Discipline - Borrowing from Client -, attempting to mislead the Law Society - taking trust money without authority.
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
Source
Original judgment source is linked above.
Catchwords
Discipline - Borrowing from Client -, attempting to mislead the Law Society - taking trust money without authority.
Legislation Cited: Legal Profession Act 2004Revised Professional Conduct and Practice Rules 1995Cases 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 177Ziems v the Prothonotary of the Supreme Court of NSW (1957) 97 CLR 279Clyne v NSW bar Association(1960) 104 CLR186Tyrrell v Bank of London (1862) 10 HLC 26Law Society of NSW v Barwick and Deshnicz [2002] NSWADT 66, Council 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 166and Council of the Law Society of NSW v Laftsidis [2010] NSWADT 317Council of the Law Society of NSW v Dona [2014] NSWCATOD 27Dona v the Council of the Law Society of NSW [2014] NSWCA 444Council of Law Society of NSW v Doherty [2009] NSWTATOD 155The Council of the Law Society of NSW v Doherty [2010] NSWCA 177
Council of NSW Law Society v Pizzinga [2012] NSWADT 211
Judgment (13 paragraphs)
[1]
Solicitors:
Law Society of NSW (Applicant)
File Number(s): 1520041
[2]
Introduction
The solicitor was born on in 1948. He was admitted to practice as a solicitor on 9 July 1982. At all material times he held a practising certificate and was the sole principal of a law practice.
On about 9 October 1999 the respondent borrowed $40,000.00 from a client (referred to in these reasons as "AS").
The Law Society subsequently was investigating the loan. The respondent made representations in writing to the Law Society in September 2006 which included representations that AS was never a client of solicitor and a representation that solicitor never borrowed any money from AS. Both these representations were untrue.
A client referred to in these reasons as "EP" had previously instructed a different law practice in relation to subdivision of land and sale of three lots. The contracts had been exchanged in relation to the three sales and deposits paid by the purchasers. The amount of the deposits was $22,100.75.
In 2007 EP retained the respondent's law practice to act for him as vendor of three blocks of land. On 19 April 2007, in accordance with directions from EP, his former solicitors transferred to the Trust Account of the Respondent's law practice the amount of $22,100.75 of trust monies, being the deposits that were paid by the purchasers of the blocks of land. On the same day EP's former solicitors also wrote to the respondent's law practice stating the amounts of three deposits and the name of the purchaser(s) who had paid each of the deposits.
The respondent's law practice rendered a bill of costs to EP for $4,400.00. On 30 April 2007 the respondent transferred $4,400.00 from the funds held in trust to the office account of the law practice in payment of the bill of costs.
The purchasers who had paid the deposit to the trust account of the respondent's law practice did not authorise the respondent or the respondent's law practice to take the $4,400.00 and indeed were not consulted about the account being paid from the trust money.
[3]
Orders sought and the Grounds
The applicant seek orders that the respondent:
1. Be reprimanded;
2. Pay a substantial fine;
3. Complete and pass courses in Legal Ethics and Trust Accounts;
4. Pay the applicant's costs as agreed or assessed; and
5. Be subject to any other order as the Tribunal deems fit.
The Grounds are as follows: -
1. By borrowing money from a client, the respondent breached rule 12 of the Revised Professional Conduct and Practice Rules 1995 ("Solicitor's Rules")
2. The respondent attempted to mislead the Law Society of NSW by stating that: -
1. AS was never the solicitor's client; and
2. The solicitor never borrowed money from AS; and
1. He breached section 255 of the Legal Profession Act 2004 ("The Act").
[4]
The Evidence
The evidence comprised:
1. the Application filed 11 March 2015;
2. the reply filed 28 April 2015;
3. the Amended Reply filed 6 May 2015;
4. the affidavit of Anner-Marie Foord sworn 9 March 2015;
5. exhibit AMP1 to that affidavit;
6. the affidavit of Amil Dlakic dated 27 April 2015;
7. the affidavit of Michael John Vaughan sworn 27 April 2015;
8. the affidavit of Michael John Vaughan sworn 19 August 2015;
9. exhibit R1 comprising Character references by Michael Tanevski, Mary-Clare Kennedy and Gregory M Johnston and affidavit of Danny Kenneth Simpson; and
10. oral evidence of Michael John Vaughan.
[5]
Ground 1: Borrowing From a Client
Rule 12 of the Revised Professional Conduct and Practice Rules 1995 provides:
12.Practitioner and client - Borrowing transactions
12.1. A practitioner must not borrow any money, nor assist an associate to borrow any money from a person -
12.1.1. who is currently a client of the practitioner, or the practitioner's firm;
12.1.2. 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
12.1.3. 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.
12.2. This clause does not prevent a practitioner, or an associate of a practitioner borrowing from a client which 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.
12.3. 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 -
12.3.1. the money is repayable on call, or on a short notice, if that is not assured when the money is deposited: or
12.3.2. that the deposit of the money is, or will be, secured by the instrument identifying the lender, the amount deposited and the security.
12.4. 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.
12.5. 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.
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 voting rights attached owned by any government, governmental body, agency, department authority or instrumentality, whether foreign, federal, state or local.
