Law Society of NSW v Beazley

NCAT Occupational|2017-02-27

Solicitors: Law Society of NSW (Applicant) File Number(s): 2016/00378609

REASONS FOR DECISION

The Tribunal delivered its findings and orders at the end of the hearing on 27 February 2017, with written reasons to follow. These are our reasons.

Material before the Tribunal

Law Society: Application, 24 February 2016 together with Affidavit in Support, Anne-Marie Foord (Ex A1); Affidavit, John Michalski (Trust Account Department). Respondent: Reply, 6 April 2016. Affidavit, 7 September 2016. Law Society: Submissions, 23 December 2016.
The Law Society's submissions, necessarily, responded in some detail to the positions taken by the respondent in the Reply and his Affidavit. The respondent's concessions at the beginning of the hearing meant that many of the points made in those submissions were now accepted.
The respondent gave oral evidence at the hearing, and was cross-examined.

Ground 1: Non-Notification

The respondent has been the subject of two creditor's petitions in bankruptcy, dated 3 September 2008 and 19 February 2013.
Section 67 of the LPA provides: 67 Holder of local practising certificate - show cause event (1) This section applies to a show cause event that happens in relation to a person (referred to in this Division as the holder) who is the holder of a local practising certificate. (2) The holder must provide to the appropriate Council both of the following: (a) within 7 days after the happening of the event - written notice that the event happened, (b) within 28 days after the happening of the event - a written statement explaining why, despite the show cause event, the person considers himself or herself to be a fit and proper person to hold a local practising certificate. (3) A contravention of subsection (2) is professional misconduct. (4) If a written statement is provided after the 28 days mentioned in subsection (2) (b), the appropriate Council may accept the statement and take it into consideration. (5) A Council must, within 7 days after receiving a notice or statement from a local practitioner under this section, provide a copy of the notice or statement to the Commissioner. (6) A Council may cancel or suspend a local practising certificate if the holder: (a) is required by this section to provide notice or a written statement about a show cause event and has failed to provide the notice or statement in accordance with this section, or (b) has provided a written statement in accordance with this section but, in the opinion of the Council, the holder has failed to show in the statement that the holder is a fit and proper person to hold a practising certificate, or (c) has failed without reasonable excuse to comply with a requirement under Chapter 6 (Provisions relating to investigations) made in connection with an investigation of the show cause event concerned or has committed an offence under that Chapter in connection with any such investigation. (7) If a Council cancels or suspends a local practising certificate under subsection (6), the Council is not required to exercise its functions under section 68 in relation to the matter.
Section 4 provides: A 'show cause event in relation to a person, means: (a) his or her becoming bankrupt or being served with notice of a creditor's petition presented to the Court under section 43 of the Bankruptcy Act 1966 of the Commonwealth, or (b) his or her presentation (as a debtor) of a declaration to the Official Receiver under section 54A of the Bankruptcy Act 1966 of the Commonwealth of his or her intention to present a debtor's petition or his or her presentation (as a debtor) of such a petition under section 55 of that Act, or (c) his or her applying to take the benefit of any law for the relief of bankrupt or insolvent debtors, compounding with his or her creditors or making an assignment of his or her remuneration for their benefit, or (d) his or her conviction for a serious offence or a tax offence, whether or not: (i) the offence was committed in or outside this jurisdiction, or (ii) the offence was committed while the person was engaging in legal practice as an Australian legal practitioner or was practising foreign law as an Australian-registered foreign lawyer, as the case requires, or (iii) other persons are prohibited from disclosing the identity of the offender.
On 14 April 2014 the respondent notified the Law Society that he had been the subject of the two petitions mentioned. It will be seen that the notification did not fall within the time periods prescribed by s 67(2) in relation to either event. In his Reply and at hearing, he stated that his failure to inform the Law Society in a timely way of each of the events flowed from a misunderstanding of the law. He had understood that it was only necessary to inform the Law Society if he were to be declared bankrupt. He stated that he did not realise that he also needed to inform the Law Society of the event which sets bankruptcy proceedings in train, the creditor's petition. (We note that a distinction of this kind is seen in the definition of 'show cause event' in relation to criminal matters. The definition covers convictions for a 'serious offence' (itself a defined term) but does not cover being charged with a serious offence.)
Following receipt of the notification, the Law Society wrote to the respondent on five occasions over the next four months, inviting him to make submissions as to why he should continue to be regarded as a fit and proper person to hold a practising certificate. He did not respond. On 15 August 2014, the Law Society exercised its power under s 67(6) and suspended his practising certificate. The suspension was lifted a week later, on 22 August 2014, after the respondent provided information and an explanation to the Legal Services Commissioner.
There is no contest that the respondent breached s 67. The law required him to give notice of a show cause event within 7 days, and to provide an explanation within 28 days. In the case of the first petition, he was late by over four years, and in the case of the second petition, he was late by 14 months. These are serious failures.
Any failure to comply is deemed to be professional misconduct (s 67(2)). In this case, the respondent's breaches clearly constituted professional misconduct.

