Law Society of NSW v Hocking

Law Society of NSW v Hocking - [2017] NSWCATOD 19 - NSWCATOD 2016 case summary — Zoe

Outline of Law Society's Application

The disciplinary application put in issue DC Legal's professional conduct in four matters during the time Mr Hocking was a director of the practice, and a principal or co-principal. There were some grounds that put in issue conduct personal to Mr Hocking, unconnected to his status as a director or principal of the law practice.
We will for convenience call the four matters, the Equititrust Matter, the Grossman Matter, the Sons of Gwalia Matter and the FEA Matter. The application has fourteen parts of which eleven (parts C, D, E, F, G, H, I, J, K, L, M) related to conduct affecting different clients in the Sons of Gwalia Matter. Part A related to the Equititrust Matter, Part B to the Grossman Matter and Part N to the FEA Matter. The following synopsis provides some background as to the nature of each Matter: Equititrust Matter (part A): Equititrust. DC Legal acted for the second and third defendants, Peter Birch and James Birch in litigation commenced by Equititrust in the Supreme Court of Queensland, in February 2011 and settled by orders by consent on 18 May 2011. The primary issue relates to the way the law practice dealt with a payment made under the consent order, and its return when the terms for the payment were not fulfilled by the defendants mentioned. The complainant was the solicitor for the plaintiff. 3 grounds and 30 particulars. Grossman Matter (part B): DC Legal acted for Ms Grossman as plaintiff in defamation proceedings brought against Fairfax Media Publications Pty Ltd and others. 3 grounds and 12 particulars. Sons of Gwalia Matter: The Sons of Gwalia administration commenced on or about 30 August 2004. On 17 September 2004 Dennis & Co wrote a circular letter to shareholders soliciting instructions to act on their behalf for a set fee in the claims administration process. Parts C to M cover 11 shareholders who instructed Dennis & Co to act for them, some in response to the circular letter of 17 September 2004, some in response to later communications or in other circumstances. The grounds related to conduct by DC Legal after the date the Solicitor joined the practice. The eleven shareholders are: Mr Avery for Avery Superannuation Fund (part C). 3 grounds and 27 particulars. Peter and Susan Pavliuk (part D). 6 grounds and 28 particulars. Warren Graham (part E). 2 grounds and 21 particulars. Quizete Pty Ltd ATF Sanwa Superannuation Fund (part F). 2 grounds and 23 particulars. David Ley Outhred (part G) 4 grounds and 24 particulars. William Adam Robertson (part H). 2 grounds and 13 particulars. Acropolis Developments Pty Ltd (Poulios) (part I). 2 grounds and 21 particulars. George Georgiou (part J). 1 ground and 19 particulars. Christopher Duncan Spencer Good (Part K). 3 grounds and 26 particulars. Nigel Graham-Smith (Part L). 2 grounds and 22 particulars. Malcolm Ross and Margaret Agnes McCullough (part M). 3 grounds and 27 particulars. FEA Matter: Forest Enterprises Australia Limited and FEA Plantations Limited [FEA] went into administration around 2013. DC Legal invited shareholders by circular letters dated 22 March 2013 and 15 May 2013 to instruct the practice to act on their behalf in the claims process. 63 shareholders accepted the offer (part N). 1 ground and 8 particulars.
As is explained below, the case proceeded to hearing on the basis of an Amended Application. The Amended Application did not add any new grounds. The Amended Application did not vary the substance or scope of the application as originally filed, and described above.
The types of misconduct alleged by the application may be divided, broadly, into the following:

[10]