[6]
Ground 2 - Attempting to mislead the Law Society - the facts
In his letter of 4 September 2006 the solicitor wrote to the Law Society stating:-
1. " Firstly Mr [AS] is not a client of this firm and never has been. Secondly I never borrowed any money from Mr [AS] …. I have not borrowed any money from Mr [AS], he has never been a client of this firm or a person as described in Rule 12 1.1 - l2 1.3 of the Revised Conduct Rules …
12. We haven't done any work for Mr [AS], as a client of this firm.
15. Apart from not being a client of the firm …
20. In relation to paragraph 2 of the subsequent complaint dated 20 July 2006 l never asked the complainant for money to lend to anyone … l have never asked for money from the complainant …..
23. In any case the complainant was not within the Rule l2 definition ..."
25. The complainant does not come within Rule 12, he was free to do what he liked with his money, lend it to anyone he wanted to. . ."
The relevant statements that are relied upon by the Law Society in respect of this Ground are the allegations that AS was never a client of the law practice and the allegations that the solicitor never borrowed money from AS. Both of those propositions were false. In his defence he alleged that some of the work done for AS was done pro bono, but even so that itself was evidence supporting the proposition that when in his letter of 4 September he said AS was never a client and the law practice had never done any work for AS, he knew both propositions were false.
Similarly, he knew when he said in that letter "I never borrowed any money from AS", he had borrowed that he had borrowed substantial amounts from AS in 1998 and 1999 and he knew the second loan had not been repaid until he paid a cheque for $40,000.00 in January or February of that year.
In October 2006 after further correspondence from the Law Society, the respondent wrote to the Law Society and in that letter he said of some of the work the law practice had done for AS: -
"….. I had forgotten about those matters. The mattes are 7 years old except for the "BP" matter which was handled by Mr Dlakic of this office and for which the complainant was not charged fees …. He was a friend, not a client. The conveyancing matters were charged for as I had staff to pay, but they were made at the 'mate's rates'…
In relation to the will I don't remember but I'm sure there was no fee charged
The conveyancing matters [sic] have slipped my memory.
The matters listed 1 - 4 in your letter dated 5 October 2006, in any case did not put the complainant within the definition of Rule 12 ….
In relation to Epitome of Mortgage, for an advance of $50,000.00 on 9 September 1998 as a designated borrower [sic] but the monies were borrowed by "MB". I repaid those monies to the complainant …
The document was signed by me … the money was … not from my purposes. The complainant was always aware of this. I did not promote or arrange the loan and I did not have the need for any loans in 1999 or any other time…"
[7]
Ground 3 - Breach of Section 255 of the Act
Section 255 of the Act provided at the relevant time:
LEGAL PROFESSION ACT 2004 - SECT 255
Holding, disbursing and accounting for trust money
255 Holding, disbursing and accounting for trust money
(1) A law practice must:
(a) hold trust money deposited in a general trust account of the practice exclusively for the person on whose behalf it is received, and
(b) disburse the trust money only in accordance with a direction given by the person.
Maximum penalty: 50 penalty units.
(2) Subsection (1) applies subject to an order of a court of competent jurisdiction or as authorised by law.
(3) The law practice must account for the trust money as required by the regulations.
. Maximum penalty: 50 penalty units.
The investigation of this matter came about because of the complaint to the Law Society by a former client of the law practice (referred to in these reasons for privacy reasons as "EP").
Contracts were exchanged in 2004 for the sale by EP of three blocks of land in the subdivision he owned. Another law practice acted for EP. The deposits paid by the purchasers in respect of the three sales amounted to a total of $22,100.75 and were held in the trust account of the solicitors then acting for EP.
In 2007 EP retained the Respondent's law practice to act for him on the sales. The law practice that he had previously retained was instructed to forward the files and the funds held in trust to the Respondent's law practice. The Respondent's evidence is that under his supervision, his employed solicitor, Mr Dlakic, then assumed the conduct of the matter. However, the bill dated 11 February 2009 in respect of the work done in the period March 2007 to February 2008 shows the initials of the respondent after every item of work in the bill and the "fee earner summary" at the end of the bill shows the Respondent as the only fee earner in respect of the work billed.
The Transfer of the trust funds occurred on 19 April 2007. The funds were transferred to the trust account of the Respondent's practice. On the same day, the former solicitor for EP sent a letter to the respondent's practice setting out that the funds represented the deposits of $4,600, $10,250.75, and $7,250 and who had paid each deposit to the law practice.
On 30 April 2007 the Respondent solicitor took $4,400 from the trust money nt in payment of costs and disbursements. At that time he did so, he had no authority from any of the purchasers. Nor had he consulted them. None of the sales had been settled.
[8]
Grounds 2 and 3 -- Unsatisfactory Professional Conduct or Professional Misconduct?
Section 496, 497 and 498 of the Legal Profession Act 2004 applied and provided at all relevant times as follows:-
LEGAL PROFESSION ACT 2004
496 Unsatisfactory professional conduct
For the purposes of this Act:
"unsatisfactory professional conduct" includes conduct of an Australian legal practitioner occurring in connection with the practice of law that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent Australian legal practitioner.
497 Professional misconduct
1) For the purposes of this Act:
"professional misconduct" includes:
a) unsatisfactory professional conduct of an Australian legal practitioner, where the conduct involves a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence, and
b) conduct of an Australian legal practitioner whether occurring in connection with the practice of law or occurring otherwise than in connection with the practice of law that would, if established, justify a finding that the practitioner is not a fit and proper person to engage in legal practice.
2) For finding that an Australian legal practitioner is not a fit and proper person to engage in legal practice as mentioned in subsection (1), regard may be had to the matters that would be considered under section 25 or 42 if the practitioner were an applicant for admission to the legal profession under this Act or for the grant or renewal of a local practising certificate and any other relevant matters.
