Law Society of New South Wales v Cornwell No.2 [1999] NSWCA 404 | Case summary

31/05/04- $47,090.14 DR (c) On 4 June 2004 the Solicitor deposited $47,909.60 into the trust bank account, covering outstanding debit balances (d) The Melaleuca Estate ledger related to the solicitor's personal business activities and the payments from the account related to business transactions. 3 The Society in the particulars identified the Respondent as the solicitor and the practice as his practice. It further alleged that at all material times the Respondent was a sole practitioner. 4 The Council sought the following orders: ( i ) An Order that the solicitor be fined (ii ) An Order that the solicitor be publicly reprimanded ; and (iii ) An Order that the solicitor pay the Society's costs of and incidental to the proceedings , as agreed or as assessed under Division 6 , Part 11 of the Legal Profession Act 1987 or such other basis as the Tribunal may determine. 5 On 2 November 2005 and again the following day the Society made applications under s155A of the Legal Profession Act 1987 ("LPA"). The first application was withdrawn and the second application was heard on 2 December 2005. S155A is in the following terms: "1) The Commissioner or the Council may dismiss a complaint, whether before, during or after the investigation of the complaint, if satisfied that it is in the public interest to do so. (2) The circumstances in which a complaint may be so dismissed include (but are not limited to) a complaint about a legal practitioner who has retired from practice or is prevented from practising or a complaint about conduct that is the subject of another complaint under this Part. (3) If proceedings with respect to a dismissed complaint have been instituted in the Tribunal by the Commissioner or Council, the Tribunal may, on the application of the Commissioner or Council, dismiss the proceedings." 6 The Society's Application which was supported by the Respondent was refused by this Tribunal on 10 March 2006 (see Law Society of NSW -v- Cornwell 2006 NSWADT 72) . 7 The matter was re-listed on 3 April 2006 for Directions to fix a date for hearing and on the date of that re-listing the legal representative of the Respondent gave notice of an intended Interlocutory Application in which he would seek an order in terms which were subsequently expressed as follows: "That the further hearing of the Application be before a Tribunal constituted by members different from the members who heard the Applicant's application pursuant to s155A of the Legal Profession Act 1987 and delivered their decision on 10 March 2006." 8 On 21 April 2006 the Respondent's foreshadowed Application was filed and at a further Directions hearing on 24 April 2006 the hearing of that Application was listed to be heard on 23 June 2006 on the basis that if the Application succeeded the hearing would be adjourned until the Panel constituting the Tribunal could be re-constituted with all initial members being replaced and that if the Application were refused the hearing of the Complaint would then proceed. 9 On 22 June 2006 the solicitor for the Respondent advised the Tribunal by fax that on the advice of his Senior Counsel retained to appear in the matter the Respondent did not intend to proceed with his Application which Mr Morris QC sought to withdraw at the hearing on the following morning. The hearing then proceeded on the two complaints against the Respondent. 10 An agreed Statement of Facts was tendered by the parties and made an exhibit. The Affidavits of Raymond John Collins sworn 8 June 2005 and James Sofiak sworn 3 June 2005 and Charles Quagliata sworn 2 June 2005 were relied upon by the Society. The Respondent relied upon his two Affidavits respectively sworn 20 April 2006 and 22 June 2006. 11 At the time of swearing the respective Affidavits Mr Collins was the Manager of the Professional Standards Division of the Society and Messrs Sofiak and Quagliata were Trust Account Inspectors employed by the Society. The five Affidavits were tendered by consent and admitted into evidence. 12 Mr Collins' Affidavit deposed to the Respondent's admission and his practice details. He proceeded to list the complaints against the Respondent and the investigation processes that occurred together with the relevant resolution of 21 April 2005 which detailed the Orders to be sought before this Tribunal, the actual orders sought and the Reasons for the Decision contained in the actual resolution. The Affidavit annexed twenty one documents relating to these matters. 13 The third document annexed to Mr Collins' Affidavit was a copy of a letter from the Respondent to the Society dated 20 June 2004. 14 In this context it should be noted that on 8 June 2004 the Society advised the Respondent that it had resolved to make a complaint against him pursuant to s134 of the LPA in respect of the maintenance of his Trust account records. The complaint at that stage involved "wilful breach of s62 of the Legal Profession Act 1987". 15 The Respondent's reply of 20 June 2004 advised in essence: (a) His practice was sold as at 31 December 2002 and he was to be a Consultant to the new firm. (b) Save that he had appeared pro bono before the Guardianship Tribunal for two elderly clients and completed a small number of conveyances at the insistence of old clients, he had not practised law since 31 December 2002 except in exceptional circumstances which he appears to have listed. (c) In the period to the end of March 2003 he "tidied up" the closure of his practice and liaised with the Society's Trust Inspectors on the winding up of his Trust Account. (d) At 31 March 2003 "the only ledger cards with a balance in them were a Costs ledger for the old firm, the residue of sales of three commercial properties of my family companies and a residential property that I owned personally". (e) After the Society's audit to 31 March 2003 the Respondent was advised that as the Bank account (i.e. the Trust Account) had not been closed a later audit would be required. (f) In April 2003 the Respondent approached his Bank to close his Trust Account and transfer out the Melaleuca and personal balances to the respective entities. His Trading account had an overdraft of about $20,000.00 which he planned to repay on 30 June 2003 from the balance of sale proceeds of his practice. (g) The Bank advised that the Respondent would be required to repay his overdraft if the Trust Account was not operating. The Respondent elected then not to close the Trust Account where he said the only balances were his funds, directly as costs and proceeds of sale of his personal property or indirectly through the sale of properties of his family-owned companies. He said that "the various balances were journalled across by way of loan funds to a consolidated Melaluca Estate ledger" (h) There were two exceptions being the deposit of a mortgage advice for a few hours on the day of settlement of a conveyance and the administration of the estate