Interlocutory Application

Under the rules, the Solicitor's Reply to the Law Society's Application was due to be served and filed within 21 days, i.e. by 25 March 2014. He filed it 20 months later on 7 December 2015. During the intervening period, the Solicitor had communicated with the Law Society frequently raising queries and objections as to the meaning and particulars of many of its allegations.
The Tribunal's relevant Procedural Direction [6.2(a)] states that a Reply in disciplinary matters of this kind must: (a) state any preliminary issues to be determined such as an objection to the lodging of the application out of time, or an objection to the jurisdiction of the Tribunal and give the basis for the objection.
On 7 December 2015, the Solicitor filed alongside the Reply a 'General Application for Permanent Stay' of the proceedings. It raised issues in the nature of objections to jurisdiction, and chose to use instead the vehicle of a 'general application' to the Tribunal. A 'general application' for the purposes of the Civil and Administrative Tribunal Act 2013 (NCAT Act) can take the form of either: (a) an application that initiates proceedings in the general jurisdiction of the Tribunal (s 39(1), s 39(3), s 39(4)); or (b) an application made within proceedings for ancillary, or interlocutory decisions, or for the exercise such other functions as are conferred by relevant laws in connection with the conduct or resolution of the proceedings (s 39(2), s 39(3), s 39(4)).
This is an example of an application of the second type. The NCAT Act, s 4, defines 'interlocutory decision' to cover, relevantly to this case, 'the granting of a stay or adjournment' and 'the summary dismissal of proceedings'. Proceedings of this kind belong to the general jurisdiction of the Tribunal, as distinct from the administrative review, appeal or enforcement jurisdictions of the Tribunal (see s 28(2), s 29).
On 4 April 2016 the Solicitor filed written submissions in support of his general application. They were personally signed by him. He also filed an Amended Reply.
On 5 April 2016 the Solicitor notified the Law Society by email that he did not intend to apply for renewal of his practising certificate.
At a directions hearing on 6 April 2016, Mr R Cameron of Hicksons Lawyers appeared for the Solicitor, and advised that that he would appear on his behalf at the hearing on 15 April 2016.
On 8 April 2016 the Law Society filed submissions in reply to those filed by the Solicitor on 4 April.
By the time of our hearing on 15 April, the Solicitor had obtained legal representation. Dr S Blount of counsel appeared on his behalf. Mr P Maddigan, of counsel, appeared for the Law Society.
The Solicitor's general application commenced by seeking an extension of time for its lodgment. He did not refer to any provision limiting the time for filing of general applications of an interlocutory kind. At hearing the parties accepted that the Tribunal's rules and procedures set no time for the making of applications of that kind. Consequently the issue of an extension of time does not arise. An unreasonable delay in raising an issue might, of course, bear on the Tribunal's exercise of discretion to grant or refuse an interlocutory application.
One of the grounds of the application was that the application constituted an abuse of the process of the Tribunal. Doubt was expressed by the Law Society whether, as a matter of law, the Tribunal could go so far as to make a permanent stay order on that basis. Mr Maddigan submitted that this power belonged to the inherent jurisdiction of the Supreme Court, and not fall the statutory jurisdiction conferred upon this Tribunal by s 43(2) and (3) of the NCAT Act. In support of this submission Mr Maddigan referred to dicta in the cases of Sudath v Health Care Complaints Commission [2012] NSWCA 171 at [68] per Meagher JA; Lindsay v HCCC [2005] NSWCA 356 at [78] per Hunt AJA; and Council of the Law Society of New South Wales v McGuire [2011] NSWADT 133 at [22].
In light of our ultimate ruling in this matter, it is not necessary for us to resolve that issue.

[11]

