Law Society of New South Wales v Mattila

Law Society of New South Wales v Mattila - [2017] NSWCATOD 166 - NSWCATOD 2017 case summary — Zoe

[6]

Ground 2: Failing to account for trust monies (Complaint by Mr Humphries)

This Ground is based on a complaint by the Solicitor's former client Mr Humphries, who lodged a complaint with the Law Society concerning the Solicitor's conduct. There are several related but distinct contentions made under this Ground and they are subject to separate responses by the Solicitor through her Reply, so we have dealt with them separately. 1. Identity of the Solicitor's clients. The Law Society asserts that the Solicitor acted on behalf of Viridian Coal Pty Ltd ("Viridian"), and that Mr Humphries was a director of that company. The Solicitor admits this, but denies that she also acted for Mr and Mrs Humphries in their personal capacities. 2. Receipt and crediting of $200,000. The Solicitor admits that on 21 March 2014 her practice received the sum of $200,000 in relation to a loan repayment but says that this amount was received on behalf of Mr Humphries only. The Solicitor admits that that amount was deposited into the firm's trust account and credited to trust ledger number 22 in the name of Mr Humphries. 3. The invoicing of Viridian. The Solicitor admits the recording of entries in trust ledger No. 22 (details of which are set out in a table in paragraph 29 of the Application) and that on or about 20 April 2014 her practice issued invoice No. 2029 dated 20 April 2014 to Viridian for professional work undertaken between 10 April 2013 and 20 March 2014; the total amount of that invoice being $44,000 comprising $40,000 for legal work and $4,000 for goods and services tax ("GST"). She further admits that invoice 2029 was the only invoice issued by the practice to Viridian. 4. The extent of the Solicitor's authority to withdraw funds credited to trust ledger No.22 .The Law Society asserts that Mr Humphries authorised part payment of invoice No. 2029 of $34,000, from the $200,000 credited to the ledger. The Solicitor denies that the authority was limited to the sum of $34,000 and asserts that Mr Humphries' authority extended to the transfer of (at least) the full amount of the invoice, $44,000, from trust for the application of that amount for the Solicitor's benefit. 5. Further payments from trust account to satisfy invoices. The Law Society asserts that between 21 March 2014 and 4 April 2014 the Solicitor caused payments totalling $52,000 to be debited from trust ledger No. 22, purportedly for payment of invoice No. 2029; and that the amounts debited by the Solicitor from that trust ledger were in excess of the amount authorised by Mr Humphries. The Solicitor admits that she caused amounts totalling $52,000 to be debited from trust ledger No. 22, but says that the authority given to her by Mr Humphries was not limited to payment of invoice No.2029. Accordingly, she denies that the amounts debited by her, purportedly for payment of invoice No. 2029, were in excess of the amount authorised by Mr Humphries. The Solicitor admits that she did not provide to Mr or Mrs Humphries trust account statements in relation to the monies held on trust and recorded in trust ledger No. 22, and that she did not provide to Mr or Mrs Humphries any trust account ledger statement.
The Law Society asserts that by reason of the matters set out above the Solicitor has failed to account for trust monies.
The Solicitor's response, in paragraph 22 of her Reply, is as follows: "The Solicitor admits that with respect to the payments transferred to or for the benefit of the Solicitor without the authority of Mr Humphries, such payments or transfers constituted a breach of the requirement in section 255 of the Legal Profession Act 2004 to hold and disburse monies only in accordance with the authority or direction of the person on behalf of whom it is held."

[7]

Ground 3: The Solicitor wilfully breached section 255 of the Legal Profession Act 2004 (Complaint by the Law Society)

The Law Society repeats and relies upon the allegations in Ground 2, and the Solicitor for her part makes the same responses as she does for that Ground.
However, the Law Society also asserts that 3 debits made by the Solicitor, referred to as entries 5, 6 and 7 in trust ledger No. 22, constitute a wilful breach by the Solicitor of section 255 (1) (b) of the 2004 Act, because the amounts debited purportedly in payment of the Solicitor's invoice No. 2029 exceeded the amount authorised by Mr Humphries.
The 3 entries are as follows: 1. Entry 5 is dated 21 March 2014 and is described as: "Part payment of Viridian invoice 2029". Under the heading "Amount Debited" is $10,000. The Law Society contends that that is $6,000 in excess of Mr Humphries' authorisation. 2. Entry 6 in the same ledger is dated 31 March 2014 and is described as "part payment invoice 2029". It records an amount debited of $2,000 and the Law Society contends that that is $2,000 in excess of authorisation. 3. Entry 7 dated 7 April 2014 is described as "part payment Viridian invoice", and records the amount debited of $10,000. The Law Society asserts that that is $10,000 in excess of Mr Humphries' authorisation.
The Solicitor, by her Reply, denies wilful breach of section 255(1)(b) and the contention that entries 5, 6 and 7 set out above exceeded the amount authorised by Mr Humphries.
The Law Society further asserts, under this Ground, that entries 8, 9, 10, 12, 13 and 15 in the same trust ledger (trust ledger No. 22), totalling $132,000, were in breach of section 255(1)(b) as being unauthorised and not made in accordance with a direction given by the client, Mr Humphries. The Solicitor admits this contention save that she asserts that the unauthorised withdrawals total $130,000 not $132,000.
Those entries, numbered 8, 9, 10, 12, 13 and 15, are set out in the Application as follows:
The Law Society asserts and the Solicitor admits that in breach of s 255(3) of the 2004 Act the Solicitor has failed to account for the monies held in trust for Mr and Mrs Humphries.