of his late father-in-law. (i) The Respondent had previously used the last of his carbonised Trust Account cheques of his Kalamazoo system so had to write up ledger cards which he did not do at the time. Subsequently he tried to complete reconciliation of the Trust ledgers and his difficulty in doing so led him to employ an accountant who discovered a number of unpresented cheques. These unpresented cheques were then cancelled, re-issued as Bank cheques and "reforwarded to the recipients with a phone call and an apology". (j) The Respondent advised he had over the previous eighteen months been working 55 to 60 hours per week on a project on which he had borrowed over $20,000,000.00 for Stage 1 and was in litigation over an aspect of the project. When he left his old practice he believed he "had done everything to comply with my responsibilities to my clients and the Law Society and my tardiness was a direct result of the enormous work pressures that I had placed on myself for the abovementioned project… I have had to hurriedly reconstruct this Reply before I go on holidays this week." 16 The Society in reply on 30 June quoted the concerns of the Chief Trust Account Inspector who indicated that the Respondent appeared to have sought renewal of his Practising Certificate for 2004/2005 on or about 5 April 2004 without the required Accountant's Certificate. The Society enquired when the information advised (i.e. on 20 June 2004) could be inspected and the report provided. An emailed reply from the Respondent dated 12 July 2004 the two issues were not addressed except insofar as the Respondent sought to justify himself and his actions. On 23 July 2000, the Respondent advised the records had been written up, the audit completed and sent to the Society and that he was " not aware as having lodged the application for renewal of my practising certificate". 17 The Tribunal's attention was drawn by the Respondent's Counsel to the Respondent's letter to Mr Murdoch of the Society of 20 August 2004 in which he stated: " Whilst what has happened is inexcusable I trust that you can appreciate the time and emotional pressures on me and understand that there has been no ill intent on my behalf and that as soon as I was aware of my breach and the amount had crystallised I took immediate steps to remedy the situation. I always took great pride in the integrity of our roles in society and am both mortified and humiliated at the position I have placed myself in, I have let myself and the Society down." 18 In addition his letter of 20 August 2004 the Respondent also acknowledged that: a. A number of breaches of s61 were noted on audit; b. The Respondent had foreshadowed in May 2004 to Mr Sofiak that there was a problem with unpresented cheques; c. He believed that he had taken, "every step to ensure that all Trust monies were properly dealt with". d. That he believed in April 2003 that all monies left in the Trust account were funds of his company Melaluca, or funds under his personal control. e. Melaleuca had sufficient funds on fixed deposit to remedy this situation, had he known of it; f. There were three matters in mitigation with his focus over four years on his Melaluca Development project and litigation, his "time priorities had interfered with my obligations under the Act", the illness in 2003 of his late father-in-law who died in June 2003, and finally the marriage of his daughter in early January (the actual year was not specified). 19 The Tribunal is troubled by the report to the Chief Trust Account Inspector by James Sofiak which is annexed to his Affidavit of 3 June 2005. That report is dated 27 January 2004. It indicates: a. The Respondent advised Mr Sofiak "that he intended to close 'Cornwells Solicitors and Advocates' and as a result advised membership that he was trading as 'Brien Cornwell'. Our records show that he commenced as the principal of 'Brien Cornwell' on 1/7/03 and that his wife commenced as an employed solicitor of 'Brien Cornwell' on the same date." b. The Trust records had not been written up at that stage since 30 April 2003 and no Bank reconciliation statements, nor trial balances had been prepared since 31 March 2003. c. The Respondent stated that the only Trust transactions since the prior inspection were related to his development company Melaleuca Pty Limited, his father-in-law's estate and one other matter. Inspection disclosed that in the first seven months of that period there were 126 debit transactions amounting to in excess of $1,373,336. d. The Inspector reported on the Respondent's failure to return a number of telephone messages and cancelled his first appointment at the last minute and tried to cancel the second appointment on 22 January 2004. These appointments related to Trust Account inspections. On 22 January 2004 the Respondent was asked to have records written up by 29 February 2004 and notify Mr Sofiak that this had been done, failing which Mr Sofiak proposed to refer the matter to Professional Standards. e. "Because of his relaxed attitude to the whole thing I said to him 'You want to decide whether you still want to have a Practising Certificate'. He said it was more of an ego thing." 20 A reminder letter was sent by Mr Sofiak to the Respondent on 8 March 2004 concerning the seriousness of not having his Trust Account records written up and indicating that a manager could be appointed. 21 A further report of 28 May 2004 indicated there had been no response to the letter of 8 March 2004 and recommended "referral to the Professional Standards Department with a view to the eventual appointment of a Manager if they are unable to progress the matter further." 22 A "no notice" inspection occurred on 31 May 2004 and the Respondent indicated he had not obtained an Accountant's Report, had not yet renewed his Practising Certificate. He said his bookkeeper who was currently working for his other ventures could not get the books to balance after spending about 20 hours on them. The Respondent believed there were 10 of 11 ledgers missing which would have to be reconstructed. He had "just lost a court case that has cost him $500,000 and had neglected his Trust account. He said that there were still some moneys in trust although he was not certain how much. He thought it was only about $29.00." 23 The 2004 Accountant's Report was lodged late on 27 July 2004 and was qualified in relation to bank reconciliation and statutory deposit. Client funds were shown at $47,379.11 in debit. Four breaches of the Regulations were noted. 