Grounds 2 and 5: Professional Etiquette

A client engaged the respondent to take over the conduct of a family provision claim from the client's former solicitor. The former solicitor claimed a lien over the file for unpaid costs and disbursements. The respondent, the former solicitor and the client entered into a tripartite deed for the purpose of securing the payment of the unpaid costs and disbursements owing to the former solicitor. Clause 9 of the deed included the following authority: The Client authorises the Present Solicitor, and the Present Solicitor agrees to forward to the Former Solicitor, at the request of the Former Solicitor at reasonable intervals, progress reports in relation to the Family Provision Claim and a copy of any judgment, verdict, terms of settlement, or similar document in relation to the Family Provision Claim.
Progress reports were sought by the former solicitor on six dates between 26 September 2011 and 29 August 2012. The respondent failed to reply.
Rule 26 of the Revised Professional Conduct & Practice Rules 1995 requires a practitioner to honour an undertaking to other practitioners 'strictly in accordance with its terms, and within the time promised, or, if no precise time limit is specified, within a reasonable time'.
The former solicitor complained to the Law Society over the respondent's omissions. The Law Society's investigator issued a s 660 notice on 14 November 2012. Section 660 authorises an investigator to require respondents to produce documents, provide information or otherwise assist the investigator as required. In the notice, the investigator asked the respondent to provide information about his dealings with the former solicitor in relation to the matters addressed by cl 9 of the tripartite deed.
The respondent provided a statutory declaration dated 14 August 2013, in which he stated that he had fully complied with the agreement, but gave no particulars in support.
The s 660 notice specifically asked him if he had informed the former solicitor of the outcome of the proceedings in the Supreme Court on 27 February 2012, where the client had been ordered to pay costs to a plaintiff claiming a payment from the deceased estate. The respondent stated in his statutory declaration that he had not informed the former solicitor of this matter.
The respondent no longer disputes that he failed to honour his undertaking, reflected in cl 9 of the tripartite deed. We accept the Law Society's submission that a failure to honour an undertaking, without any plausible explanation for the omission that might moderate the failure or excuse it, constitutes professional misconduct within the common law meaning of professional misconduct (see Allinson v General Medical Council [1894] 1 QB 750 at 768 per Lopes LJ; Hoile v Medical Board of South Australia [1960] HCA 30; (1960) 104 CLR 157). The conduct would be reasonably regarded as disgraceful or dishonourable by professional colleagues of good repute and competency. Ground 2 is established.
In addition the respondent is charged (Ground 5) with unsatisfactory professional conduct because of his failure to communicate with the former solicitor. The respondent admits that he failed to communicate with the former solicitor in relation to any of the six requests for information.
In his initial responses to the Law Society he said that he had answered two of the letters by a phone call to the former solicitor, and had sent others to the client to deal with. However, he did not persist with that explanation at hearing. But he repeated an explanation found in his Reply and Affidavit that the compromise of the dispute over the distribution of the estate resulted in there being no funds left for the former solicitor to recover costs against. He said that he had taken over the matter late in its life, when those difficulties would have been well known to the former solicitor.
This explanation is self-serving, and diverts attention from the standards of professional etiquette that are expected to be observed by practitioners in their dealings with each other. He behaved in a dismissive way.
We agree that the failure to communicate with the former solicitor constituted unsatisfactory professional conduct within the meaning of s 497 of the Act, in that involved 'a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence'.