[8]

Ground 4: The Solicitor failed to make compulsory superannuation contributions for her employees (Complaint by the Law Society)

The Law Society asserts, and the Solicitor by her Reply admits, as follows: 1. The Solicitor as principal of the law practice had an obligation to ensure that compulsory superannuation contributions were made on behalf of the law practice employees. 2. During an interview on 27 August 2014 conducted by Mr John Mitchell, the Law Society's Chief Trust Account Investigator and Supervisor, the Solicitor informed Mr Mitchell that as at 27 August 2014 superannuation contributions for current employees of the law practice were not up to date and that superannuation contributions for former employees, Mr Horne, Ms Lynn and a Mr Thompson were not up to date. 3. A Superannuation Guarantee Employer Statement of Account from the Australian Taxation Office as at 15 September 2014, which was obtained by the Law Society during the course of its investigation, recorded a total overdue amount of $52,405.93 including administration fees and interest remaining owing to all employees of the law practice. 4. By reason of those matters and the fact that, as the principal of the law practice, the Solicitor was subject to the same obligations as the law practice and liable for its acts and omissions, the Solicitor had failed to make compulsory superannuation contributions for her employees.
During the hearing Mr Lynch SC for the Solicitor sought to withdraw what he described as "the legal effect" of the admission in respect of Ground 4. We understood Mr Lynch's position to be that even if the facts as particularised in Ground 4 were established (as they appear to be by the admissions made by the Solicitor), it is not admitted that the legal result is that the Solicitor has failed to make compulsory superannuation contributions for her employees, nor, in particular, that this properly grounds a finding of professional misconduct. We accepted that as the Solicitor's position in relation to this Ground; that is, that the Solicitor does not admit that the legal effect of the admissions are as pleaded by the Law Society

[9]

Ground 5: The Solicitor has misappropriated trust funds (Complaint by the Law Society).

The Law Society repeats its' pleading in Ground 2 (failing to account for trust monies). In addition it asserts as follows: 1. that the amounts reflected in entries 2, 4 and 13 in trust ledger No. 22, totalling $56,000, were deposited into the Solicitor's business cheque account, 2. that the amounts reflected in entries 5, 6, 7, 8, 9, 10, 11, 12 and 15 of the same ledger account as withdrawals, which total $178,000, were deposited into the Solicitor's business management account; 3. that the withdrawals at entries 8, 9, 10, 12, 13 and 15,of the same ledger account, which total $132,000, were not authorised by Mr Humphries; 4. that the Solicitor knowingly engaged in the conduct of depositing the relevant amounts into the business cheque account and the business management account and that the moneys so deposited were used for the benefit of the law practice and/or the Solicitor personally.
In paragraph 59 of its Application the Law Society contends that by reason of these matters (including the matters contended by it in Ground 2), the Solicitor misappropriated trust funds.
By her Reply, the Solicitor repeats her replies to Ground 2 (failing to account for trust monies); admits that withdrawals at entries 2, 4 and 13 were deposited into the business cheque account; that withdrawals 5, 6, 7, 8, 9, 10, 11, 12 and 15 were deposited into the business management account, and that the withdrawals at entries 8, 9, 10, 12, 13 and 15 were not authorised by Mr Humphries. She further admits that she knowingly engaged in the conduct set out in paragraphs 51 and 52 of the Application, namely the depositing of monies into the Business Cheque Account and the Business Management Account and that those monies were used for the benefit of the practice or for her use personally.
The Solicitor however denies that at the time of withdrawal at entry 5 in the trust ledger (that entry being on 21 March 2014, noted as "part payment Viridian invoice 2029" for $10,000) she was aware that the amount debited exceeded the amount authorised by Mr Humphries. She also denies that the withdrawals at entries 6 and 7 ($2,000 on 31 March 2014, and $10,000 on 4 April 2014) were unauthorised.
Significantly, she admits that the balance of the entries pleaded in paragraphs 56 of the Application, namely entries 8, 9, 10, 12, 13 and 15 of the ledger (totalling $132,000) were made at a time when she was aware that Mr Humphries had not authorised those withdrawals.
Most significantly, the Solicitor admits the contentions in paragraph 59 of the Application. That is, she admits that she misappropriated trust funds.

[10]

Ground 6: Failure to comply with fiscal obligations (Complaint by Ms Lynn)

The Solicitor admits the following assertions by the Law Society : 1. On 7 June 2012 Ms Lynn entered into a contract of employment with the practice; 2. The Solicitor executed the Lynn employment contract on behalf of the practice; 3. Paragraph 11 of the employment contract provided as follows: "11 Superannuation 11.1 Your Employer shall pay superannuation contributions on your behalf currently at the minimum rate required to avoid the imposition of a levy under the Superannuation Guarantee (Administration) Act 1992 (Cth) 11.2 Your Employer will make superannuation contributions on all components of ordinary time earnings including annual leave but excluding annual leave loading and overtime payments to the maximum annual ceiling specified under the relevant legislation. Contributions will be made quarterly to a complying fund." 1. Pursuant to paragraph 11 of the Lynn employment contract the law practice was obligated to make superannuation contributions into Ms Lynn's nominated superannuation account. 2. As at the date of Ms Lynn's complaint to the Law Society, being 15 September 2014, the following amounts were owed to Ms Lynn by the law practice: 1. Pay for the period 20 July 2013 to 19 August 2013 - $6,656.39 2. Pay for the period 20 February 2014 to 19 March 2014 - $5,307.95 3. Claim for expenses paid on behalf of the law practice in 2012 - $3,109.77 4. Superannuation for quarter ending 31 March 2014 - $122.74 5. Total $15,196.85. 1. On or about 7 October 2015 the Solicitor paid the outstanding superannuation payment of $122.74 directly to Ms Lynn's nominated superannuation account. 2. No further payments have been made by the Solicitor or the law practice to Ms Lynn since 7 October 2015. 3. The amount of $15,074.11 payable to Ms Lynn remains outstanding as at the date of the Application.
The Law Society contends, but the Solicitor does not admit, that by reason of the matters set out above the Solicitor has failed to comply with her fiscal obligations to Ms Lynn.

