governed by the Financial Corporations Act or the Financial Institutions Code 1992.
10. A company in which securities are listed on a member exchange of the Australian Associated Stock Exchange or a foreign company the securities of which are quoted for trading on a stock exchange or in a market for the public trading in securities.
11. A government, governmental body, agency, department authority or instrumentality, whether foreign, federal, state or local.
12. A company having the majority of its issued shares capital to which votings rights attach owned by any government, governmental body, agency, department authority or instrumentality, whether foreign, federal, state or local.
It is common ground that Rule 12 applied at the time of the loan and also the provisions of the Act defining unsatisfactory professional conduct and professional misconduct.
Section 496, 497 and 498 of the 2004 Act provided as follows:-
LEGAL PROFESSION ACT 2004
496 Unsatisfactory professional conduct
For the purposes of this Act:
1)"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.
497 Professional misconduct
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
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,
charging of excessive legal costs in connection with the practice of law,
conduct in respect of which there is a conviction for:
a serious offence, or
a tax offence, or
an offence involving dishonesty,
conduct of an Australian legal practitioner as or in becoming an insolvent under administration,
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,
conduct consisting of a failure to comply with the requirements of a notice under this Act or the regulations (other than an information notice),
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),
conduct of an Australian legal practitioner in failing to comply with a compensation order made under this Act or a corresponding law.
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.
[6]
The Solicitor's Case
The solicitor made submissions to the Tribunal to the effect that the original complaint to the Law Society and subsequent replies to Law Society's correspondence to the client regarding that, were authored by the client's wife, rather than the client. Similarly there is an argument raised that "all matters raised in the original complaint have been dismissed with the exception of the matter now before the Tribunal" by the Law Society and a submission that "nobody on behalf of the Applicant has ever had any direct communication with the client to elicit any information relating to the loan."
There is also a submission that the Law Society inspector endeavoured to contact the client and that elicited a response from the client's wife to the investigator to the effect that the client did not wish to meet the solicitor and did not intend to pursue the complaint.
These submissions appear to be irrelevant to the issues before the Tribunal.
It is submitted on behalf of the solicitor: -
"further there is no evidence that the loan was of the nature of an investment. On the contrary, on the unchallenged evidence of Mr. McEncroe it owed nothing to the relationship of solicitor and client, and everything to the relationship of two close friends who, over a period of 50 years on and off, had done a favour to the other by way of loans of amounts for each of those two persons were not of a large amount."
The solicitor relied upon written submissions which include the following:
6. Relevant circumstances
6.1 The following' circumstances are relevant to an assessment which the Respondent's professional brethren of good repute and competence might be expected to bring to bear in an assessment:
1. The relationship between the Respondent and the Client was a very close friendship extending over fifty years. The level of that friendship which was bordering on familial was so close that the two men over this lengthy period confided in each other, and each sought and received the benefit of the counselling as friends and confidantes.
2. That relationship of friends (rather than the solicitor / Client relationship), with respect to the matter now under consideration, was the relevant paramount relationship.
3. While it is the case that Mr Nethery retained Mr McEncroe as his solicitor over the period of their relationship, with one exception (a debt recovery matter) the legal services provided were of a routine nature, primarily conveyancing and small matters, mostly of a domestic nature.
4. Of particular note is that Mr Nethery did not look to Mr McEncroe to act as a financial adviser. Mr Nethery was himself retired from successful business life.
5. There is no evidence, indeed no suggestion, that this was an investment loan, or a transaction in respect of which Mr Nethery looked to Mr McEncroe for advice as to whether it was a sound commercial action. Indeed it was not action of a commercial character at all. It was an act of friendship.
6. As one would expect, the loan had been repaid as had previous loans from each of the individuals to the other whenever they had occurred.
7. There is no evidence that Mr McEncroe solicited the loan. The only evidence is that of Mr McEncroe, which was to the effect that Mr Nethery wanted to lend money to Mr McEncroe, and Mr McEncroe accepted the offer as much to accommodate the wishes of his friend as for any other reason. He was not stressed financially and had no particular need of the loan.