24 The Inspection Report of 17 August 2004 (pages 23 and 24) referred to breaches of the Legal Profession Regulations, most of which had been detailed in a previous Report and further additional breaches related to insufficient details in cash book, ledgers and some documents to show the purpose of many of the payments and details as to some deposits. The report also listed the overdrawing of a Trust Ledger account for Melaluca Estate Trust between 17 October 2003 and 4 June 2004 when the Respondent paid $47,909.60 into the Trust Account. The s61 breaches were then listed and included a drawing of $1,000.00 direct from the statutory deposit noted as "used for the benefit of Melaleuca". It was noted that the trust account ledger styled "Melaleuca Estate Trust" had started with a debit of $9,278.13 on 17 October 2003 and after a further 12 drawings on the ledger reached on 31 May 2004 a debit balance of $47,090.14 which was repaid on 4 June 2004. 25 The Tribunal notes that the last of the debits to the "Melaleuca Estate Trust" ledger occurred on 31 May 2004 which was the date of the "no notice" Trust Account inspection. The Tribunal also finds the use by the Respondent of the $1,000 for the statutory deposit for the benefit of Melaleuca is quite inconsistent with the claims of the Respondent of his ongoing ready access of funds to clear these liabilities, had he known of them. These matters may properly be also looked at in the context of : i. The Bank's requirement that the Respondent's overdraft be repaid if the Trust account were closed; ii. The limited operation of the Trust account in the period of 7 April 2003 (date of completion of last audit by Mr Quagliada) and 23 November 2003 asserted by the Respondent compared with the 126 debit transactions totalling $1,373,336. identified in that time by Mr Sofiak. iii. The creation of the Melaleuca Estate Trust ledger debit by a drawing on the trust account for legal fees payable to Messrs Hunt & Hunt of $25,000 when the overdraft account had no available credit for that payment and the actual credit on page 64 of the Affidavit being the ledger before the cheque was drawn is shown as $15,721.87 leaving a debit balance of $9,278.13 after the legal fees were paid. The entry is shown "MEL legal fees". In the absence of any other credible explanation it does appear that the cheque for $25,000 was what it appeared to be, namely payment of legal fees of Melaleuca which the Respondent could not pay from his overdraft account. 26 Mr Sofiak's Memorandum of 9 February 2005 (annexure JS.15 to his Affidavit) raised further issues. It dealt initially with some information sought by and supplied to one of the Councillors of the Society. The name of the Councillor involved has been deleted from the documentation filed by the Society and replaced by the words " Councillor" and "Councillors" . The relevant portion reads: "You may recall that you requested that I telephone,[Councillor] in relation to this matter. I contacted him and he requested further information that I now set out hereunder. (I should add that [Councillor] contacted me prior to my preparation of this memorandum, on my mobile, when I was out on an inspection. Unfortunately when I spoke to him I still had not the opportunity of reviewing my working papers and so unintentionally misled him in stating that all unpresented cheques were stale - my apologies to [Councillor]. To answer [Councillor's] inquiry, the funds used by Mr Cornwell when drawing from the trust account to cause the debit balances on Melaleuca's account to the amount of $49,090.14 (as reflected on my list in my report dated 17 August 2004) did not belong to either Mr Cornwell or his company Melaluca. They belonged to various clients. I have attached for your convenience a copy of the bank reconciliation statement as at 30 April 2004 that lists unpresented cheques totalling $50,858.55. You will note I have then dated these unpresented cheques such that it can be seen that as at 30 April 2004 the first 9 totalling $5,408.09 were stale." 27 The Councillor's query appears to relate to the Trust funds used to cause the debit balances on the Melaluca account of $47,090.14 reflected in his 17 August report. The $47,090.14 did not belong to the Respondent or to his company Melaluca. It belonged to various clients. 28 Mr Sofiak's report of 9 February 2005 that it took three visits to the Respondent's office to obtain the eleven files he wished to review The report stated in relation to seven of those files (pages 94 and 95 of report): " Brent, Yvonne variation of mortgage . Mr Cornwell was not able to produce this file. It relates to a payment of $1,500 made on 14/9/99 to R Amar being for 'settlement monies'. The cheque was cancelled on 31/5/04 and a new cheque for $1,500 drawn to Yvonne Brent on 4/6/04. Thompson Purchase. Mr Cornwell was unable to produce this file. The initial payment of $1,009.50 was made to L A and C Thompson 'F/S' on 28/3/03. The cheque was cancelled on 4/6/04 and a new cheque for $1,009.50 drawn to LA & C Thompson on 4/6/04. Galilee & Associates Agency. There was no explanation in the file relating to the $2,508.60 drawn to PMI on 14/8/00. The cheque was cancelled on 4/6/04 and a new cheque drawn on the same day for $2,508.60 to PMI. Melaleuca/Walsh. I was unable to determine from the trust records when exactly this cheque had been drawn. The attached trust ledger simply credits the trust account with $500 on 4/6/04 by way of 'cancel chq' and draws a new cheque for $500 on the same date to R Walsh. The file was very scant and did not contain anything indicating any attempt to return the $500. Micallef sale. The ledger indicates that a cheque for $582.80 was initially drawn to Dowling R/E on 28/3/03. This cheque was cancelled on 4/6/04 and a new cheque drawn for $582.80 on the same day to Dowling Real Estate. The file did not contain anything indicating any attempt to send the $58.80 on 28/3/03. W K Lee Refinance The ledger indicates that a cheque for $41,309.56 had been drawn on 28/3/03 and that this was cancelled on 4/6/04. The file did not contain anything indicating any attempt to forward the funds on 28/3/03. The file contained a copy of a letter to the client dated 5/12/02 advising the money was still held in the trust account and requesting the client to contact him. Pelboa P/L sale. There as no explanation in the file relating to the $301 drawn to Len Lavers on 28/3/03. The cheque was cancelled on 4/6/04 and a new cheque drawn on the same day to Len Lavers." 29 Mr Sofiak reported as quoted in the previous paragraph that the Melaleuca Trust ledger had first been overdrawn on 17 October 2003 when a cheque was drawn to Hunt & Hunt on account of legal fees. The business account statements of the Respondent with St George Bank show in October 2003 the overdraft limit on the account was $25,000.00 and available credit at the end of the month was $2,787.57. A debit balance on 17 October 2003 is shown as $25,737.03. 30 The Respondent did not dispute the ownership of monies that should have remained in the Trust account on and before 4 June 2004. He drew cheques for the various amounts on 4 June 2004 in favour of the various people after he deposited monies into the Trust Account to rectify the debit balances. 