Grounds 3 and 4: Management of Trust Funds

These grounds relate to the way the respondent's law practice managed the payment of costs by clients.
Ground 3 charges the respondent with breaches of s 254 of the LPA. Section 254 provides that as soon as practicable after receiving trust money, a law practice must deposit the money in a general trust account of the practice. Money received on account of legal costs in advance of providing the services is defined as 'trust money' (s 243(1) (a)).
Ground 4 charges the respondent with breaches of s 260 of the LPA, which prohibits the intermixing of trust money with other money.
The rule in s 254 is subject to four exceptions. Two of them bear on explanations given by the respondent in this case.
Exception (b) provides that the ordinary rule does not apply to money that is 'controlled money'. 'Controlled money' is 'money received or held by a law practice in respect of which the practice has a written direction to deposit the money in an account (other than a general trust account) over which the practice has or will have exclusive control' (s 243(1)).
Exception (a) covers the situation where 'the practice has a written direction by an appropriate person to deal with [the trust money] otherwise than by depositing it in the [trust] account'.
The respondent explained at hearing that he had for many years not maintained a general trust account, but when he received trust money would proceed, as was permitted, to create a specific controlled money account in the name of the particular client. He accepts now that it would have been better had he some time ago set up a general trust account system, using the LEAP software recommended by the Law Society. He has now done this.
The respondent stated that he had established a general trust account on 1 October 2013. But we note that the conduct which is the subject of Grounds 3 and 4 occurred after that date.
Both Grounds concern the way his practice handled the money of six of its clients received on account of costs.
Five of the clients entered into fixed fee agreements. They then received invoices for the full fee, when few if any of the professional services the subject of agreement had been performed. Three of the five clients made payments to the practice's office account in accordance with the pay-in information set out in the invoices. One of those payments was later transferred to the trust account, but the other two payments remained in the office account. In the case of the two remaining clients, the invoices set out pay-in information that directed the clients to pay into the trust account, but when they were received by the practice they were placed in the office account. They were later transferred to the trust account.
At hearing the respondent abandoned an argument that money paid in advance under a fixed fee agreement was not trust money as defined by the LPA. He had previously sought to argue that payments made under a fixed fee agreement had the same character as payments for costs made by a client after completion of a matter. It the latter instance, the payment is not required to be made into a trust account, and can properly be made into the office account.
We agree with Mr Maddigan's submission, not disputed by Mr Pesman, that all of the payments made by the five clients were payments of trust money. Moreover, the terms of the fixed fee agreements did not authorise the handling of the payments in any way other than the usual way, lodgement into a trust account. The agreements did not, for example, include any direction under which the client agreed to pay the whole fee up front to the respondent for his use, prior to the undertaking or completion of any services, as exception (a) to the rule in s 254 LPA permits. In such a case receipt of the money into the office account may have been acceptable. This possibility was alluded to in State of Queensland v Masman & Ors [2009] QSC 430 at [29].
At hearing, the respondent acknowledged his misunderstanding of the legislation. He also acknowledged that he had been warned by trust account inspectors during previous inspections (three times in the period 2011-2013) about the unlawfulness of holding payments on account of costs in his office account ahead of completion of services, and of the desirability of establishing a trust account.
The sixth client entered into an agreement which its terms described as a 'retainer' agreement. In light of the admissions now made by the respondent, we will not explore the detail of that agreement here. We are satisfied that, viewed as a whole, the agreement was a fee for service agreement in respect of work for which the respondent held instructions, and was not in the nature of a general retainer. Again in this instance money paid under the agreement prior to the rendering of any substantial services was received into the office account and later transferred to the trust account.
Ground 4 refers to the same set of circumstances. It follows from the admissions made in relation to Ground 3, that breaches of s 260(1) (the prohibition on intermixing) are demonstrated. Sub-section (2) allows for intermixing with the approval of the Law Society. There was no submission that this exception was relevant to this case.
At some stage in the case of each of the six client payments under notice, money paid in trust sat alongside 'other money' in the office account. The respondent had been warned, on the occasions previously mentioned, to cease the practice and had not done so.
His failures put at risk the client protections that flow from the placement of trust money in the trust account. Lodgement of trust money in the office account increases the opportunity for an unscrupulous practitioner or staff member to divert the money to their own use. We recognise that nothing of this kind is suggested in this case.
At hearing, the respondent explained his practices in relation to the handling of fixed fee costs payments by reference to practices he had believed were followed in the first firm he had worked in as an employee (almost 20 years ago), and by reference to a legal argument based on general principles of the law of contract (an issue discussed in Masman). Both were unacceptable explanations. He said he now appreciated that.
In the circumstances, it is appropriate, as the respondent conceded, that findings of professional misconduct be entered on both Grounds. As to the seriousness of intermixing of funds, and the likelihood that proven intermixing of funds will result in a professional misconduct finding, see, for example, Council of the Law Society of NSW v Mee Ling [2012] NSWADT 146 at [11], [58] and [81]; and Council of the Law Society of NSW v Lo [2012] NSWADT 21 at [166]-[168].