498 Conduct capable of being unsatisfactory professional conduct or professional misconduct
1) Without limiting section 496 or 497, the following conduct is capable of being unsatisfactory professional conduct or professional misconduct:
a) conduct consisting of a contravention of this Act, the regulations or the legal profession rules,
b) charging of excessive legal costs in connection with the practice of law,
c) conduct in respect of which there is a conviction for:
i) a serious offence, or
ii) a tax offence, or
iii) an offence involving dishonesty,
d) conduct of an Australian legal practitioner as or in becoming an insolvent under administration,
e) conduct of an Australian legal practitioner in becoming disqualified from managing or being involved in the management of any corporation under the Corporations Act 2001 of the Commonwealth,
f) conduct consisting of a failure to comply with the requirements of a notice under this Act or the regulations (other than an information notice),
g) conduct of an Australian legal practitioner in failing to comply with an order of the Disciplinary Tribunal made under this Act or an order of a corresponding disciplinary body made under a corresponding law (including but not limited to a failure to pay wholly or partly a fine imposed under this Act or a corresponding law),
h) conduct of an Australian legal practitioner in failing to comply with a compensation order made under this Act or a corresponding law.
2) Conduct of a person consisting of a contravention referred to in subsection (1) (a) is capable of being unsatisfactory professional conduct or professional misconduct whether or not the person is convicted of an offence in relation to the contravention.
[9]
Submissions in Mitigation
Mr Littlemore, QC for the respondent made the following points described as "the respondent's principal points"; -
4. The respondent's principal points are these:
a) These are extremely stale matters, and the applicable principles involve acknowledgement of the rehabilitative effect of faultless post-conduct practice;
b) There was a dominant personal element to the [AS] events, which cannot reasonably be expected ever to arise again (the arms-length referred to by Mr Simpson);
c) Where there are genuine disputes between the parties, the self-interest of the complainant is as relevant as that of the respondent in weighing credit;
d) Neither of the matters caused any loss to a client;
e) lt cannot be said that the respondent derived any benefit of any kind from his conduct in relation to either complaint
f) The only function of a 'substantial' fine is punitive: in the case of a professional man with 33 years of honourable and honest practice, and unquestionably good character, punishment is not the appropriate motivation for sincere self- awareness;
g) Reluctant as the respondent initially was to acknowledge his liability, he has come to terms with it, and sincerely wishes to achieve a constructive reconciliation. The Tribunal will value and receive assistance from the testimonials of colleagues who know Mr Vaughan best.
It is respectfully submitted that no more than a nominal fine is warranted, in all the circumstances.
In his filed submission provided to the Tribunal on the hearing day the respondent claimed that he did not intended to mislead the Law Society by alleging that [AS] was never his client and that he never borrowed money from [AS]. He said in his submission:
" …such was his very close relationship with [AS], and his history of informally advising him is something different from the orthodox solicitor/client relationship, and such was state of his memory, that he gave answers about professional relationship that were unintentionally false. His failure to make enquiries in his own records do not demonstrate culpability in the sense of wilful blindness - only that he answered the enquiries without first making proper enquiry"
The respondent's recollection of his understanding of the mortgage arrangements he had in relation to [MB's] borrowing was that he was, in truth, acting as guarantor.
He was, in strict terms, wrong - but it was not his intention to mislead. It is not the case that any of the applicant's conduct caused loss to [AS]
In relation to the Ground 3 he said that although he admitted the Ground, but in mitigation he says that he was never at the material time aware that the trust money was received on behalf of the purchasers, believing - because EB told him so - that the money was property of his client. Despite of the applicant's contention, it is truthfully the respondent's belief that he regularised the situation in relation to the purchaser's money as soon as he was aware of the error."
[10]
Conclusions
The tribunal concludes that suspension or cancellation of the Respondent's practising Certificate is not appropriate but protection of the public requires the following outcomes:
1. a reprimand;
2. a fine of $20,000.00;
3. an order for the Respondent to complete and pass courses on ethics and trust accounts;
The Respondent may see the fine as punitive. The grounds proved are serious. It is in the public interest that the Tribunal recognise the serious nature if the conduct by a significant fine. The maximum fine for professional Misconduct is $75,000.00 (see ss 562(7) of the Act.)
The public interest is served by such a fine by reminding other solicitors of that seriousness and supporting public respect for, and confidence in, the profession and its standards.
[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 have been findings of professional misconduct. 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;
3. The respondent must pay a fine of $20,000.00 within 3 months;
4. The Respondent must within 8 months complete and pass a course in Ethics approved by the Law Society of New South Wales;
5. The Respondent must within 8 months complete and pass a course in Trust Accounting approved by the Law Society of New South Wales; and
6. The respondent solicitor must pay the costs of the Law Society of or incidental to these proceedings as agreed or as assessed.
I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal.
Registrar
[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: 23 December 2015
It is common ground that in the period from May 1999 to late 2005 AS retained the law practice to provide legal services including the following: -
Will of 18 May 1999;
Injury claim by AS in the District Court of NSW on 24 August 1999;
Purchase of Land at Blakehurst - Contract dated 3 September 1999;
Purchase of land in Rockdale (conveyance dated 22 December 1999);
Debt recovery matter against Fritz from 15 March 201;
NSW Industrial Relations Commission claim for Long Service Leave from 19 November 2001;
The application by AS for recovery of money from- Blakehurst Appliance Centre Pty Ltd - Chief Industrial Magistrate's Court - November 2002; and
Caveat lodged on 16 December 2005 against each of two Strata Title owned by MB, a female friend of the solicitor.