31 The Affidavit of Charles Quagliata related to his inspection of the practice of the Respondent on 7 April 2003 during which he noted a Trust Account ledger described as "Newcastle CBD" containing the Respondent's own funds was used to pay his business and personal expenses including some estate project expenses. Mr Quagliata told the Respondent "You must cease using your Trust Account for your personal matters and close this ledger". 32 From the material presented to the Tribunal it appears that the ledger "Newcastle CBD" was not the subject of concern after 7 April 2003 and the Tribunal has worked on the basis that the Respondent closed that account. 33 The warning of Mr Quagliata does, however, appear to have been ignored by the Respondent who used the Trust account as his own personal business or trading account reliant upon funds being in the account to which he was entitled when, in fact, that was not the case. There were monies in the Trust Account, that only represented unpresented cheques and they were clients' funds, not funds subject to the control of the Respondent who had no financial interest in them. Further, the Respondent was on notice that the Trust Account was not to be used in that manner. In this regard, it is noted that the ledger page 4 "Melaleuca Estates Pty Limited" includes the following payments: Date Reference no. Particulars Payees name Debit 14.07.03 102059 MEL-Diners Diners $ 2,711.87 14.07.03 102060 MEL-Acc Cornwell Diners $ 5,000.00 18.07.03 102063 MEL $ 8,000.00 22.07.03 102070 $ 9,500.00 23.07.03 102071 $ 4,969.00 08.08.03 102083 MEL Amex $ 3,000.00 08.08.03 102084 MEL Diners $ 4,079.82 08.08.03 102085 MEL No name $ 5,000.00 12.09.03 102097 MEL Diners $ 6,000.00 16.09.03 102102 MEL Amex $ 3,000.00 02.10.03 102124 $20,000.00 09.10.03 102130 Diners $31,436.04 13.10.03 102135 American Express $ 4,000.00 These entries have been extracted from the pages numbered 58 to 63 inclusive that form part of annexure JS-9.8 of the Affidavit of Mr Sofiak. 34 It is agreed between the parties that in May 2002 a client, Norman Hepburn paid the Respondent a cheque for $2,345.00 in respect of costs and disbursements. The cheque was deposited into the Trust account but it was dishonoured and from that time there was a debit in the Hepburn ledger of $819.46. The ultimate payment to the Trust account to repay the deficiencies made by the Respondent on 4 June 2004 comprise: Debit balance in Melaleuca account $47,090.14 Debit balance in Hepburn account $819.46 $47,909.60 It is accepted and agreed by the parties that the debit balance in the Hepburn ledger remained in the Trust Account from May 2002 until 4 June 2004 and there does not appear to be any significant material in relation to that deficiency before the Tribunal. The agreed Statement of Facts contains further matters which have been considered by the Tribunal including a. "On 20 December 2002 the solicitor retired from practising as a solicitor. Up until this time there had been no material complaints about his integrity or propriety as a member of the profession." b. The Respondent "approached the Bank" about closing the Trust Account but was told that if he did so the overdraft on the Cornwell's Office Account would have to be repaid. c. The Respondent "could not open a Melaleuca Estate Account because the other Director of Melaleuca Estate…… could not be located and a Bank account could not be opened without his signature." d. "The actual total balance of the Trust account never dropped below zero. This is because on the winding up of the practice cheques had been drawn and sent to clients or to other persons on instructions from clients, in order to reduce the balance of the Trust Account to zero but not all of the cheques were presented. If these cheques had been presented then the actual balance of the account would have been negative. Also there was the $819.46 deficit in respect of the Hepburn ledger." e. The Respondent "believed that these cheques had been presented and proceeded on the basis that the Trust Account only contained his own funds." f. " At no stage was there any deficit in the Trust Account which could not be met by the solicitor nor has there been any suggestion that the Trust Account was used to defraud clients of their money." 35 The retirement from practice referred to in prefers and accepts. Perhaps it may be that the Respondent thought he was a little bit retired but the Tribunal does not accept that as a concept: he either was retired, or he wasn't. The evidence was that he maintained a Practising Certificate until 30 June 2004, that he notified the Society that he was trading as "Brien Cornwell" from 1 July 2003 and his wife was employed by him and recorded as such from that time and date. There is evidence of his practising, albeit only in a minor way. 36 The Respondent's approach to the Bank to close the Trust Account already referred to and his failure so to do is simply not consistent with the suggestion that he had adequate funds at all times to clear the deficiency or the concept that all the monies in the Trust Account were his or under his control, in which case it would appear clear that he could, using his own monies, pay off the overdraft debt from "his monies in the Trust Account". Of course, they were not his monies, never were, never had been. When the Respondent put the Melaleuca ledger account into debit to pay legal fees to Hunt & Hunt, he did not have facility in his overdraft accommodation to make that same payment himself. There is no reasonable basis for the Respondent to have the beliefs in the relation to the Trust Account monies which he professed and the Tribunal does not see that it is an issue as to whether the Trust Account was used to defraud clients of their money. The fact is and remains that ss61 and 62 were breached, the breach is admitted and that the Respondent as a solicitor used the Trust monies belonging to clients of his firm for his own purposes and those of his associated company. 37 Section 61 and 62 insofar as they are relevant read as follows: "61. Money received by solicitor on behalf of another: (1) A solicitor who, in the course of practising as a solicitor in this State, receives money on behalf of another person: (a) Must pay the money, within the time prescribed by the regulations, into a general trust account in New South Wales at an approved financial institution and must hold the money in accordance with the regulations relating to trust money, or (b) If the person on whose behalf the money is received directs that it be paid or delivered to a third party free of the solicitor's control, must ensure that the money is paid or delivered: i. Before the end of the next working day or, if that is not practicable, as soon as practicable after the next working day, or ii. No later than the day allowed by the solicitor's authority or instructions (if that day is later than the day allowed under subparagraph (i), or (c) If the person on whose behalf the money is received directs that it be paid otherwise than into a general trust account or to a third party, must pay the money as directed and (if the money is to be held under the direct or indirect control of the solicitor) must hold the money in accord. "62. Keeping of accounts: 1. A solicitor shall keep: (a) in the case of trust money (within the meaning of section 61) - accounting records, or (b) In the case of money other than trust money - such accounting records or other records (if any) as may be required by the regulations; that disclose at all times the true position in relation to money received by the solicitor on behalf of another person. 