[18]

Our conclusion and our reasons for it

In our view there is no duplicity in the pleading of the Application. We reach that conclusion for the following reasons. 1. It seems accepted that the rule against duplicity is not absolute, that it originated for the purpose of confining pleadings in criminal matters and does not apply directly to disciplinary matters. See Kumar v Legal Services Commissioner [2015] NSWCA 161 per Leeming J at [77] and [91]. 2. In that case Justice Leeming emphasised the importance of ensuring that procedural fairness had not been denied by reason of the structure of the pleadings: see [91]-[94]. He found, at [93], that in circumstances where the grounds were particularised and the particulars were substantially admitted (and the defence turned on a lawful excuse), there was nothing procedurally unfair about the proceedings. 3. In our view, in the present case fairness to the Solicitor was demonstrated by the Application, in that particulars were provided to each Ground and although Grounds 2, 3 and 5 shared a number of common particulars, Grounds 3 and 5 included additional particulars. The Solicitor filed a Reply in which most of the particulars for each Ground were admitted and we are comfortably satisfied that the Solicitor knew the substance of the complaints levelled against her. 4. As a practical matter, proceedings concerning legal practitioners in this Division of the Tribunal will often be based on a number of complaints, sometimes from a number of complainants. There will often be some degree of overlap between grounds. However, provided that procedural fairness concerns are satisfied and appropriate particulars given, that feature of itself would not justify the Tribunal in such a case treating the pleadings as duplicitous. We are satisfied that that is also the position here. 5. The Victorian case of Woods v The Legal Ombudsman [2004] VSCA 247 at [51] is authority for the proposition that a repetition of the factual context underlying charges is permissible in disciplinary proceedings provided that on their proper analysis it is apparent that the charges deal with two or more separate instances of misconduct and ultimately there is no duplication of penalty. We are satisfied that that is the position here. 6. Put another way, (which is perhaps more consistent with the basis used by Mr Lynch SC in making these submissions), if different and separate instances of the practitioner's conduct are the subject of each ground and there is no duplication of penalty as between them (which we are satisfied that that is the case here) it is difficult to see how there is any duplicity.

[19]

What is professional misconduct?

The Law Society asserts that the Solicitor is guilty of professional misconduct. Such a finding may be based on Section 497 or Section 498 of the 2004 Act or on the common law test propounded in Allinson v General Counsel of Medical Education and Registration [1894] 1 QB 750 ("the Allinson Test").
Relevantly, s 497(1) provides: "497 For the purpose of this Act: (1) 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.".
The Allinson Test involves consideration of whether the practitioner has engaged in conduct in the pursuit of his or her professional activities that would reasonably be regarded as disgraceful or dishonourable by professional colleagues of good repute and competency: See Prothonotary of the Supreme Court of NSW v McCaffery [2004] NSWCA 470.
Meagher JA set out the relevant principles with clarity, with particular reference to but not restricted to trust account obligations, in The Prothonotary of the Supreme Court of New South Wales v Dimitrious [2015] NSWCA 258; where he said, at [21]: "Legal practitioners are expected to act and must act with scrupulous honesty when discharging their obligations generally, and specifically with respect to the receipt and payment of monies on behalf of clients. There is an unqualified expectation that they adhere to those standards. The position was stated plainly by Ipp JA in Barwick v Council of the Law Society of New South Wales [2004] NSWCA 32: "The trust and confidence which clients place in their solicitors are basic element of the administration of justice in this country. Violations by legal practitioners of trust accounts betray that trust and harm public confidence in the legal system. This explains the sacrosanct nature of trust accounts and the acute concern that courts have when practitioners, in breach of their fight judiciary obligations, misuse trust accounts for their own benefit."

[23]

The Solicitor's position on these Grounds

By her Reply the Solicitor admits: 1. that she failed to comply with her fiscal obligations owed to Mr Horne (Ground 1), 2. that she failed to make compulsory superannuation contributions for her employees (Ground 4); and 3. that she has failed to comply with her fiscal obligations to Ms Lynn although she does not admit that that conduct sounds in professional misconduct or unsatisfactory professional conduct (Ground 6).
The Solicitor's position was clarified in oral and written submissions by Mr Lynch SC, as follows: 1. The pleading was strictly incorrect in referring to the "fiscal obligations" of the Solicitor, in that a professional conduct obligation is distinct from and cannot be converted into a fiscal obligation. 2. The Solicitor admits that payments, in particular, contributions to the employee's superannuation fund, required by the employment contracts relating to Mr Horne and Ms Lynn were not timeously made but contends that it is wrong to assert that those omissions were failures "to comply with fiscal obligations". Contractual obligations are not fiscal, in that they are not obligations "….relating to the public treasury or revenues". 3. Moreover, failure to comply with contractual obligations cannot of itself be conduct for which a practitioner may be disciplined. The focus must be on the professional conduct of the practitioner.
Although Mr Lynch SC did not say so in terms, we took him to imply that there may have been a "slide" in the basis of the Law Society's case on Grounds 1 and 6, from breach of fiscal obligations (which is pleaded in the statement of grounds for those Grounds on page 2 of the Application) to breach of an obligation to make superannuation contributions. The statement headed "Grounds of Application" on page 2 of the Application is in the following terms in relation to Grounds 1 and 6: "Jennifer Margaret Mattila (the Solicitor) is guilty of professional misconduct are set out below: FILE A ; COMPLAINT BY BENJAMIN HORNE Ground 1: Failing to comply with fiscal obligations…… Ground 6: Failing to comply with fiscal obligations."
It is not until the section headed "Particulars of Grounds of Complaint", on pages 4 to 11 of the Application, is reached that it becomes apparent that the failure to comply with fiscal obligations is alleged to have arisen from a failure to make superannuation contributions: paragraphs [15] to [22] in respect of Mr Horne (Ground 1) and paragraphs [64], [68] and [72] to [76] in respect of Ms Lynn (Ground 6).

[26]

The superannuation guarantee regime: the Administration Act and the Charge Act. Are Grounds 1 and 6 flawed as contended by the Solicitor?