In his amended reply to the application, which is dated 27 July 2015, the Respondent conceded that he also acted for AS in 1998 in relation to two separate loans and then in 1999 in respect of a loan that was proposed, but did not proceed. He also conceded that the subject loan was a loan on 9 October 1999 for $40,000.00 by AS, but he said the money went to the Respondent's girlfriend MB. But he admitted that the loan was in his name.
In his reply of 15 April 2015 the respondent denied allegations of loans by AS to him in 1998 and 1999. His amended reply of the 3 May 2015 he denied each of the alleged loans and he said AS was a client at the time of such loan and it was MB that borrowed money from AS. But In his submission of 8 July 2015 he admitted that he breached Rule 12, but said:
"I never borrowed money from AS. Money was borrowed by MB, not by me. In any case at the time the money was borrowed from AS by MB, AS was not a client of my firm ….. and never had any reliance upon advice of mine or the firm for the investment of money….. There was never sought from me or the firm advice in respect of investment of any money or management of his financial affairs."
In his amended submission provided by his counsel on 27 July 2015 the respondent repeated those propositions.
In the submission provided by his counsel at the end of the hearing on 24 August, the respondent admitted that he breached Rule 12 of the Solicitors Rules and admitted that he intended to mislead the Law Society by stating that AS was never his client and that he never borrowed any money from AS. The submission then continues
"the respondent denies that he ever intentionally mislead the Law Society; such was his close relationship with AS, and his history of informality advising him in something different from the orthodox solicitor/client relationship, and such was the state of his memory, that he gave answers about the professional relationship they were unintentionally false. His failure to make enquiry of his own records do (sic) not demonstrate culpability in the sense of wilful blindness - only that he answered the enquiries without first making proper enquiry.
The respondent's recollection of the standing of the mortgage arrangements he had in relation to MB's borrowings was that he was, in truth, acting as a guarantor.
He was, in strict term, wrong -but it was not his intention to mislead, It is not the case that any of the applicant's conduct caused loss to AS.
The evidence clearly establishes that the loan the subject of Ground 1 was made by AS to the Respondent in October 1999 and AS was a client of the respondent at the time. Regardless whether the funds were directed by the Respondent to MB, there was an epitome of mortgage prepared to evidence the loan. It was signed by A S and the Respondent. It identified AS as the lender and the Respondent as the borrower. At the time the Respondent was in a romantic relationship with MB. The Respondent signed that document. He does not say he did not read it before signing. It is not credible that he thought the loan agreement was He did not contend that he did not read itHe did not contend that he did not read it.
The Respondent said in para 10 of his affidavit of 27 April 2015 that that when AS had required that the Respondent be the borrower "on the papers" in respect of the loan of $50,000.00 in September 1998, he "could not see any problem in replacing her name with mine because the loan was secured by real estate." This is a very misleading reference to "security "as are his references to loan repayments as "the payments under the mortgage" as although the evidence is that MB was using the $50,000 to buy a home, there was no evidence that there was a mortgage given by her as security for that loan or the loan of $40,000.00 lent in 1999.
The Respondent in para 17 of his affidavit of 27 April 2015 says that when he ceased his relationship with MB and he ceased repayments to AS, he advised AS "that he should place a caveat on her property". Clearly there was no registered mortgage to protect the client AS.
The Respondent's evidence is that when a year later in 1999 MB bought another property, when she approached AS for a loan, "I again placed my name on the epitome of mortgage."
The respondent in the final submission given on his behalf at the hearing claimed that at the time he didn't recall AS was his client and he didn't believe that he was borrowing the money. Those propositions are not credible. It is not credible that the solicitor of his maturity with 17 years of experience in practice would not recognise that AS was a client and would not recognise that he was a borrower in respect of the offending transaction, when he was known as a borrower in the only documentation that was prepared and he signed it in that capacity. Similarly his claim that he thought he was "acting as a guarantor" is not credible.
Also there are other findings that Tribunal has made later in these reasons in relation to Grounds 2 and 3 that reflect badly on the credibility, integrity and honesty of the respondent.
The Tribunal is comfortably satisfied that the respondent knew at the time of the loan that he was the borrower and the lender AS was at that time his client.
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 will probably 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.
In this matter although there was a document in the form of an epitome of mortgage, on the evidence there was no loan agreement or mortgage. That document was the only documentation in relation to the loan and the interests of AS were not protected by a registered mortgage. There was no security for his loan.
The leading NSW case involving a solicitor borrowing from a 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.
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 only 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 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 para 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.
This was not an isolated loan. The Solicitor had previously borrowed $50,000.00 from the same client. The solicitor failed to ensure his client had independent advice. The client was not given any security for the $40,000.00 lent. It was not till 2006 that he repaid the $40,000.00 to AS.
The solicitor does not say he did not know that borrowing money from a client is prohibited. His defence was that AS was his cousin and friend and not a client. The solicitor in borrowing from the client allowed his interests to conflict with those of the client. 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 reasonable documentation of the loan.
The lack of reasonable documentation, the absence of independent legal advice for 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 if the solicitor acted for a client lending money to someone at arms length.
At the time of the loan the solicitor was 51 years of age and had been a practising solicitor for more than 17 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 Act as conduct that involved "a substantial failure to maintain a reasonable standard of competence and diligence".