2. The accounting records referred to in subsection (1) shall be kept in a manner that enables them to be conveniently and properly audited. 3. Without limiting the generality of subsection (2), the accounting records referred to in subsection (1) shall, if the regulations so require, be kept in such manner as the regulations prescribe. 4. A wilful contravention of subsection (1), (2) or (3) is professional misconduct." 38 Inevitably, there is some repetition in the Affidavit material. The two Affidavits of Mr Cornwell insofar as they are relevant to these proceedings have almost all been detailed in the other Affidavits and the major points have been picked up in this Decision so far. 39 The Respondent's Affidavit of 20 April 2006 contains the following additional matters, which appear relevant: a. The Respondent is aged 60. b. He was admitted as a Solicitor in 1984 and commenced sole practice in 1987. c. From the early to mid 1990s the Respondent became involved in building and development activities which increasingly occupied the Respondent's time and was financially successful. d. In 2002 the Respondent realised that his development work did not leave adequate time for his legal practice. e. Mr Hepburn's cheque was paid into his Trust Account on or about 16 May 2002. On 20 May 2002 the cheque was dishonoured and from that date the Hepburn ledger remained in debit. The Respondent was not aware of this. He employed an in-house bookkeeper, whom he entrusted to keep the Trust Account records. f. In about May 2004 he was advised by his then bookkeeper of his debit balance and he paid the amount of the deficit to the Trust Account on 4 June 2004. g. Contrary to his letter to the Law Society of 20 June 2004and the other matters already referred to, the Respondent asserts (in paragraph 39)that he has not operated a legal practice since December 2002. h. After the Trust Account inspection of Mr Sofiak in December 2003 the Respondent attempted, without success, to reconcile his Trust Account records and in February 2004 he employed a bookkeeper to assist with those records. i. He was advised about May 2004 by an employed professional bookkeeper, Mr Mitchell, that he was investigating whether some Trust account cheques that had been drawn had not been presented and until that time the Respondent was not aware that any cheques issued by the practice had not been presented, nor was he aware as to why they had not been presented but he indicated he then advised Mr Sofiak that there appeared to be some unpresented cheques. The Respondent indicates that he had funds and could have rectified the deficiencies had he known of the deficiencies deficit. He apologise: "for not being sufficiently diligent in keeping the Trust records for the Trust Account. I did not do this deliberately. I was not aware that the Trust Account ledger had fallen into deficit as the Bank account itself was never in deficit and I was unaware that there were any unpresented cheques that had been drawn in respect of the account. I have not renewed my Practising Certificate after 30 June 2004. I have retired from practice as a solicitor in December 2002 and have no intention of returning to practice as a solicitor in the future as I am a successful property developer." 40 The second Affidavit of 22 June 2006 deposes to the payment of funds to the Trust Account by the Respondent and the payment out of monies due to former clients of the firm and to closure of the Trust Account. 41 In opening to the Tribunal the Solicitor for the Society referred to the Respondent in the following terms: "It is obvious that the solicitor got to a point in his practice where he had divested himself of almost the entirety of the practice of the Law, I think he had one or two matters for family members and an estate matter and one other matter. He took his eye off the ball with respect to the Trust Account, failed to do with respect to the Trust Account that would have revealed the problems accruing in there. He was using a Trust ledger for his private development work and in drawing on the total balance of what was in the Trust Account generally for the purpose of that ledger with respect to his private development work overdrew on the ledger necessarily using client funds representing the proceeds of unpresented cheques. He had sent cheques to clients that had not presented them." 42 With the greatest respect the Tribunal cannot agree that this matter can be simply dismissed as a mere oversight or to use grammatically the words of the Society " a taking of his eye off the ball with respect to the Trust Account". 43 To put this in perspective, we are looking at a solicitor in sole practice. He deposes that on 16 May 2002 he received a cheque for the sum of $2,354.00 from a Norman Hepburn which was deposited that day into his Trust Account for costs and disbursements owed by Hepburn to the Respondent. On 20 May 2002 the cheque was dishonoured. A copy of the Bank Statement is annexed to the Respondent's Affidavit of 20 April 2006 showing the returned cheque circled but it lacks the cross and tick that were applied to the other debits. The evidence confirmed by the Respondent is that that dishonour left the ledger in debit to the tune of $819.46. There is no suggestion that the ledger was in debit prior to the receipt of the dishonoured cheque and if that is correct then, although the ledger page is not produced to the Tribunal, it is probable that the cheque, being for costs and fees, was the subject of a transfer to the Office Account after it was received. If that is the case, there was no reversal of that payment. If that is wrong, then, at the very least, the Respondent ought to have been aware on notice of the dishonoured cheque that that dishonour produced a significant deficit in his Trust Account ledger for that matter. Any deficit is no doubt significant but human error often produces incorrect calculations of cents and the smallish amounts so the debit balance of $819.46 on that ledger meant simply that the Trust Account had a shortage of that amount and so there were not sufficient funds in the Trust Account to meet the Respondent's obligations to other clients whose monies were in the Trust Account. 44 As the Society put it, the Respondent proceeded on the basis that he thought the monies in the Trust Account were his own monies. The Society's submission simply is that that was not a reasonable belief. It was the result of recklessness, which recklessness amounted to wilfulness in terms of ss61 and 62 of the Legal Profession Act 1987. 