A proper analysis of the Solicitor's conduct and the Law Society's pleadings requires: 1. an understanding of the legislation and operative scheme for collection of the superannuation guarantee charge, under the Superannuation Guarantee (Administration) Act 1992 ("the Administration Act" and the Superannuation Guarantee Charge Act 1992 ("the Charge Act"); 2. the identification of any fiscal obligations owed by the Solicitor and any breaches by her; 3. a determination of whether the Solicitor has been afforded procedural fairness by the manner in which the allegations against her have been pleaded, including by reference to NCAT Occupational Division Procedural Direction 4, "Professional Discipline Matters"; and 4. a determination of whether conduct related in Grounds 1 and 6 can sound in professional misconduct.
The scheme and application of the Administration Act and the Charge Act were explained by Heydon J in Roy Morgan Research Pty Ltd v Commissioner of Taxation [2011] 244 CLR 97 at 144 to 155. His Honour said: "There is no general duty on private employers to pay superannuation contributions to superannuation funds for the benefit of their employees. But particular obligations to pay superannuation contributions can arise in various ways. They may be created by an award or certified agreement. They may be created by contract. Sections 5 and 6 of the (Charge Act) impose a superannuation guarantee charge on all employers. It is calculated by reference to an employer's "superannuation guarantee shortfall": (Administration Act) section 17. That shortfall is the difference between 9% of a given employee's total salary or wages for a quarter and what the employer contributed to a retirement account or certain types of superannuation fund for the employee's benefit, plus a nominal interest component and an administration component. The function of the interest component is to compensate for fund earnings foregone by the failure to pay the 9%. The function of the administrative component is to recover expenses associated with administering the superannuation guarantee charge. The legislation creates an obligation on the employer to pay the charge to the Commissioner of Taxation which is enforceable as a debt due to the Commonwealth. The superannuation guarantee charge is to be paid into the Consolidated Revenue Fund. A similar sum (but without the administration component) is then to be paid out to a superannuation fund for the benefit of the relevant employee. The superannuation guarantee charge provides an incentive to employers to make superannuation contributions at the rate of 9% of the employee's wages. It ensures that in relation to employees of employers who fail to do so there will be payment into approved superannuation funds equivalent to those which the employers did not make. There are significant factors influencing employers to make superannuation contributions directly to superannuation funds for their employee's benefit rather than pay the superannuation guarantee charge…."
The first thing which is clear from His Honour's lucid explanation is that the superannuation guarantee charge must be paid by the employer and is a debt due to the Commonwealth. The charge is a fiscal obligation. It is of secondary importance only that the amount of the charge can be reduced by an employer's direct payment to a retirement account or certain types of superannuation funds for the employee's benefit. It is irrelevant, at least for the purposes of this analysis, whether or not the particular employer is under a contractual obligation to the employee to make such a direct payment.
The second thing which is clear is that, in respect of each superannuation guarantee charge, the fiscal obligation so created is for the benefit of the particular employee concerned. That is so notwithstanding that as a matter of debt, the charge is owed to the Commonwealth.
On any reasonable construction of the particulars given for each of Grounds 1,4 and 6, it is apparent that the allegation of professional misconduct in each case is that by failing to make superannuation guarantee contributions to the relevant employees, the Solicitor failed her obligations as they are outlined by us in the preceding paragraphs.
It may be observed that the wording of paragraph 22 of the particulars, being the concluding paragraph in relation to Mr Horne and paragraph 76, being the corresponding paragraph for Ground 6 in respect of Ms Lynn, could have been crafted more precisely. They conclude that: "…the Solicitor has failed to comply with her fiscal obligations to (Mr Horne and Ms Lynn respectively).
The contention might have been more happily and precisely pleaded by referring to a failure to comply with a fiscal obligation.. "to the detriment of (the named employee)"; or by concluding the sentence after the word "obligations".
However in our view that flaw in the wording of these pleadings: 1. is not sufficient to constitute a breach of paragraph 3.2 of Procedural Direction 4. The particulars for each of these Grounds do in our view set out the facts, facts and or omissions that are alleged to constitute the conduct which is asserted as justifying the disciplinary finding sought by the Law Society; and 2. cannot be said to have brought about a denial of procedural fairness to the Solicitor. She has availed herself of the opportunity to file a detailed Reply, in which she has admitted a breach of the fiscal obligations as pleaded in paragraphs 22 and 76 of the Application. She has also availed herself of the opportunity to prepare and file substantial affidavit evidence.
We note that in her affidavit of 4 August 2017 the Solicitor sets out details of her negotiations with the Australian Taxation Office ("ATO") concerning her debt for the superannuation guarantee charge. In paragraph 11(b) of the affidavit she asserts that she has made arrangements with the ATO concerning that debt which he has complied with, but, on any reasonable reading of paragraphs 11 and 12, although she has reduced her total practice debts by approximately $280,000, there is no indication that she has completed payment of the instalments due to the ATO for the superannuation guarantee charge. We did not understand this position to have changed as at the date of the hearing which was on the business day immediately following the date of her affidavit.
It follows that as at the date of hearing the Solicitor continued to be in breach of her fiscal obligations arising under the Administration Act and the Charge Act and that this breach was to the detriment of the affected employees.
As a result of the analysis above we are satisfied that Grounds 1 and 6 are not flawed as contended by the Solicitor.

[28]

Could the Solicitor's breach of her obligations in this regard result in a finding of professional misconduct?