8. Other than by reason of the signature which appeared on the complaint of which he was not the author (a fact which alone tells us little or nothing of what he knew of the content of the document) there has been no complaint by Mr Nethery.
[7]
Borrowing from a Client-- Unsatisfactory Professional Conduct or Professional Misconduct or neither? The Case Law.
The submission for the solicitor was that the Tribunal should find the conduct was neither professional misconduct nor unsatisfactory professional conduct and dismiss the application, or make a finding of unsatisfactory professional conduct and merely reprimand the solicitor.
The submissions on behalf of the solicitor concede "that his failure to have regard to the codification of the prescription against borrowing from clients is capable of being construed as a want of diligence amounting to unsatisfactory professional conduct."
The solicitor for the Law Society submitted that the conduct of the solicitor was professional misconduct because he has not only breached the prohibition in Rule 12, but also abandoned the fundamental requirements of the fiduciary relationship between a solicitor and the client by entering into a transaction in which the interests of the client and the solicitor conflicted and the consequences that flowed from that in terms of his obligations to the client. The Law Society submission is that those consequences included:
1. An obligation to ensure the client had independent legal advice;
2. An obligation to ensure the client had proper documentation of the loan; and
3. An obligation to ensure the documentation protected the interests of the client.
The Legal representative for the solicitor did not provide the Tribunal with a single decision of a court or tribunal where the act of a solicitor borrowing from a client was not held to be professional misconduct. The solicitor for the Law Society informed the Tribunal that she was not aware of any such decision.
The relationship of the solicitor to his client is a fiduciary relationship and involves fiduciary duties by the solicitor to the client. One such obligation is to avoid any arrangement where the lawyer's interests conflict with those of the client.
The transaction whereby a solicitor borrows from his client might be expected to involve a conflict of interest for various reasons. The lender needs independent legal advice. If it is in the interest of the lender to obtain interest and the interest of the borrower to minimise any interest, those interests conflict. The interests of the lender may include obtaining security for the loan. If it is in the borrower's interest to avoid or minimise security, then in that regard the interests of the solicitor and his client conflict.
[8]
Was this loan Transaction Unsatisfactory Professional Conduct, Professional Misconduct or neither?
The solicitor swore on his affidavit of 1 June 2015 that he was aware at the time of the loan that " for a solicitor to borrow from a client may involve the solicitor taking advantage of the trust and reliance that the client places in the solicitor, and that could not be permissible." He says then that "I did not see the loan in that light however. Indeed I did not turn my mind to the issue". In para 49 of his affidavit he then says "I now realise that the regulation is quite explicit in its terms, and on the face of it constitutes a total prohibition against borrowing from a person who is a client,…." While the solicitor refers in his affidavit to the rule against borrowing from clients, he makes no reference to the fiduciary relationship between him and his client or his fiduciary obligation to avoid allowing his interests to conflict with those of his client.
The solicitor in borrowing from the client allowed his interests to conflict with those of the client. He did not know or recall the prohibition in Rule 12. He did not recognise the fiduciary relationship between a solicitor and his client and the relevant fiduciary obligation he owed the client. He breached Rule 12 and his fiduciary duty to the client. He did not advise the client to obtain independent legal advice or facilitate such advice. There was no written loan agreement. The only documentation was that he provided the client with a receipt for the money. It is handwritten and under the date states "Received from John Nethery a loan of $10,000.00 today repayable on demand". It is signed and has also been stamped with the name, address and phone number of the solicitor's law practice. There was no provision for the client to receive any interest and there was no security provided for the loan.
The lack of reasonable documentation, the absence of independent legal advice for his client, the absence of any provision for interest to be paid to his client, and the absence of any security being provided to his client for the loan all involved the solicitor preferring his interests to those of his client. They also were a departure from what one would reasonably presume would be his usual commercial practice for loans where the solicitor acted for a client lending money to someone at arms length.