45 The Respondent attended the Tribunal for the hearing and he was available but not required for cross-examination. The Respondent did not require to cross-examine any of the three witnesses of the Society. 46 Learned Counsel for the Respondent acknowledged that his client "pleaded" to wilfulness, though he did assert that there are degrees of wilfulness. He clearly did not respond according to his Counsel to the requirements of Mr Sofiak in a timely fashion with the irregularities identified and perceived by Mr Sofiak. That is the wilfulness that the Respondent admits. Mr Morris submitted that, had the Respondent promptly responded to Mr Sofiak, he would not be before the Tribunal. 47 That submission may well be true in that this Respondent was indeed given every opportunity by the Society with a series of inspections and requests to enable him to extricate himself from the consequences of his own quite blatant failure to comply with ss61 and 62 of the Act. Putting the situation at its lowest, he failed to take advantage of that opportunity and so a complaint was made and the matter came before the Tribunal. 48 There was no issue at the hearing that the Respondent's behaviour amounted to professional misconduct. Having read the material and heard the submissions this Tribunal makes a formal finding on both counts of professional misconduct against the Respondent. 49 In the course of submissions the Tribunal made it clear that the finding of professional misconduct opened up a wide range of orders that the Tribunal could make to resolve the complaints ranging from a strike-off order, a suspension, a reprimand (private or public), a fine and, indeed, all possible alternatives within the section. This was accepted by the parties. The Society expressly did not seek a strike-off order or a suspension but rather a fine and a public reprimand. 50 Senior Counsel for the Respondent argued strongly that this was a matter where a reprimand was appropriate and that there were special circumstances which warranted that reprimand being a private one. 51 It was submitted that the wilfulness involved in the complaints was as described by the solicitor for the Society of the recklessness nature as in Re: Hodgekiss (1962) SRNSW 340. The Tribunal will return to that Decision shortly. 52 In submissions Senior Counsel for the Respondent assured the Tribunal that the Respondent would give an undertaking not to resume practice for three or for five years because his present sworn intention is that he is not going to practice. Counsel added "In any event, as I say, there are in place the safeguards about which the Tribunal could feel comfortable if he were to seek to renew his Practising Certificate. We say either the undertaking the greater or the lesser, but it's not really necessary." The Tribunal regards the longer term of five years as appropriate for the undertaking and that it should take effect from the date of the publication of the Decision. 53 In Re Hodgekiss 1962 NSWSR 340 at 353 Hardie J. said in relation to alleged breaches of ss41 and 42 of the Legal Practitioners Act 1897, these being the precursors of ss61 and 62 referred to in the complaint: "I am of opinion that the section deals with personal breaches of the statutory provisions in question on occasions when the solicitor knew or believed that he was committing such breaches or was recklessly careless in that regard. It is thus essential in an enquiry as to whether there have been wilful breaches by a solicitor of the provisions of ss41 and 42 to examine the facts and circumstances relevant to his state of mind, knowledge and intention at the material dates." 54 It is submitted by the Law Society and accepted by the Respondent that the behaviour of the Respondent was of this "recklessly careless" variety. The Tribunal is quite satisfied that this at least is established by the facts in evidence before the Tribunal. Pitching the facts at the lowest level, this "recklessly careless" conduct clearly in the view of the Tribunal satisfies the requirements of ss61 and 62. This conduct, as was accepted by the Respondent and his Counsel, constitutes professional misconduct and the Tribunal so finds. 55 There will always be degrees of professional misconduct. Any finding of professional misconduct is in itself a huge stain against the standing and reputation of a legal practitioner, perhaps second only to the impact of the consequential orders that may be made after such a finding and particularly if they involve a strike-off or a suspension. 56 The Tribunal has, however, had to look hard at this matter because there is an alternative and much more unpleasant interpretation of the Respondent's conduct open to it on interpretation of the facts. The Respondent was at all relevant times a sole practitioner. Evidence of his total ignorance of the situation in relation to his Trust Account is extraordinary, particularly in one instance. Over 80% of the money belonging to clients which effectively was used by the Respondent for his own purposes was in fact the proceeds of an unpresented cheque for $41,309.56 in a matter described as "W. K. Lee Refinance". Mr Sofiak in his report (page 95 of his Affidavit) states: "The ledger indicates that a cheque for $41,309.56 had been drawn on 28 March 2003 and that this was cancelled on 4 June 2004. The file does not contain anything indicating any attempt to forward the funds on 28 March 2003. The file contained a copy of a letter to the client dated 5 December 2002 advising the money was still held in the Trust account and requesting the client to contact him [i.e. the Respondent]." 57 The Tribunal has no affidavit from Mr Lee or evidence of any contact with him by the Law Society. The matter raises many issues which the Tribunal would have expected the Society to investigate. The outcome may well have been simply that "W K Lee" for reasons of his own wished the monies to remain in the solicitor's Trust Account and requested that that be done. There is no such evidence and no explanation seems to have been sought or provided by the Respondent. If the cheque had been presented by W K Lee there simply were not funds in the Trust Account to meet the cheque. The credit balance in the Trust Account on 29 May 2004 was $125.48. Presentation and inevitable dishonour of the cheque would have been discovered at least by the Society on or before its final inspection, yet the fact that it was not presented and there was no dishonour appears in the view of the Society as regulator to make the admitted misconduct of the Respondent less serious than conduct in other cases to which we will refer. There are too many gaps that have simply not been explored to provide evidence to permit the Tribunal to be satisfied as to the weight it should place on the WK Lee Refinance part of the misused funds. Mr Sofiak's report of 9 February 2005 which has already been detailed refers to a number of unpresented cheques where the documentation in the Respondent's file is quite inadequate to explain the circumstances and it appears that no explanations of these matters were sought or obtained, nor were they provided in his material by the Respondent to the Tribunal. 