Mr Lynch SC contended that the Solicitor's obligations as pleaded in respect of Grounds 1, 4 and 6 were contractual not fiscal obligations, that failure to comply with contractual obligations is not of itself conduct for which a practitioner may be disciplined and that the Law Society must establish more than just non-payment of contractual obligations. Those contentions were reflected in the Reply which pleaded that the allegations in respect of Grounds 1, 4 and 6 cannot constitute a ground for a finding of professional misconduct or of unsatisfactory professional conduct.
We note that in the Solicitor's Reply: 1. in respect of Ground 1, she admits that under paragraph 10 of Mr Horne's employment contract ("the Horne Employment Contract"), the Solicitor's law practice was obligated to make superannuation contributions into Mr Horne's nominated superannuation account; that no such contributions were made into that nominated account during the term of his employment by the law practice and that the total requirement for contributions during the term of Mr Horne's employment was $7176.71 of which $2312.49 has since been paid by the law practice. However it is not admitted that $4864.22 remains payable to Mr Horne's nominated superannuation account, or that during his employment Mr Horne received payslips from the law practice which represented that the superannuation contributions had been made into his nominated superannuation account; 2. in respect of Ground 4, she admits that as at 15 September 2014 a Superannuation Guarantee Employer Statement of Account produced by the ATO records a total overdue amount of $52,405.93 including administration fees and interest owing to all employees of the law practice and by reason of these matters she had failed to make compulsory superannuation contributions for her employees; and 3. in respect of Ground 6, she admits that paragraph 11 of the law practice's contract of employment with Ms Lynn provided that the law practice was liable to pay superannuation contributions into Ms Lynn's nominated superannuation account; that as at the date of Ms Lynn's complaint, being 15 September 2014, $122.74 was owed to Ms Lynn by the law practice and that on about 7 October 2015 the Solicitor paid this outstanding amount directly to Ms Lynn's nominated superannuation account.
It is not disputed that these various obligations of the Solicitor through her law practice to pay superannuation contributions into her employees nominated superannuation accounts were contractual in nature. For the reasons we have given in the previous section above, the obligations are also fiscal obligations. If it be the case that these obligations were not, on proper analysis, fiscal obligations owed to the relevant employees, they were nevertheless fiscal obligations incurred for the benefit of those employees.
Mr Maddigan on behalf of the Law Society contended that the previous decisions of the Tribunal and its predecessor, the Administrative Decisions Tribunal, establish that breach by a legal practitioner of an obligation to make superannuation contributions to an employee's superannuation fund is capable of being treated as professional misconduct. The relevant authorities include Council of the Law Society v Bouzanis [2006] NSWADT 55; Law Society of NSW v Hendy and Gillroy [2010] NSWADT 32 (where the relevant professional misconduct was admitted); Council of the Law Society of NSW v Kingston [2014] NSWCATOD 21 and Council of the Law Society of New South Wales v Etherington [2016] NSWCATOD 31.
The Law Society's position is that the mere failure to pay superannuation guarantee contributions on time does not of itself constitute professional misconduct, but it is the circumstances surrounding that failure, the consequences of the failure and the actions subsequently taken by the Solicitor, that determine whether the conduct constitutes professional misconduct.
Mr Lynch SC, on behalf of the Solicitor, relied firstly on The Council of the Law Society of New South Wales v Koffel [2010] NSWADT 149. In that case a failure to make payments into an employee's superannuation fund was found on the facts not to constitute professional misconduct. The Tribunal so held because it was satisfied, on the basis of the practitioner's unchallenged evidence, that once the matter had been drawn to his attention he did what he believed he could reasonably do in all the financial circumstances to meet his revenue responsibilities. He had thereby demonstrated in a professional and personal sense a commitment to pay the outstanding debts including the superannuation payments. As the Tribunal said in that case, when the issue of outstanding superannuation came to the practitioner's attention he directed his mind to it and dealt with it.
Mr Lynch SC relied on Kirk v Industrial Court of New South Wales (2010) 239 CLR 531, as authority for the proposition that the Law Society was required to particularise the steps which the Solicitor could or should have undertaken in order to satisfy the obligation to pay superannuation contributions. He contended that the Application does not particularise the "reasonable steps" which it is said that the Solicitor in this case had not taken. In his contention, the Law Society bears the burden of proof in this regard. That is, it is not sufficient for the Law Society merely to assert the existence of the obligation to make the contributions and the fact of non-payment. It must go further and establish conduct by the Solicitor which is disgraceful and dishonourable conduct under the Allinson Test or otherwise constitutes professional misconduct.
Mr Lynch SC contended that in any case the Solicitor's position here was similar to that of Mr Koffel and that here, the Solicitor's affidavit evidence demonstrated that she had made substantial efforts to keep her practice operating with a view to being able to meet the obligations to her employees and had taken substantial steps to resolve the matter of outstanding contributions with the ATO.

[29]

Our conclusions on this issue

In our view: 1. A breach by a solicitor of his or her contractual and fiscal obligations to make superannuation guarantee contributions is capable of grounding a finding of professional misconduct. 2. The bare failure to pay those contributions promptly is insufficient of itself to constitute professional misconduct. We need to take into account in particular the actions of the Solicitor in determining whether she has engaged in professional misconduct.
We have reached that conclusion for the following reasons: 1. The Koffel case is not authority for the proposition that it is not open to us to make a finding of professional misconduct in this case. It is authority for the proposition that it is possible for a solicitor, who has breached his or her contractual obligations in respect of superannuation contributions, to demonstrate by what the Tribunal in that case described as clear and unchallenged evidence that: "….once the matter had been drawn to (their) attention (they) did what (they) believed could reasonably be done in all the financial circumstances to meet their revenue responsibilities, thus demonstrating conduct in a professional (and personal) sense a commitment to pay the outstanding debts…" 1. We adopt what was said by the Tribunal in The Council of the Law Society of New South Wales v Etherington [2006] NSWCATOD 31, in considering an application involving failure on a solicitor's part to pay superannuation contributions for employees: "The mere failure to pay superannuation guarantee contributions on time does not of itself constitute professional misconduct. It is the circumstances surrounding the failure, the consequences of the failure, and the actions subsequently taken by the solicitor that determines whether the conduct constitutes professional misconduct. 1. The Kirk case can be distinguished because it concerned contraventions of sections of occupational health and safety legislation and it is reasonable to conclude (which we do) that the matters discussed by the High Court were peculiar to that legislation. That is significant because contraventions of the relevant sections of that legislation were criminal offences. By contrast to the position under that legislation as we understand it, in the present case there is no specific requirement on the Law Society to identify in its pleadings the steps which could have been taken, but which were not taken, by the Solicitor.
We add that, as contended by the Law Society, it would be reasonable to expect that a description of any actions taken by the Solicitor to meet her fiscal responsibilities and pay these debts, (being actions along the lines of those taken in the Koffel Case) to be given by the Solicitor herself, as those matters would be within her knowledge.