In his letter of 21 December 2012 to the Law Society :-
"….At the time I referred the correspondence to the Law Society I did not consider that [AS] was a client of the firm. …. I or my staff attended to small matters for him … no fees were charged and the work was done by other solicitor in the office. I had forgotten about this matters but the file is always opened for any work done in the office ….
….. I regard him as a friend and did not considered him to be a clien
t in the strict sense that is in carrying substantial work for him at that time ….. "
In his letter of 30 May 2013 to the Law Society, the respondent stated:
"… I explained my mistake that [AS] was a client of the firm'. At no time I intended to mislead you.
I repeat, at no time did I borrow money from [AS]."
The Law Society submission is that at the time of the incorrect statements to the Law Society by the respondent that AS was never a client and that the Respondent never borrowed money from AS were made, he knew or knew he had access to the records that could inform him, that AS was a client when the Respondent borrowed money from AS in October 1999.
The statements were made in the context of the investigation by the Law Society of a complaint by AS.
The only documentation in relation to the subject loan in 1999 was Epitome of Mortgage which shows the respondent as a borrower. On the evidence, it is clear that there was no documentation to nominating anyone else as borrower.
The evidence convinces the Tribunal that, at the time he made the statements that were subject to complaint 2, the respondent knew they were false and he made the statements with the purpose of misleading the Law Society.
Ground 2 has been established.
On 15 August 2012 and 4 October 2012, the Law Society by letter requested the respondent to provide a copy of the direction by EP to debit the trust leger in the sum of $4,400 dollars for unpaid costs. No such authorisation was provided.
In para 50 of his affidavit of 19 August 2015 the Respondent concedes that he ought to have known by mid April 2007 that the monies in the trust account were deposits belonging to purchasers. But he did not concede that he did know.
The respondent has not produced to the Law Society or in the Tribunal hearing any documents purporting to be an authorisation by any of the purchasers for any of the trust money to be used to pay costs of the law practice.
On 1 May 2007, the day after the funds had been taken, the respondent wrote a letter to the former solicitors for the purchasers and in that letter acknowledged receiving the trust monies of $22,100.75 on 19 April 2007 and said:
"I would appreciate that you could advise me within 7 days as to what this money represents i.e. is it the deposit held on behalf of the sales for [EP] or is it monies he has placed with you that are not subject to any claim."
That letter suggests that the Respondent, even though he had already taken the $4,400.00, had concerns that his client's interest in the money was insufficient for him to give a valid authorization for that payment. The former solicitor faxed a reply on 3 May 2007 to the law practice which was stamped by the Law Practice "Received 3 May 2007" by the law practice and in which the former solicitor said:
"I previously forwarded to you an outline of the trust account monies relating to [EP].
Nevertheless, I now enclose herewith a further copy of my correspondences for your records."
In his affidavit in these proceedings the respondent swore on 27 April 2015:
38. "Neither myself nor Dlakic received the letter dated 19 April 2007 purporting to advise on the nature of the deposit held in the trust account of [former solicitor] and the characterization.
……….
40. I recall asking [EP] for permission to transfer the money to the general account from trust and he said, 'yes you can do it'. ….
[EP] was at the office to see Mr. Dlikic and he was present when [EP] approved the account and gave permission to transfer the funds.
41. I did not receive the letter allegedly sent by the [former solicitor] advising what the money in trust was for. On 2 May 2007 the firm wrote to [the former solicitor] said I stated [then he sets out the body of the letter as described above]
…………..
43. The office file has no record of receipt of any letter from [the former solicitor] dated 3 May 2007.
………………..
45. [EP] never told me he had sold the land twice. When I found out about the origin of the $4,400 being taken from trust I replaced it within 15 minutes of discovery."
In the affidavit of Mr Dlakic sworn on the same day as the affidavit of the respondent and witnessed by the same person, Mr Dlakic swore:
12. In essence I say that the office did not receive the letter from [the former solicitor] referred to in he complaint against Michael Vaughan that it was allegedly sent to this office on the 19th April 2007.(sic)
13. That being the case that (sic) Michael Vaughn was not aware of the classification of the monies received in trust and could not be aware of the ownership of those funds and instruction provided by [EP] that these monies belonged to him, led Michael Vaughan to conclude rightly so, that these funds were in fact [EP's] and upon the presentation of a bill [EP] authorised a payment for legal fees that are referred to the complaint against Mr Vaughan.
………….
Mr. Vaughan did not take three months to clarify the problem with respect of the payment through the Trust account, rather because he wasn't aware of it until the end of July 2007 that the nature of the monies having not belonged to [EP] in circumstances where Mr. Kennedy described in my complaint had obtained documents and files through couriers and other means led our office into a situation that we ourselves were not aware of the nature of matters before our representation of [EP]."
In paragraph 17 of that affidavit Mr Dlikic said:
"I never received the letter dated on 19 April 2007 purporting to advise on the deposits held in the trust account [the former solicitor] or its purpose."
18. We did not have the letter sent by [the former solicitor] advising what the money in trust was for …
Mr. Dlakic then claims that he dictated the letter of 1 May 2007 to the {former solicitor] from the respondent. He said it was not signed by the respondent: but "by a secretary". He also said:
"The office file has no record of receiving any letter from [the former solicitor] dated 3 May 2007. I recall in a conversations on 1 August 2007. (sic) Michael Vaughan said to me 'Amil, I have gone through all the files in [EP] today and it is crystal clear to me that [EP] does not own that money. I am going to immediately rectify this problem and put the money back in trust. 'This $4,400 dollars does not belong to him'"
The evidence of the respondent and Mr Dlakic to the effect that the practice didn't receive, and neither of them ever saw, either of the letters dated 19 April 2007 and 3 May 2007 from the former solicitor for EP is not consistent with the both letters being found on the files of the law practice by the Law Society inspector.