58 Finally, in this area, the Tribunal notes that the Respondent sought, following advice, to close his Trust Account, only to learn that he would have to repay his overdraft. The Trust Account went into debit (in terms that credit funds were not available to meet all outstanding cheques) on 17 October 2003 when a cheque debited to the Melaleuca Trust ledger for $25,000.00 was drawn to pay legal costs at a time when the Respondent's Office account did not have sufficient available funds to make that $25,000.00 payment. These matters are very material to the Tribunal's task in categorising the seriousness of the professional misconduct of the Respondent. 59 The Society expressly did not seek a strike-off order or a suspension. Reference is made in submissions to an earlier matter in which the Society did not seek an express strike-off order and a divided Tribunal imposed a fine which in turn was replaced by a strike-off order in the Court of Appeal. This was the matter of Law Society of NSW -v- Bannister [1990] NSWLST 7 and [1993] 4LPDR 6. Before the Tribunal the complainant Law Society sought (at 8) "such orders pursuant to s163 of the Legal Practitioners Act 1987 and such further or other orders as the Tribunal shall consider appropriate and an order for costs". The Tribunal in its reasons said at 9: "Where misconduct is established the task for the professional Tribunal is to determine whether it indicates unfitness or is more properly to be treated as an isolated or passing departure from proper professional standards amounting to something less than proved unfitness." 60 The Tribunal members in Bannister were initially divided in their opinion and ultimately they made no order for a strike-off or suspension but instead imposed a fine of $10,000 and ordered costs against the Practitioner. 61 On appeal in Law Society of NSW v Bannister in the Court of Appeal [1993] 4LPDR6 the Judgment in the Court of Appeal was delivered by Sheller JA who at 12 said: "In its grounds of appeal the Law Society claimed amongst other things that the Tribunal had erred in finding that the solicitor was fit to continue to practise as a solicitor of the Supreme Court of New South Wales and sought an order that his name be removed from the Roll of the Solicitors of the Court. This approach is different from that taken by Counsel for the Law Society at the hearing before the Tribunal….." 62 At 17, Sheller JA said: "In my opinion the Court should now make the order that the Tribunal should have made…. On more than one occasion during submissions to the Tribunal its (i.e. the Law Society's Counsel) indicated that the Law Society left it to the Tribunal to decide whether the Solicitor was unfit and whether or not his name should be removed from the Roll. At no stage did Counsel urge or even suggest that on the evidence the Tribunal was bound to order that the solicitor's name be removed from the roll. Accordingly, it seems surprising that the Law Society should now argue that the Tribunal erred in adopting a choice that the Law Society left open to it at the hearing. However since, in my opinion protection of the public in the manner I have described required that the Solicitor's name be removed from the Roll I accept that, whatever attitude was taken by the Law Society at the hearing before the Tribunal, it acted correctly in prosecuting this appeal." 63 The Decision of the Court of Appeal in Bannister extends in the view of the Tribunal to cover orders which it finds appropriate that may go beyond the seriousness of the orders sought by the complainant. 64 In Law Society of NSW -v- Ciampa [1997] NSW ADT 13 the orders sought by the Society were for a reprimand and a substantial fine, plus costs. 65 In its Decision the Tribunal said at 60 "The Tribunal is of the opinion that the orders sought by the Society that the solicitor be reprimanded and a substantial monetary penalty be imposed fall short of orders that adequately protect the public. An order is needed to deter the solicitor from repeating the misconduct and also deter others who might be tempted to fall short of the high standards required of them by acting as solicitors without the appropriate practising certificates. Whilst it is not know whether the solicitor intends to resume his career as a solicitor, nevertheless the Tribunal is of the opinion that there should be a period of time during which the solicitor is suspended from holding a practising certificate." 66 In Ciampa the Tribunal ordered: i. Reprimand; ii. A fine of $10,000; iii. That no practising certificate be issued to the practitioner until three years from the date of order; and iv. Costs. 67 In Law Society of NSW -v- Berry [2005] NSW ADT 46 the Society sought a reprimand, a fine and a costs order. In its Decision the Tribunal stated at 6: "At the end of the solicitor's oral evidence, the Society pressed its application for reprimand, fine and costs. However, we, in the execution of our clearly established protective function, indicated our preliminary view that the solicitor's right to practise was in issue. Further, we raised, we trust sufficiently clearly, the prospect of a supervision regime or mentoring order pursuant to s171C(2)(b) and adjourned the matter…." and it concluded at 10: "All of the evidence considered, we are not satisfied to the requisite standard that the solicitor is, at this time, a person who is fit to practise." The Order was made that Mr Berry be struck off. 68 Reference was also made in argument to the decision of the Court of Appeal in Law Society of NSW -v- Foreman [1994] 34 NSWLR 408. Senior Counsel for the Respondent sought to distinguish the Respondent's conduct from the conduct that was the subject of the applications in Bannister (supra) and Foreman (supra) in the context of the appropriate outcome or final orders. In Foreman Giles AJA said at 470: "The jurisdiction of the Tribunal and of this Court in disciplinary matters is exercised to protect the public, not to punish the solicitor. The object of protection of the public may require that a legal practitioner be removed from the roll, be suspended from practice, or only be permitted to practise under particular circumstances, where the practitioner is not fit to be held out to be entrusted, at all, for a time, or without qualification, with the heavy responsibilities attendant upon the office. The public is protected by ensuring that those unfit to practise do not continue to hold themselves out as fit to practise. But the object of protection of the public also includes deterring the legal practitioner in question from repeating the misconduct, and deterring others who might be tempted to fall short of the high standards required of them. And the public, and professional colleagues who practise in the public interest, must be able to repose confidence in legal practitioners, so an element in deterrence is an assurance to the public that serious lapses in the conduct of legal practitioners will not be passed over or lightly put aside, but will be appropriately dealt with. These sentences are, I think, a sufficient statement of established principles found in, for example Clyne v New South Wales Bar Association (1960) 104 CLR 186, New South Wales Bar Association v Evatt (1968) 117 CLR 177 and Law Society of New South Wales v Bannister (1993) 4LPDR 24." 