[31]

Findings of fact

We accept as reliable and persuasive the evidence given by Mr Horne in his affidavit made on 23 August 2016 and we find the following facts to be established by the evidence : 1. that on 6 August 2013 Mr Horne entered into a fixed term contract of employment with the Solicitor's law practice, Clause 10 of which obliged the employer to pay superannuation contributions on his behalf at the minimum rate required to avoid the imposition of a levy under the Administration Act; 2. that he provided details of his superannuation fund, HostPlus, to his employer; 3. that in February 2014 he became aware that no superannuation contributions had been made by the firm into his nominated superannuation account; 4. that he had at that time been told by the Solicitor that the Office Manager had made an error which she, the Solicitor, would fix "immediately"; 5. that no superannuation contributions were paid into his nominated superannuation account and that superannuation contributions totalling $7176.71 ought to have been made; 6. that he ceased employment with the firm on 20 May 2014; 7. that on 19 June 2014 the firm paid $2312.49 into his superannuation account
We also accept as genuine and give considerable weight to the documents which are annexed by Mr Horne to his affidavit at pages 13 to 22, being payslips issued by the firm. We are satisfied that these payslips represent that superannuation contributions were regularly being made into Mr Horne's superannuation account. There are regular entries under the heading "Allowances, deductions and contributions" stating that a payment was made to Host-Plus on Mr Horne's behalf for each relevant monthly pay period.
In her Reply the Solicitor does not admit that Mr Horne received pay slips which represented that superannuation contributions were made into his nominated superannuation account. This matter is not dealt with in either of the Solicitor's affidavits. The Solicitor provides no evidence or makes any legal contention from which it might be concluded either that Mr Horne did not receive these payslips or that the representations in them were other than as we have concluded above.
We are satisfied as to the following facts and find accordingly: 1. During the period of Mr Horne's employment with the Solicitor's practice he received pay slips which represented that superannuation contributions had been made into his nominated superannuation account. 2. Contrary to those representations, such contributions had not been made. 3. No further payments have been made by the law practice into Mr Horne's nominated superannuation account since 19 June 2014. 4. The amount of $4864.22 payable to Mr Horne's superannuation account remained outstanding as at the date of the Application.
The Ground is made out.

[32]

Professional misconduct

We have concluded that the Solicitor's conduct in relation to Mr Horne as established by the evidence outlined above and our findings of fact constitutes professional misconduct. The Solicitor's conduct as a whole and in particular her sustained false and misleading representations to her employee Mr Horne that she had made superannuation contributions on his behalf and that she would take immediate steps to rectify any deficiency is conduct which clearly falls within the Allinson Test. That is, it is conduct in the pursuit of professional activities that would reasonably be regarded as disgraceful or dishonourable by professional colleagues of good repute and competency.
We have reached those conclusions for the following reasons. 1. We have taken into account the following matters: 1. The fact that the Solicitor has made a partial repayment of the amount owing to Mr Horne, 2. The Solicitor's assertion in her affidavit of 12 May 2017 (at paragraphs 119 to 121) that she has entered into and is in compliance with a scheme of arrangement with the ATO for payment over time of her outstanding indebtedness in respect of the superannuation charge; and 3. her assertion that her mistaken understanding at all relevant times was that in circumstances such as these the ATO paid outstanding superannuation to the employee. 1. Although the Solicitor in paragraph 128 of her affidavit of 12 May 2017 says that she recognises the "egregious contravention of the fundamental obligations of a solicitor" and that she is "devastated" by her actions, we must observe that in that affidavit she devotes no less than 93 paragraphs to descriptions of her personal background, career and achievements and only 7 paragraphs to explanations and statements concerning superannuation payments to her employees. So far as we can see, she has made no statement of genuine contrition for her conduct based on its effect on these former employees. 2. We also note that at paragraph 123 of that affidavit the Solicitor confirms that she has made one payment of outstanding superannuation to an employee (presumably the amount of $122.74 owing to Ms Lynn's superannuation account) and goes on to say the following: "… and I will have paid the other into the relevant superannuation fund by the time this matter comes to a hearing, irrespective of the arrangement I have with the Australian Taxation Office." 1. It would appear that that has not occurred. No explanation of the non-payment was provided at the hearing. 2. The Solicitor's explanation for misappropriating $138,000 from Mr Humphries (as dealt with in more detail below) was to pay rent and staff salaries, however the amounts outstanding to Mr Horne and Ms Lynn were not paid from the misappropriated funds; 3. The circumstances of this case and our findings as set out above clearly distinguish this matter from cases such as Law Society of NSW v Koffel, where the solicitor, through his unchallenged evidence, established that once the cause of the disciplinary complaint had been drawn to his attention he did what he believed he could reasonably do in all the financial circumstances to meet his responsibilities, thereby demonstrating conduct in a professional as well as in a personal sense amounting to a commitment to pay the outstanding debts.