[9]
Other Relevant Evidence
The Solicitor has been practising as a solicitor for about 51 years and as a principal for about 34 years and had had no other disciplinary decision or proceeding against him. He is about 76.
The loan from the client was not an isolated event, as the Solicitor has disclosed that he borrowed previously from the same client.
There was no loss of the client's principal. But that does not excuse breach of the rule and of his fiduciary obligations.
The Solicitor says that his relationship with the client has been close and has lasted more than 50 years. Prior to this loan they had from time to time lent each other money. Relatives and close friends of a solicitor are likely place more reliance on their trust of the solicitor, and therefore they especially need to obtain independent legal advice if lending money to the solicitor.
There is evidence of a barrister of 41 years and a retired barrister. Both of these witnesses are aware of the details of the grounds of the application. The barrister has been instructed by the Respondent in court proceedings in the years 2010, 2011, 2012 and 2013. He testified that he has come to know the Respondent as "a conscientious, humble, caring and humane person", who has, so far as he has observed, "always placed his client's interests before his own in the cases in which we have worked together. Importantly, I have always found him to be honest, reliable and fair in his dealings with our clients and myself."
The retired barrister has known the respondent for 32 years as a friend and professional colleague. He worked in the Respondent's practice when an undergraduate and later part time when he was also working as a Judge of the Fiji High Court. Prior to going to the bar he practised as a solicitor for some years and often he and the Respondent were representing opponents in litigation. He has always found the Respondent to be "honest, reliable and conscientious" and "a competent lawyer , always sensitive to clients' problems and willing to assist". He also testifies that the Respondent has acted for clients pro bono in litigation, particularly where the client was impecunious and "seeking legal assistance to achieve justice".
[10]
Conclusions
The Law Society seeks only a reprimand of the solicitor, notwithstanding that he has been guilty of professional misconduct. He has not otherwise had disciplinary proceedings against him in more than 50 years of practice. Section 562 of the Act sets out the orders the Tribunal can make where a solicitor is guilty of professional misconduct. Those include removal from the roll, suspension of his practising certificate, imposing conditions on his practising certificate, a reprimand , and a fine of up to $75,000.00.
The Tribunal recognises that taking into account his record, his general good character and the experience of these proceedings, the solicitor is unlikely to repeat such conduct. However, the Tribunal is concerned that an outcome less serious than a reprimand for such professional misconduct would not serve the interests of the public in discouraging such conduct by other practitioners and may be damaging to the reputation of the profession, particularly in terms of trustworthiness and protection of the interests of clients.
The Tribunal therefore has determined that the solicitor should be reprimanded.
[11]
Costs
By Clause 23(1) of Schedule 5 of the Civil and Administrative Tribunal Act 2013 the Tribunal is required to order costs of the Law Society to be paid in proceedings such as these where the Tribunal has found that the solicitor, an Australian legal practitioner, is guilty of unsatisfactory professional conduct or professional misconduct and there are no exceptional circumstances.
There are no exceptional circumstances that would justify any other outcome regarding the Law Society's costs. The Tribunal therefore has concluded that there should be an order for the solicitor to pay the applicant's costs of the proceedings.
[12]
Orders
The orders therefore are:
1. The respondent solicitor is guilty of professional misconduct;
2. The respondent solicitor is reprimanded; and
3. The respondent solicitor must pay the costs of the Law Society of or incidental to these proceedings.
[13]
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: 09 October 2015
The leading NSW case involving a solicitor borrowing from the client is a 1975 decision of NSW Court of Appeal in Law Society of NSW v Harvey [1976] 2 NSWLR 154. There (at p170) Street CJ said:
"Where there is any conflict between the interest of the client and that of the solicitor, the duty of the solicitor is to act in perfect good faith and to make full disclosure of his interest. It must be a conscientious disclosure of all material circumstances, and everything known to him relating to the proposed transaction which might influence the conduct of the client or anybody from whom he might seek advice. To disclose less than all that is material may positively mislead. Thus for a solicitor merely to disclose that he has an interest, without identifying the interest, may serve only to mislead the client into an enhanced confidence that the solicitor will be in a position better to protect the client's interest. The conflict of interest may, and usually will, be such that it is not proper, or even possible, for the solicitor to continue to act for and advise his client. A solicitor, who deals with his client while remaining his solicitor, undertakes a heavy burden. Where a solicitor discovers that continuing to act for his client will, or may, bring the interests of his client and his own interests into conflict, it will be a rare case where he should not, at least, advise his client to take independent legal advice.
Mr Harvey's client lent money to 3 companies of which the solicitor was a director and shareholder. The Court of Appeal held that Mr Harvey had "deliberately and for his own benefit, caused the affairs of his clients to be intermingled with his affairs and that, whilst supposedly acting for them, he grossly preferred his own interests to those of his clients" (at p 172)
The court of Appeal held that Mr Harvey had disregarded the need to protect his clients properly by failing to provide adequate security for the borrowings from the clients and held that it was gross abuse of trust by the solicitor and justified him being struck off the roll of solicitors.
Following that decision, there were numerous disciplinary proceedings in New South Wales against solicitors who had conducted mortgage practices where companies controlled by them had borrowed from their clients and the companies had then lent money on mortgage security.
At the time of the decision of the Court of Appeal in Harvey, the solicitor in these proceedings had been practising as a solicitor for more than 10 years.
In the 1981 decision of the Court of Appeal in Law Society of NSW v Moulton (1981) 2NSWLR 736. Mr Moulton was a solicitor. He was found by the Solicitors Statutory Committee in disciplinary proceedings to have been guilty of professional misconduct by way of borrowing from clients. The loans were to him or his company which he controlled and in which he had a substantial interest. The Statutory Committee held that his conduct constituted professional misconduct and fined him $1,000.00. On appeal, the Court of Appeal held that the relevant professional misconduct rendered him unfit to remain on the roll and he was struck off.
The Court of Appeal noted that the solicitor became aware in 1979 of the 1975 decision in NSW Law Society v Harvey and then made arrangements to repay the client loans.
Hope JA, with whom Reynolds JA agreed, said:
"In cases such as the present one, it is essential to remember, indeed to emphasise, that a solicitor stands in a fiduciary relationship to his clients. If he is to have business dealings with them on his own account, and in particular if he is to borrow money from them, the requirements of the law are rigorous. The need for that rigour is obvious. Commonly, to great extent, always to some extent, the solicitor is in position of special influence in respect of his client. Clients must be able to rely upon the professional advice of their solicitor and to place in him the fullest confidence that he will protect them and handle their affairs in their interests. Where a solicitor wishes to borrow from a client, the client must be put in a position to make a free and informed decision about the proposed transaction. Since in these circumstances the interest of the client and of the solicitor can and generally must conflict, the best and easiest way to achieve this result is to insist that the client have independent and informed advice .If this does not happen, a heavy burden indeed lies upon the solicitor to show that he has done everything in his power to protect the interests of his client and to ensure that the client is aware of every circumstance that is or might be relevant to his decision. If a solicitor wishes to use his client's money to finance some business he is carrying on, it is almost impossible to see how the client can be adequately protected and advised without insisting that he gets independent advice. Moreover it must be borne in mind that many clients are not able effectively to decide whether an investment is a prudent one, no matter what information is given to them, and that the greater the trust of the client in the solicitor the greater is the need for independent advice where a conflict of interest may arise."
(Law Society of NSW v Moulton (1981) 2NSWLR 736 at 739F to 740B)
His Honour also said (at 740B)
"…in considering whether a solicitor has been guilty of professional misconduct in a dealing with a client, and in considering the gravity of that misconduct, the fact that the client , in the ultimate event, suffers no loss is of little, if any, relevance. If the acts or omissions of a solicitor constitute professional misconduct, they do so at the time when they occur."