69 The Tribunal is very conscious of its obligation to protect the public. The sworn evidence of the Respondent accepted by the Society is that the Respondent is retired from practice as a solicitor and will not be returning. In human experience "never" can be a dangerous word in prognostications about the future. The evidence before the Tribunal is that the Respondent is a wealthy property developer who has now distanced himself for some time from practice. In the event that he were to apply for a practising certificate the Society would be required to consider his application under s48 of the Legal Profession Act 2004, the findings of this Tribunal and the undertaking not to apply for a practising certificate for 5 years (see paragraph 52 above) which the Tribunal accepts and takes into account in coming to its conclusions would be important factors open to the Society in its deliberations. The deterrence factor, has been achieved at least to some extent by his acceptance of his wrong-doing, the Tribunal's acceptance of his undertaking and the further orders detailed below. There has, indeed, in the words of Giles AJA in Foreman been a " serious lapse " and this Tribunal does not for one moment wish to pass over it lightly. 70 The conclusion of the Court of Appeal in New South Wales Bar Association -v- Hamman [1999] NSWCA 404 has been considered by and been of assistance to the Tribunal. At 101 Mason P. said: "In my view the proven misconduct and conviction establish unfitness to practise. There was significant and prolonged dishonesty for personal gain. The barrister's response to detection, conviction and sentence has been creditable. And it demonstrates genuine contrition. The door to readmission is never closed. But the professional misconduct is of such a nature that it demonstrates unfitness to practise which must be marked by disbarment. To do less would depart from the principles established in Ziems, Bannister and Foreman ." 71 Taken as a whole, while the misconduct of the Respondent is serious, the evidence before us makes it of a lesser order than the misconduct in Bannister, Foreman, Hamman and the other authorities on this issue. 72 The Tribunal concludes that a strike-off order is not warranted on the evidence before it. The undertaking offered by the Respondent and accepted by the Tribunal has much the same effect as a suspension from practice for 5 years. The Respondent has acknowledged through Senior Counsel that he accepts that it is appropriate for a costs order to be made. against him. His evidence is that he is a wealthy man but the Tribunal feels that in imposing a fine as part of the final orders it should take into account the deterrent effect upon other practitioners in the context of the overall orders made and the considerations given, rather than to be wealth of this Respondent. A fine that was proportionate to his wealth, as he measures it in millions of dollars, is an exercise that the Tribunal will not undertake. That would be a futile excuse, bearing in mind the limitation on financial penalties to a fine of $50,000 under s171C of the Legal Profession Acct 1987 which is the applicable Act. [The 2004 Act which does not apply to this matter has increased the maximum fine to $75,000 under s 562(7)]. In line with decisions in other matters the Tribunal has formed the view that a fine of eight thousand dollars ($8,000.00) would be appropriate deterrent to the Respondent and other practitioners when viewed with the undertaking and other orders. The combined effect of these outcomes is a deterrent designed by the Tribunal to protect the public interest. 73 The only remaining matter is the question of a reprimand. The Society has sought a public reprimand while the Respondent's Senior Counsel has argued that this is a clear matter in which those special circumstances justify any reprimand being a private reprimand. In endeavouring to determine the level at which the Respondent's professional misconduct should be viewed, the Tribunal has found some guidance from a decision in Allinson -v- General Council of Medical Education and Registration [1894] QBD 750 at 763 where Lopes LJ said: "It is important to consider what is meant by 'infamous conduct in a professional respect'. The Master of the Rolls has adopted a definition which, with his assistance and that of my brother Davey, I prepared. I will read it again: 'If it be shewn that a medical man, in the pursuit of his profession, has done something with regard to it which would be reasonable regarded as disgraceful or dishonourable by his professional brethren of good repute and competency' then it is open to the General Medical Council to say that he has been guilty of 'infamous conduct in a professional respect'." 74 The evidence does not, in the Tribunal's view, quite reach the level of " disgraceful or dishonourable " referred to in the oft-quoted passage from Lopes LJ but in the view of the Tribunal it is misconduct that warrants, as far as a deterrent is concerned, the recognition of its seriousness by nothing short of the delivery of a public reprimand and the Tribunal so orders. 75 These proceedings are brought under the Legal Profession Act 1987 so that s171C(3) of the Act applies. Under that provision, the Tribunal is required where it makes an order publicly reprimanding a legal practitioner to publish the order and a statement of the reasons for making the order. Under subsection 5 this obligation to publish is satisfied if the Tribunal provides the Commissioner with sufficient information to enable the Commissioner to exercise his function in respect of the Register of Disciplinary Action required to be kept under Division 9A. 76 The Registrar of the Tribunal is accordingly requested to provide the required information to the Commissioner as expeditiously as possible. CONCLUSION: 77 In summary the Tribunal finds professional misconduct established and directs that the Respondent pay a fine of Eight thousand dollars ($8,000.00) within Sixty (60) days of this order, be subject to public reprimand and pay the costs of the matter excluding the costs of the hearing on 2 December 2005 which was the subject of a separate order. The undertaking of the Respondent not to apply for a practising certificate for five years is noted by the Tribunal.

Law Society of New South Wales v Cornwell No.2

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