[36]

Analysis and conclusion: this Ground is not made out

The Law Society submits that the basis of Ground 4 of the application consists of the admissions made by the Solicitor to its Chief Trust Account Investigator and Supervisor Mr Mitchel, as recorded in notes appearing on page 9 of his affidavit, to the effect that superannuation contributions for past and current employees were not up to date.
The Law Society in its submissions notes that the particulars of Ground 4 have been wholly admitted by the Solicitor in her Reply. It then records the Solicitor's further contention in respect of this Ground that, in circumstances where there has been a failure to make compulsory superannuation contributions, the ATO pays to the employee the amounts which that employee is entitled and which is unpaid. It says that that proposition is incorrect; the ATO will take steps to collect the superannuation guarantee debt from an employer but payment of that debt to the employee's superannuation fund would depend on the employer's ability to pay.
The Solicitor notes that no source is stated for the Law Society's suggestion that there is a general obligation to ensure that compulsory superannuation payments were made on behalf of the law practice employees.
We find that this Ground is not made out, for the following reasons: 1. Although the employment contracts of Mr Horne and Ms Lynn were in evidence, there is no evidence of the employment arrangements, nor employment contracts, of any other employees of the practice. 2. The other employees are not identified in Mr Mitchell's affidavit (Exhibit 2) nor in the Solicitor's affidavits (Exhibits 1 and 2), nor elsewhere in the evidence. 3. As distinct from its position in relation to Grounds 1 and 6, in Ground 4 the Law Society does not assert that the non-payment of superannuation for the unidentified employees was a failure to comply with fiscal obligations. Rather, it simply asserts an obligation to ensure that superannuation contributions are paid.

[39]

The facts

As a result of the pleadings and in particular the Solicitor's Reply as summarised at paragraphs [13] to [15] above, there appears to be no dispute as to the following facts: 1. The Solicitor acted on behalf of Viridian 2. Mr Scott Humphries was a director of Viridian. 3. On 21 March 2014 the Solicitor's legal practice received $200,000 in relation to a loan repayment. This amount was received either on behalf of Mr and Mrs Humphries as asserted by the Law Society or on behalf of Mr Humphries only, as asserted by the Solicitor. 4. The $200,000 was deposited into the firm's trust account and credited to trust ledger number 22, in the name of Mr Humphries. 5. The recording of entries in trust ledger number 22, details of which are set out in a table in paragraph 29 of the Application are agreed to be accurate. 6. On or about 20 April 2014 the legal practice issued invoice number 2029 dated 20 April 2014 to Viridian for professional work undertaken between 10 April 2013 and 20 March 2014. 7. The total of that invoice was $44,000, comprising $40,000 for legal work and $4000 for GST. 8. That invoice was the only invoice issued by the practice to Viridian. 9. Mr Humphries authorised part payment of invoice number 2029 of $34,000 from the $200,000 which had been credited to the ledger. However the Solicitor denies that the authority given by Mr Humphries was limited to $34,000 and says that he had authorised the transfer of the full amount of the invoice, that is, $44,000, from trust. 10. Between 21 March 2014 and 4 April 2014 the Solicitor caused payments totalling $52,000 to be debited from trust ledger number 22 and credited to her business cheque account and her business management account, neither of which are trust accounts.. However, the Solicitor asserts that the authority given to her by Mr Humphries was not limited to the payment of invoice number 2029 and accordingly she denies that the amounts debited by her from the trust account exceeded her authority from Mr Humphries. 11. The Solicitor did not give trust account statements to either Mr Humphries or Mrs Humphries in relation to the monies held on trust and recorded in trust ledger number 22. 12. The Solicitor did not give Mr or Mrs Humphries any trust account ledger statement. 13. With respect to the payments transferred to or for the benefit of the Solicitor without the authority of Mr Humphries, the Solicitor accepts that such payments or transfers constituted a breach of the requirements of section 255 of the 2004 Act to hold and disburse monies only in accordance with the authority or direction of the person on whose behalf the monies held.
However the following issues of fact are in dispute and therefore remain to be resolved by us. 1. Did the solicitor through her legal practice act for either or both Mr Humphries or Mrs Humphries in addition to acting for Viridian? 2. Was the $200,000 which had been deposited into the trust account, as referred to in subparagraph (3) above, held on trust for Mr Humphries solely or for Mr and Mrs Humphries jointly? 3. Was Mr Humphries' authority in relation to withdrawals from trust ledger number 22 limited to $34,000 as the Law Society contends, or $44,000 being the amount of invoice number 2029, as the Solicitor contends? 4. Was the authority given to the Solicitor for withdrawals from trust ledger number 22 limited to the payment of invoice number 2029 or, as asserted by the Solicitor, was it not limited to that amount so that it included the total of $52,000 debited from that trust account? 5. As at the date of the Application was the amount remaining payable to either Mr Humphries or to Mr and Mrs Humphries $140,000 as contended by the Law Society or $130,000 as contended by the Solicitor?

[40]

Our findings as to the disputed facts

We make findings of fact in relation to the issues set out in paragraph [103], using the same numbered sub-paragraphs. 1. We find that in addition to acting for Viridian, the Solicitor also acted for Mr Humphries, albeit in a limited context of agreeing to receive into her trust account $200,000 for him and on his behalf ( which represented partial repayment of monies owing to Mr Humphries from a Mr Payne). The Solicitor did not act for Mrs Humphries. We reach those conclusions because: 1. the documentary evidence contains almost no reference to any involvement in the relevant matters by Mrs Humphries, although the Office of the Legal Services Commissioner complaint form which appears as an annexure to Mr Humphries affidavit describes the complainants as "Scott Humphries and Sarah Humphries ". But even that document does not bear the signature by Mrs Humphries. 2. Annexure SMH 7 to Mr Humphries' affidavit is an email to the Law Society's Chief Trust Account Investigator and Supervisor, Mr John Mitchell, which refers to a legal bill from the Solicitor's law firm being agreed at $40,000 plus GST and Mr Humphries' agreement to assist with the payment of that invoice "from my personal funds held in trust" 1. It follows from our finding in (1) and the evidence referred to there that the amount was held on trust for Mr Humphries only. 2. We find that the total amount authorised by Mr Humphries was $34,000, not $44,000 as the Solicitor contends. We reach that conclusion because: 1. we accept Mr Humphries' account of the relevant facts set out in his affidavit as the most authoritative and reliable source of evidence. Mr Humphries provides a detailed account of the relevant transactions and arrangements. In particular he deposes to authorising the part payment of invoice number 2029 to the extent of $34,000 and that that was done because he had an agreement with Viridian that he would be reimbursed that amount as soon as Viridian received funds and he understood that another Viridian invoice to Mr Le Blanc Smith would make a further part payment of the invoice. 2. We prefer Mr Humphries' evidence in this regard because we find it more plausible and consistent with other evidence, including the uncorroborated statement of the Solicitor at paragraph 109 of her affidavit of 12 May 2017. That was to the effect that Mr Humphries had approved payment of an outstanding invoice for $44,000 and informed her that he would approve an additional $10,000 payment to assist her. 1. We find that the authority given to the Solicitor for withdrawals from trust ledger number 22 was limited to the payment of invoice number 2029. We base this finding on: 1. the absence of any contemporaneous record or other documentary evidence of authorisation by Mr Humphries of withdrawal of any amount in excess of invoice number 2029; 2. the fact that the Solicitor's recollection of the surrounding events, set out at paragraphs 110 to 115 of her affidavit of 12 May 2017 is unsupported by documentary evidence; and 3. the fact that that follows from the account given by Mr Humphries as referred to in subparagraph (3) above. 1. We find that as at the date of the application the amount payable to Mr Humphries is $140,000 as contended by the Law Society. We base this finding on: 1. the plausibility of Mr Humphries' account at paragraph 41 (c) of his affidavit of having received $10,000 from the Solicitor after 18 July 2014, leaving a balance owing to him at the time the swearing his affidavit of $140,000; 2. the fact that the Solicitor does not in either of her affidavits give direct evidence of her pleaded contention that the amount owing is $130,000 ; and 3. our finding in subparagraph (1) above to the effect that Mrs Humphries was not a client of the Solicitor.