His Honour also said (at 740D):
"…. it is also necessary to say that none of the propositions I have stated is new law; they were not established for the first time by the decision in Harvey [1976] 2 NSWLR 154. Indeed they are expressive of a standard of behaviour which members of the public should be entitled to and expect without recourse to legal precedent of those whose probity as well as skill has been certified by the court. It is no answer to the charge of professional misconduct in relation to transactions with his client's money that the solicitor did not appreciate that what he was doing constituted misconduct." (Law Society of NSW v Moulton (1981) 2NSWLR 736 at 740 D to E)
Hope JA also relied upon the Decision of the High Court in NSW Bar Association v Evatt (1968) 117 CLR 177 and quoted the passage from that decision (at p184): "The respondent's failure to understand the error of his ways of itself demonstrates his unfitness to belong to a profession where, in practice, the client must depend upon the standards as well as the skill of his professional adviser".
His Honour said: (at 740G):
"A failure to understand and appreciate the care that must be taken by a solicitor who wants to make use of his trusting client's money for his own purposes would generally show an unfitness to remain on the roll. In so far and Mr Moulton's ignorance should be treated as a lack of knowledge rather than a lack of standards, it was not ignorance of some esoterical or difficult corner of the law; it was an ignorance of general principles applicable to common activities of the solicitor in which, for the most part, Mr Molton was regularly engaged, and it was ignorance which he took no steps to remedy." (Law Society of NSW v Moulton (1981) 2NSWLR 736 at 740G)
In his judgement Hutley JA, who also agreed that the solicitor should be struck off, held:
"The difficulties in reconciling a solicitor's fiduciary duty to his client when borrowing from him had been a subject of communications from the Law Society to its members and of articles in the Law Society's journal during the seventies, culminating in a Special Bulletin to all members of the Society setting out a statement unanimously approved by the Council on 22 March 1979. Only the latest seems to have entered the consciousness of the respondent.
"On 20 March 1975 the Judgment of the Court of Appeal in Law Society of NSW v Harvey [1976] 2 NSW LR 154 was handed down. This case got much publicity, both in the press and the Law Society's Journal, but does not appeared come to the notice of the respondent.
"The ultimate issue is a simple one, but the enquiry has to be wide ranging. To adopt words of Kitto J when speaking of disbarment of the barrister: 'The answer must depend on one's conception of the minimum standards demanded by a due recognition of the peculiar position and functions of a solicitor' ((Ziems v the Prothonotary of the Supreme Court of NSW (1957) 97 CLR 279 at p 298 and quoted with approval by the High Court in Clyne v NSW bar Association(1960 104 CLR186 at pp188,189 )"
(Law Society of NSW v Moulton (1981) 2NSWLR 736 at 750A)
His Honour also said (at 751 D):-
"It would seem to follow that a solicitor fit to remain on the Roll must make reasonable efforts to keep up with current developments in his field of practice. In a world of rapid change we must try to keep up to date.
"The issue which faced the Statutory Committee when it decided not to remove the respondent from the roll was not how to punish him, for this order is not a punishment (as is a fine or reprimand), but whether he was fit to be held out by the Court as a solicitor."
Hutley JA also said (at 754 D)
"He is a professional man, put forth as a professional advisor and any person is entitled to have from the solicitor on the Roll elementary advice on the law of trusts. It is not, in my understanding of what is the minimum standard required of a solicitor, that such ignorance, coupled with unwillingness or incapacity to take the elementary steps necessary to equip himself with the requisite knowledge, should be tolerated. The respondent was at the time of hearing a practitioner of some 18 years standing, and he was no mere tyro emerging from a law school. To look at this transaction purely in terms whether or not he was guilty of a deliberate breach of trust is to weigh it, in my opinion on entirely wrong principles. It, of itself, disqualifies him from remaining a solicitor, unless it is to be treated as an entirely exceptional aberration. "
Later Hutley JA said (at 756 D): "What was decided by this Court in Harvey represented no innovation in law. The judgement, itself, was expressly based upon a speech of Lord Westbury in Tyrrell v Bank of London (1862) 10 HLC 26 at p 39; 11 ER 934, at p 939, and the principle that the solicitor has a fiduciary duty to his client goes back well before that time. It is a disregard of the fiduciary relationship which provides the real gravamen of the complaint."