In addition, there is other evidence that is inconsistent with the denial of the respondent and Mr Dlakic of knowledge as to on whose behalf the trust money was held as of 30 April 2007 when the $4,400 was transferred.
The bill of costs of 11 February 2009 has an entry on 16 April 2007 for the respondent and Mr Dlakic conferring with EP for one hour: "in relation to a sale of lots exchanged in 2004…"
Similarly, there was an entry in the bill for 18 April 2007 claiming time of the respondent for "letter to alleged purchasers in 2004 in relation to direct contact with [EP] by them and asking them to make enquiry through this office from now on."
And there is an entry in the bill for 19 April 2007, the date the funds were transferred to the Respondent's practice, "MJV Preparation of Trust Account for receiving deposit money from [former solicitor for [EP] 0.33 $80.00".
In addition, the solicitor admitted in the proceedings that on 30 April 2007 the solicitor received the letter from Robert Wahbe and Partners, solicitors for Mrs Wahbe and EL Tobbagi, who were purchasers who had paid a deposit of $10,250 and the letter stated:
"the purchaser's price was accepted to be $102,075.00 with the deposit of $10,207.50 payable …
In accordance with the contract our clients proceeded to provide your client's former solicitor …with the cheque for the deposit to be held by [the former solicitor] as the deposit holder."
In addition, the law practice bill of costs on 11 February 2009 includes an entry on page 6 which reads relevantly:
30/04/2007 MJV read and consider the letter from solicitor for Wahbe dated 30 April 2007 in relation to the sale … purchase price $102,075.00 dollars…. 1.33 hours $320.00"
Clearly the respondent personally read that letter on 30 April, the same day he took the $4,400.00 from the trust account.
Then there was the letter on 1 May 2007 sent by the Respondent to the former solicitor for EP (the day after the Respondent took the trust money) asking in relation to the trust money:
What this money represents ie: is it the deposit held on behalf of sales for EP or is it monies he has placed with you that are not subject to any claim."
Then came the reply of 3 May 2007, which enclosed a copy of the letter of 19 April 2007 that detailed the deposits on whose behalf they were held.
In his statutory declaration of 25 September 2012, which the Respondent sent to the Law Society on that day he also said:
"I recall taking home the file on number of occasions and made a summary what had occurred in the matter as far as we were concerned and making a chronology of the events up until 3 July 2007. A copy of those notes made by me is attached and marked 'D'"
In the attachment "D" to the statutory declaration there is the entry that includes the 3 deposit amounts refers to the three deposits and it is as follows:
19.4.07 - details of trust A/C 9… 19.4.07 which holds $4,600 - Wahbe.1 10,050 + … 250 to Rich
His evidence is that he wrote that document on 3 July 2007. In all likelihood the figures came from the letter of 19 April 2007 from EP's former solicitors.
It is noted that in a letter of 2 August 2008 to the Law Society the Respondent gave a different version of how and when he discovered that the trust money was not owned by EP. At pp 3-4 of that letter he states that Mr Dlakic "in early April 2007" said to him, "We have money in trust for EP. We have done a lot of work for him and we have permission to deduct our fees from EP's trust money," and the Respondent replied "OK if we have the permission and we have sent him the bill, OK". Then he says that "When checking the Trust Account Ledgers a few days later I noticed the money was in fact the deposits for the previous sales." He said that once the error was discovered, it "was immediately fixed and Mr Dlakic was spoken to about it. This was a mistake made by Mr Dlaktic in that he thought the money was [EP's] independent of the deposits and money he had with the previous solicitor". It is noted that the money was not repaid till 1 August 2007.
In the same letter The Respondent said (at p6):
Mr Dlakic gave a direction to draw our fees from money in trust for [EP]. Once it was found the money was the deposit money for the purchases, it was replaced. This was explained in 1 above. The matter was an oversight by Mr Dlakic, picked up by me on regular checks of the Trust Account Ledger and instantly corrected.
The trust money was not received by the law practice till 19 April 2007, so the reference to "early April; is incorrect. The Respondent did not provide the law Society with that letter a copy of the relevant Trust Account Legers, nor did he put them into evidence. He did not give evidence of how the information on the "Trust Account Ledgers" identified the money as deposits from purchasers. It appears that information came from the letter of 19 April 2007 from the former solicitor for EP. Even assuming that, his version is correct but the events commenced after 19 April, that version, such as it is, does not exclude the possibility that the respondent informed himself from the trust ledgers before 30 April when he transferred the $4,400.00 to the Office Account.
The Tribunal, given other adverse findings as to the credit of the Respondent, other surrounding circumstances, the inherent unlikelihood that he and Mr Dlakic both did not see either of the letters of 19 April 2007 and 3 May 2007 that were received by the law practice, and the inconsistency of that allegation with some other evidence, finds that the Respondent did see the letter of 19 April 2007 on or before Monday 22 April 2007 and was aware when he took the $4,400.00 from the trust account on 30 April 2007 that the trust money comprised deposits paid by purchasers as detailed in the letter of 19 April 2007.