Appropriate Order

We agree that a reprimand should be entered. The respondent did not resist the Law Society's submission that a fine should also be imposed. As noted previously, its amount was the only matter in dispute.
As previously noted, we accept Mr Pesnam's submission that there is no suggestion of dishonesty or misuse of trust money by the respondent. This is acknowledged by the Law Society.
In our view a fine is appropriate.
In his evidence at hearing, the respondent referred to his history of interactions with the Law Society that had affected his attitude to its regulatory role. He referred to an earlier case where the Law Society applied to the Tribunal for disciplinary orders because he had failed to pay a barrister's fees, after his client had failed to pay him. The Tribunal dismissed the application: Council of the Law Society of NSW v Beazley [2012] NSWADT 153.
He felt he had a reasonable explanation for his failure to report the two show cause events (albeit based on a misunderstanding of the law), and noted that once he had been told such an event was reportable, he proceeded to do so quickly. (Mr Pesman submitted that his self-report once he became aware of the problem reflected well on him.) Similarly the respondent held, what he regarded as, a reasonably-based misconception in relation to costs payment practice as it related to fixed fee agreements.
The Application lists repeated failures to observe professional standards in relation to responding to important communications. This conduct suggest to us that the respondent has a dismissive and self-opinionated way of dealing with matters that he sees as an intrusion into his practice life.
This case has involved, as we have noted, three discrete areas of misconduct.
The offences all point to a practitioner who has a cavalier attitude to his professional obligations.
He ignored the communications received from the former solicitor in respect of the outcome of the family provision claim (Grounds 2 and 5). He engaged in repeated failures to reply to Law Society correspondence in respect of the non-notification of the show cause events (Ground 1). He failed to take the good advice offered to him on more than one occasion by the trust account inspectors in relation to the way his practice handled payments on account of costs (Grounds 3 and 4). This conduct all suggests an indifference to unwelcome demands and an indifference to the regulatory structures of the profession. Yet he is a practitioner of many years standing, who has practised as a principal for most of those years and held some seniority in the profession.
The respondent expressed regret at hearing for the very strong allegations he made against the integrity of Law Society officers in his Reply and Affidavit. He put on no evidence in support of those allegations. Had those allegations not been withdrawn, we would have been minded to impose a more severe penalty.
His recognition that the Application was properly-founded came very late, stimulated it would appear by some hard advice from Mr Pesman.
We have reservations about the degree to which the respondent has embraced the need to conduct his practice on a regulatorily-compliant basis in future, and the extent of his insight into the role that the rules under notice in this case play in maintaining the reputation of the profession, and in ensuring the protection of consumers of legal services.
The respondent's prior adverse disciplinary history consists of two matters, a reprimand and fine of $1000 imposed by the Tribunal in 2014 for professional misconduct, in that he failed to respond to Law Society notices relating to the complaint by the former solicitor in the family provision claim (out of which Grounds 2 and 5 in these proceedings arose): Council of the Law Society of NSW v Beazley [2014] NSWCATOD 147. In addition in October 2015 the Legal Services Commissioner issued a reprimand for failure to provide costs disclosure following an audit. There is no further background to this matter in the material before us.
In all the circumstances, we concluded at the end of the hearing that a fine a little greater than the minimum suggested by the Law Society was appropriate; and, as previously noted, made the following findings and orders.

Orders The Tribunal finds the respondent guilty of professional misconduct on four grounds, and unsatisfactory professional conduct on one ground. The Tribunal orders that: 1. The respondent be reprimanded. 2. The respondent be fined $6000. 3. The respondent pay the applicant's costs, as agreed or assessed. I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 March 2017

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