There have been various decisions recently where findings have been made where solicitor has borrowed from the client without the client having independent legal advice, that the solicitor's conduct constitutes professional misconduct (Law Society of NSW v Barwick and Deshnicz [2002] NSWADT 66, Council of the Law Society of NSW v Mavrakis [2010] NSWADT 103, Council of the Law Society of NSW v Stormer [2010] NSWADT 240, Council of the Law Society of NSW v White [2011] NSWADT 11, Council of the Law Society of NSW v Lyons [2012] NSWADT 166 and Council of the Law Society of NSW v Laftsidis [2010] NSWADT 317)
The NSW Civil and Administrative Tribunal Occupational Division also determined disciplinary proceedings against a lay associate of a law practice, who was a paralegal, and borrowed money from a client of the law practice in Council of the Law Society of NSW v Dona [2014] NSWCATOD 27.
The Tribunal had held that the loan transaction, if it had involved a solicitor, would have constituted a breach of Rule 12. Even if rule 12 did not exist, the Tribunal said (at par 30) it "would regard the solicitor as guilty of professional misconduct within the formulation of Allison v General Council of Medical Education and Registration (1894) 1QB 750 namely conduct which would be reasonably regarded as disgraceful or dishonourable by his professional brethren of good repute and competency. We think that borrowing by the solicitor a large sum of money without adequate security from a woman who as we are satisfied, was obviously ill and who had no independent advice would be regarded as disgraceful and dishonourable by this solicitor's peers of good repute."
The Tribunal made an order under section 18 of the The Act prohibiting any law practice (without approval under section 17 of the Legal Profession Act 2004) from employing Mr Dona or paying him in connection with the legal practice, engaged in by the law practice.
Mr Dona appealed to the NSW Court of Appeal and the decision is reported as Dona v the Council of the Law Society of NSW [2014] NSWCA 444.
The Tribunal had held that "what occurred was much more than an error of judgement by Mr Dona, it was an egregious breach of the basic obligation of those engaged in the practice of law not to allow their own interests to conflict with those of their clients". The Court of Appeal (at [62]) held that implicit in that statement was a necessary finding that the breach was "a substantial failure to maintain a reasonable standard of diligence", Accordingly it was a finding that Mr Dona's behaviour in borrowing the money from the client would have been a professional misconduct if it were conduct of a solicitor and satisfied para 18(2)(b) of the The Act.
The Court of Appeal (per Barrett JA at [71]) held that subject conduct of Mr Dona "was conduct that, had it been engaged in by legal practitioner would have supported finding that the practitioner was guilty of professional misconduct". The Court of Appeal confirmed the decision of the Tribunal and dismissed the appeal with costs.
There have been other decisions involving solicitors who borrowed money from a client, where other grounds were also proved against the solicitor (usually including misappropriation). Professional misconduct was held to have been proved and an order made for the solicitor to be removed from the roll, but there was no specific finding by the Tribunal or Court as to whether the conduct in relation to the loan was of itself professional misconduct or only unsatisfactory professional conduct. (e.g. Law Society of NSW v Vosnakis [2007] NSWADT 42, The Council of the Law Society of NSW v Downie [2014] NSWCATOD 60, Legal Services Commissioner v O'Donnell [2015] NSWCATOD 17 and the Council of the Law Society of NSW v Martin [2015] NSWTATOD 13).