In his affidavit of 27 April 2015 relating to this complaint, Mr Dlakic does not say that he had the conduct of the matter in the respondent's practice. He stated that EP "retained the law practice to act for him as vendor for the property…". The respondent in his affidavit of the same date swore: "The carriage of the matter was with Mr Amil Dlakic". In his letter of 2 August 2008 to the law Society the Respondent said (at p5 last para):
I do not sit in with every client Mr Dlakic sees but I did take an interest in [EP] as he never mentioned the previous sale of the property and it was in 2004 he should have known at the time he sold it, unknown to us in 2007.
On legal advice he repaid the $40,000.00 loan from AS in February 2006. AS also sued him in the District Court. Law Cover, his professional indemnity insurer settled the proceedings and paid AS a lump sum. Presumably there was a basic excess payable by the Respondent to Lawcover.
The Respondent, in his affidavit of 27 April 2015 said "I had no need for funds from [EP]" . There was no other evidence before the tribunal to support that proposition. The Respondent's credit was poor. The Respondent had been estranged from his former girlfriend and in 2006 he had commenced proceedings against her claiming more than $900,000.00 for amounts he had paid on her behalf in respect of her purchase of 7 properties in NSW and Queensland, payments he had made on her behalf to AS for money he had borrowed from AS and lent to her, other amounts he had lent her, $5,000.00 he had lent to her as a result of false representations by her that expenses to that amount had been incurred in his law practice and were due for payment, and another, and about $44,000.00 for amounts he had paid to her by cheque for payment of specified expenses she had falsely represented she would pay, but she misappropriated the funds.
In his letter of 4 September 2006 to the Law Society he said that MB had not defended the proceedings and he had applied for Judgment. His evidence does not include evidence as to whether any judgment was since obtained and whether any amount has since been recovered from MB. The evidence does not disclose any improvement in the Respondent's financial circumstances since September 2006. As at 30 April 2007 he had recently suffered a loss of more than $900,000.00, there was no evidence as to any prospect of recovery of any of it and it appears he did have a need for funds.
The law practice bill of 22 February 2009 to EP is for the period March 2007 to February 2008. It shows the initials of the Respondent against every item of work done and where it lists fee earners only the name of the Respondent appears. There is no charge for any time spent by Mr Dlakic. However, in his affidavit of 27 April 2015 the Respondent swore:
I kept a record of time spent with clients via my Timeslips computer system. Anything I did in the matter was recorded by me. Mr Dlakic did not keep Timeslip records and the office did not have networked Timeslips to every computer, as we have now.
The Tribunal finds that the Respondent conducted some of the work and close oversight of whatever was done by Mr Dlakic. That included drafting letters, advising the client on prospects, drafting advice, attending numerous conferences with the client, and reading correspondence received.
One possibility considered by the Tribunal was that the Respondent had the conduct of the matter for EP; not Mr Dlakic, and the Respondent and and Mr Dlakic purported that Mr Dlakic had the conduct of the matter to protect the Respondent in relation to Law Society investigations. (There were other complaints about the Respondent being investigated by the Law Society and he had been the Respondent in previous disciplinary proceedings in 2011 where he was found guilty of unsatisfactory professional conduct.) However, the tribunal was not satisfied that the evidence established such a serious finding.
As the respondent admits, attachment "D" to his Statutory Declaration of 25 September 2012 includes an entry:
7-5-07 letter from Wehbe - gave us the money for Wehbe (sic)
7.5.07 reply - no release until settled."
He did not repay the trust money until 1 August 2007. In the bill of costs of 11 February 2009 there is an entry on page 4 which reads relevantly:
1/08/2007 MJV preparation of file for the rectification of the trust account after finding out who own the money that [EP] said was his and after finding out that it belong to the prospective purchasers of his life (sic) and re-adjusted the account to show that there were two accounts. Not want the money was being held the deposits not the clear funds of [EP] and replace $4,400 taken for costs as it was the deposits paid by the purchasers. Told by [EP] the money was his. -1.33 hours $320.00
It appears this entry was intended to further the pretence that once he became aware on the composition of the trust money he promptly repaid the $4,400.00 he had taken. However, that is not true. He delayed 3 months from 30 April until August.
The Tribunal finds when the solicitor took $4,400 from the trust account, he was aware the trust money was deposits paid by the purchasers, he knew that the money was held on behalf of the purchasers and EP and knew he did not have any authority from any of the purchasers to pay any costs of EP from that trust money. The Tribunal finds that when the respondent took the $4,400 from the trust money on 30 April 2007 without any authorisation from any of the purchasers, he knew that taking the money was prohibited by the Legal Profession Act 2004.
The Tribunal does not accept that the respondent didn't know the money was held on behalf of the purchasers. It does not accept that he believed the money was the property of EP. The Tribunal does not accept the submissions of the respondent that he repaid the money: "as soon as he was aware of the error."
The $4,400.00 taken by the Respondent from the trust money was taken without the knowledge of any of the purchasers on whose behalf it was held and without any direction of any of them authorising such use of the money. It was a clear breach of section 255 of the Act. Ground 3 has been established.
The community is entitled to expect from solicitors honesty, trustworthiness and integrity. The conduct of the solicitor in making the false representation to the Law Society that AS has never been his client and that the solicitor has never borrowed money from AS is disgraceful. Those false representations were made knowingly and were clearly intended to mislead the Law Society to avoid the consequences of his misconduct of borrowing money from a client.