[47]

Our analysis and determination

The Society submits that a breach of section 255 of the 2004 Act can occur without wilful, intentional or reckless conduct on the part of a legal practitioner. and that it is sufficient to establish that a practitioner did not: (1) hold trust money in a general trust account of the practice exclusively for the person on whose behalf it is received; (2) disburse the trust money only in accordance with a direction given by the person; or (3) account for the trust money as required by the Legal Profession Regulation 2005.
Mr Lynch SC in his written submissions concedes that the Tribunal would conclude that the Solicitor's contravention of section 255(1)(b) was intentional.
The Law Society also asserts breach by the Solicitor of section 255(3) of the 2004 Act. That breach is admitted. That sub-section reads "Holding, disbursing and accounting for trust money 255 (1)… (2)… (3) The law practice must account for the trust money as required by the Regulations."
The Law Society in its written submissions refers to Regulation 61 of the Legal Profession Regulation 2005, which applies where a law practice receives trust money that is required to be paid into a general trust account. It obliges the practice to make out a receipt containing required particulars as soon as practicable.
We are satisfied, on the basis of the uncontroverted statement to this effect in the affidavit of Mr Humphries that he had not received a receipt as required by Regulation 61.
The Law Society also submits failure by the Solicitor to comply with Regulation 82(1.). That requires a law practice to furnish trust account statements to each person for whom or on whose behalf trust money is held.
The Solicitor, by her Reply, admits that she did not give Mr Humphries trust account statements or trust ledger statements in relation to the monies held on trust, .
On the basis of our acceptance of Mr Humphries' evidence in this regard, and the Solicitor's admissions, we conclude that Ground 3 is made out.

[49]

The Solicitor's further contention as to duplicity between Grounds 3 and 5

For completeness we deal here with further contentions made by Mr Lynch SC on behalf of the Solicitor with relevance to both Grounds 3 and 5.
Mr Lynch SC contends for the Solicitor that a wilful disbursement of money without authority is undoubtedly a misappropriation, but that each of Application Grounds 3 and 5 is an adjectival description of the conduct the subject of Application Ground 2 and that neither can itself constitute a "description" of alleged conduct separate from that in application Ground 2. He refers to Section 504(3)(a) of the 2004 Act, however we have proceeded on the assumption that Mr Lynch intended to refer to Section 504(3)(c). That provision requires a complaint about an Australian legal practitioner to "describe the alleged conduct the subject of the complaint".
Mr Lynch SC submits as follows: 1. The proscription in Section 255 is not expressed in terms of wilfulness or misappropriation. 2. It follows that Application Grounds 3 and 5, to the extent that they are not mere repetitions of Ground 2, do not allege conduct that itself contravenes Section 255.
The Law Society, by way of response, contends that the test for misappropriation requires the Society to establish that the Solicitor subjectively intended to do the acts which are said to be objectively dishonest by the ordinary standards of reasonable and honest people. It points out that the solicitor has given evidence that she intended to do the acts constituting misappropriation(thereby establishing subjective intention) and that despite believing at the time of her actions that Mr Humphries would understand and condone them she had conceded in her first affidavit that she "… had no proper independent basis for that belief and deluded [herself] into rationalising what was a fundamentally dishonest act" The Law Society submits that an application of the ordinary standards of reasonable and honest people to the Solicitor's conduct would lead to a conclusion that the Solicitor's acts were dishonest.
It also points out that although Application Grounds 2, 3 and 5 arise out of a related course of conduct, a finding that one Ground is established does not necessarily mean that the other Grounds are also established. It points, for example, to a breach of Section 255 of the 2004 Act not necessarily meaning that there had also been a failure to account or misappropriation of trust funds.
We are not persuaded by the Solicitor's submission that neither Ground 3 nor Ground 5 constitute a "description" of alleged conduct as required by Section 504(3)(c) which is distinct from that in Ground 2. Ground 2 does not require wilfulness or intent. Nor does a failure to account for trust monies, as is alleged in Ground 2, necessarily mean that a solicitor has misappropriated trust funds as Ground 5 contends.
The establishment of a breach of Section 255 of the 2004 Act does not preclude a different result for a charge of failure to account or a misappropriation of trust funds. Grounds 2, 3 and 5 arise out of a related course of conduct but are each separate descriptions of conduct constituting the separate complaints relied on. On that basis, there is no duplicity between the Grounds as asserted by Counsel for the Solicitor.

At a glance

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Judgment (55 paragraphs)

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