In Council of Law Society of NSW v Doherty [2009] NSWTATOD 155 the Administrative Decisions Tribunal held in relation to a breach of Rule 12 (at para 122):
"The respondent states that he was not aware of Rule 12. We accept his evidence in that regard. However, he should have been and his conduct is clearly unsatisfactory professional conduct. No complaint has been made against him that all monies have not been repaid and clearly, on the evidence, he paid more than the appropriate amount of interest."
The loan was $35,000.00 and was to a company in which the solicitor had an interest. There was no independent advice to the lender. The Tribunal said that "the solicitor breached Rule 12 of the Legal Profession Conduct and Practice Rules in the matter of Estate Flower, but in the circumstances the breach was minimal and not with intent and no dispositive orders should be made in relation thereto".
It would appear that this is a contrary to the principles set out by the Court of Appeal in Harvey's case and the Moulton decision as discussed earlier in these reasons. The Tribunal at that time adjourned further hearing of the matter "to determine the dispositive orders"
The Tribunal delivered its further reasons on 13 November 2009. It made orders for the solicitor to be suspended from practice for 12 months, be able to then apply for a Practicing Certificate, for him to complete courses in ethics and trust accounting before any such certificate would issue and for 6 years any Practicing Certificate issued to him be conditional upon him being an employed solicitor only and not a principal.
The Law Society appealed that decision. The decision of the Court of Appeal is reported as The Council of the Law Society of NSW v Doherty [2010] NSWCA 177. The Court of Appeal (Tobias JA, Campbell JA and Young JA) referred to the finding of the Tribunal below, that the breach of Rule 12 was "minimal and not with intent and no dispositive orders should be made in relation thereto". Although the Law Society at the appeal challenged the categorisation of the breach as a "minor" the Court of Appeal held (at parh 47) as to the complaint of a breach of Rule 12 "there was admitted borrowing contrary to the rule. However, it was one isolated occasion. Though unauthorised borrowing of client's money is a serious matter, were this the only breach, it would not lead to striking off" and (at par 69) that the breach of Rule 12 was "de minimus" and "Since the orders made by the Tribunal, the respondent has taken the courses offered and sat the examinations set by the College of Law in Trust Accounts and Ethics. He is awaiting his results."
In the decision of the Council of NSW Law Society v Pizzinga [2012] NSWADT 211 the Solicitor borrowed $120,000.00 from a client. He testified that he was not aware that the transaction was in breach of rule 12 of the 1995 Rules. Although he admitted the breach, he said he didn't intend to breach the rule. There were numerous other grounds relied upon by the Law Society and it sought an order for the solicitor to be removed from the roll.
The Law Society had not alleged that the conduct of the solicitor in relation to the loan amounted to professional misconduct either under the legislation or at Common Law (at par 118).
The Tribunal held (at par 119) that "in view of these factors we consider that this breach should be characterised as an instance of the lesser of the two disciplinary 'offences' i.e. unsatisfactory professional conduct."
Other grounds were held to be proved and to be professional misconduct. The Tribunal ordered that the solicitor's name be removed from the roll.
At the time of the loan the solicitor had been a practising solicitor for more than 47 years. The decision of the Court of Appeal in Harvey's Case was in 1975. The publication of that decision by the law Society to solicitors has been referred to earlier. The Rule was included in the 1987 Solicitors Rules, the 1994 Rules and the 1995 Revised Rules. There have been numerous disciplinary decisions of the Court of Appeal, the Solicitors Statutory Committee, the Administrative Decisions Tribunal, and this Tribunal where there was an issue about a solicitor borrowing from a client.
Having regard to the authorities referred to, the Tribunal finds that the conduct of the Solicitor in entering the loan was professional misconduct within the common law definition of professional misconduct as "conduct which would be reasonably regarded as disgraceful or dishonourable by his professional brethren of good repute and competency" and also under section 497 of the the Act as conduct that involved "a substantial failure to maintain a reasonable standard of competence and diligence".