Ground 2 is certainly unsatisfactory professional conduct because it clearly fell short of the standard of diligence that a member of the public is entitled to expect from a reasonably competent Australian legal practitioner. But it was professional misconduct because it was a dishonest conduct and it constituted a substantial failure to maintain a reasonable standard of competence and diligence.
In relation to Ground 3, the conduct was a breach of section 255 of the Legal Professional Act 2004. It was also a breach of the fiduciary duty the solicitor owed to the persons on whose behalf the trust money was held. Having taken the money without authorisation, the respondent delayed repayment of the money from 30 April 2007 until 1 August 2007.
The conduct of the respondent under Ground 3 is dishonest conduct involving misappropriation of the trust money to his own use. It was an intentional act done with awareness that such conduct was prohibited under the Legal Profession Act. It was professional misconduct because it involved a substantial failure to maintain a reasonable standard of competence and diligence.
Clearly all 3 grounds together constitute professional misconduct because they constitute a substantial and consistent failure to maintain a reasonable standard of diligence.
Those particular submissions are inconsistent with factual findings of the Tribunal.
The respondent submitted that no more than a nominal fine is warranted.
The Respondent was found guilty of 2 counts of unsatisfactory professional conduct in 2011 in Council of the Law Society of NSW v Vaughan [2011] NSW ADT 118. The grounds were failure to invest proceeds of sale of a home in an interest bearing account. There was a court order for this to be done by the respondent. The Tribunal reprimanded him and ordered him to pay the costs of the Law Society of or incidental to the proceedings. The Respondent was also ordered to pay compensation of $977.69 (Council of the Law Society of NSW v Vaughan [2011] NSW ADT 260).
The respondent relies on four character references that are exhibit R1. The three are by barristers who have been briefed from time to time by the Respondent and one by a solicitor who practices in the same suburb of Sydney. All 4 had been provided and read with details of the grounds of the application. None of them had been informed of the 2011 disciplinary proceedings.
The solicitor has known the Respondent for 30 years and for about 28 years they have been practicing in the same building or adjacent buildings. He is a member of the Senior Solicitors Scheme and assists solicitors experiencing difficulties. He is a past member of the Law Society Ethics Committee and the Professional Conduct Committee. He regards the Respondent as a close personal friend. They and their families socialize and he has " a great deal of personal affection" for the respondent. They often have professional dealings. They refer clients to each other. He says the Respondent recognises it was an error of judgment to allow MB to borrow from AS and "I think he has learnt the important (sic) of keeping clients at 'arms length' when dealing with their affairs." He says that the Respondent is very upset to be the subject of these proceedings.
One barrister has known the respondent since 1988 when the barrister went to the bar. He has been briefed by the Respondent over the last 27 years and considers him a man of integrity, honesty and good fame. He has experienced kindness and personal support from the respondent. He says, "There is no doubt that Michael has made some mistakes in these matters, however I believe that he has probably acted stupidly rather than with any premeditated intent to breach the conduct and trust account rules."
Another of the barristers has known the Respondent 16 years and for the last 9 years as a barrister receiving many briefs from him. He describes the Respondent as honest, competent and a man of integrity. He says he is well regarded by his peers. He said that the Respondent has expressed remorse to him and regret. His conclusion is that the Respondent has "learnt a valuable lesson and will not make the same errors in the future".
The other barrister has been at the bar for about 6 years and been briefed by the Respondent "a number of times". From her experience of him she says, "I do not believe that he would have made deliberate and premeditated attempts to breach the conduct and trust account rules".
The opinions in the references are not consistent with the findings in relation to the 3 grounds in these proceedings.
The Respondent has been a practising solicitor for 33 years. The conduct the subject of Ground 1 occurred 16 years ago, the conduct in ground 2 occurred 9 years ago and the conduct in ground 3 occurred more than 8 years ago. The matters of unsatisfactory professional conduct are more recent.
The current grounds may be old, but they are serious. Grounds 1 and 3 are breaches of the basic fiduciary obligations of a solicitor to his client. Grounds 2 and 3 involve a lack of honesty and integrity. The matters in 2011 were not of that type.
Certainly there may have been a "dominant personal element" in the loan from his cousin and friend, but that cannot justify in any way providing such a client with a lesser standard of service than the solicitor would give to a client who is not in such a relationship. That cannot justify failing to ensure independent legal advice and security if appropriate. It cannot justify preferring the solicitor's own interests over those of the client. Counsel for the Respondent suggests that because it is not likely that future clients will have such a relationship with the Respondent, future such conduct is less likely. But that is suggesting that he will better protect the interest of clients with whom he has no personal relationship than the interests of those with whom he does. The contrary may be more likely.
As for the submission for the Respondent regarding credit, Where the Tribunal has not accepted the Respondent's evidence we have disclosed in the reasons the evidence relied upon in reaching that finding.
The respondent has sought and sometimes obtained advantage from the 3 grounds proved. The borrowing from the client obtained the use of $40,000.00 for the Respondent without the client requiring independent advice or requiring security. That was a substantial advantage to the Respondent. The false statements to the Law Society were intended to mislead the Law society and benefit the Respondent by avoiding detection and disciplinary proceedings. And the breach of section 255 gave the Respondent the use of $4,400.00 interest free without security for 3 months.
As regards para (f) of the Respondent's Principal Points, the evidence does not establish: "33 years of honourable and honest practice, and unquestionably good character". On the contrary, there are serious findings about lack of diligence, honesty and integrity.