Submissions in relation to clarity of the disciplinary application

In his written submissions, the Solicitor objected to the case being permitted to proceed on three bases: (1) non-adherence by the Law Society to s 36 of the Civil and Administrative Tribunal Act 2013, s 36 in that 'the pleadings have the tendency to cause prejudice, embarrassment and delay contrary to [s 36]'. Section 36 provides: 36 Guiding principle to be applied to practice and procedure (1) The guiding principle for this Act and the procedural rules, in their application to proceedings in the Tribunal, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. (2) The Tribunal must seek to give effect to the guiding principle when it: (a) exercises any power given to it by this Act or the procedural rules, or (b) interprets any provision of this Act or the procedural rules. (3) Each of the following persons is under a duty to co-operate with the Tribunal to give effect to the guiding principle and, for that purpose, to participate in the processes of the Tribunal and to comply with directions and orders of the Tribunal: (a) a party to proceedings in the Tribunal, (b) an Australian legal practitioner or other person who is representing a party in proceedings in the Tribunal. (4) In addition, the practice and procedure of the Tribunal should be implemented so as to facilitate the resolution of the issues between the parties in such a way that the cost to the parties and the Tribunal is proportionate to the importance and complexity of the subject-matter of the proceedings. (5) However, nothing in this section requires or permits the Tribunal to exercise any functions that are conferred or imposed on it under enabling legislation in a manner that is inconsistent with the objects or principles for which that legislation provides in relation to the exercise of those functions. (2) 'error of law' such that the pleadings disclosed 'no reasonable causes of action'; and (3) denial of procedural fairness: 'the pleadings are pursuant to two determinations of the Law Society made in circumstances denying [the Solicitor] procedural fairness'.
In relation to the 'pleadings' issues raised by points (1) and (2) of the written submissions, Dr Blount began by referring to the internal structure of the disciplinary application.
As we have noted in our outline the Application was divided overall into four separate matters with one subdivided into eleven parts. The grounds were set out in a group at the head of each matter or parts. All the particulars were then set out in a group. They proceeded undifferentiated as to which of the grounds set out at the beginning they related to. The particulars were not divided in the way often seen in disciplinary applications - in a ground-by-ground way.
Dr Blount criticised this presentation as unwieldy and not sufficient clear to enable a respondent to identify which particulars were relied upon in relation to each specific ground. The respondent, he submitted, was left to guess and speculate; and this was oppressive and unfair.
For example in the Equititrust Matter, the first and second grounds each alleged 'breach of s 255', and they were followed by a third ground - attempting to mislead Law Society, and a fourth ground - breach of court order. There was then a group of particulars. The Solicitor submitted that it was impossible to work out precisely which particular related to which of these four grounds, especially the two grounds of breach of s 255.
In relation to the fees charged to the Pavliuks in the Sons of Gwalia Matter the submissions noted that there were two charges, one of 'overcharging', the other of 'gross overcharging', with no clarity as to whether they relied on the same or different particulars, and whether they were in the nature of charges in the alternative. In the case of some other grounds, for example, 'attempting to mislead', the submissions asserted that the Law Society had failed to provide specific particulars stating how and when that occurred and in relation to whom.
We accept, as submitted by the Solicitor, that the Law Society must particularise allegations against a practitioner so that he or she may be 'made aware precisely what is put against [the practitioner] before a decision is come to or an order made adverse to [the practitioner]': Johns v Law Society of New South Wales [1982] 2 NSWLR 1 at [5] per Moffatt P; to similar effect, Malfanti v Legal Profession Disciplinary Tribunal (NSWCA, Clarke, Meagher, Handley JJA), unreported, BC 9303657, 23 August 1993.
We also accept that there must be sufficient clarity in a disciplinary application for a respondent to know the case that he or she is called on to meet, and the grounds or grounds must identify conduct of a kind which if proven might reasonably be regarded as giving rise to a breach professional standards, and might reasonably raise an issue as to whether those breaches amounted to 'unsatisfactory professional conduct' or 'professional misconduct', as understood by the law. In our view, the key issue will always be whether the grounds and particulars convey with sufficient clarity the nature of the offence alleged, and the factual basis that is relied upon.
Care must however be taken in applying the rigour that attaches to the pleading of grounds and particulars in criminal matters to a professional disciplinary setting. Many of the Solicitor's written submissions as to the weaknesses of the disciplinary application drew on the principles developed in criminal proceedings. Similarly, the submissions made in support of the proposition that 'no causes of action' were established sought to draw on principles relating to the conduct of private, civil suits. These principles do not, we consider, translate readily to professional discipline proceedings. Professional discipline proceedings take place in a context where the regulated practitioner is bound to observe the standards of the profession, and be co-operative and candid in responding to its disciplinary processes. It is expected, for example, of a practitioner that he or she actively respond to investigations and facilitate their completion. We will return to this subject later in these reasons.
Dr Blount also submitted that the Law Society's application failed to clearly separate grounds which sought to visit liability on the Solicitor for conduct that occurred in the law practice by reason of his status as principal and those which sought to visit liability on him on personally. He argued that the grounds and particulars did not make this distinction clear.
In our view, it is plain from the history of the matter, and the investigators' reports that gave rise to the grounds of the Law Society's application, that it was the Solicitor's position as principal of the legal practice at the time of the conduct in issue that was a key concern of the Law Society in relation to the practice's handling of all four Matters: see, for example in the Equititrust Matter, Law Society letter of 17 September 2012, the Solicitor's reply of 20 September 2012, the Law Society letters of 6 August and 16 August 2012 (Ms Foord's affidavit, received into evidence as Ex A2, Annexures D, F, G, B and D). There were a handful of grounds that were plainly personal in character, for example making misleading statements to the investigators, and those grounds were, we consider, obvious.
In our view the narrative of the particulars, when read in conjunction with the supporting material found in the investigators' affidavits filed and served in support of the disciplinary application (received into evidence at our final hearing as Exs A1 to A9), and especially when read in conjunction with the history of correspondence prior and subsequent to its filing between the Law Society and the Solicitor, gave a high degree of clarity as to the evidentiary basis for each the grounds. In most instances, the particulars that followed the global recital of the grounds could only reasonably be linked to one of those grounds. However, we accept that it would have better had the particulars been tied back in all instances precisely to the relevant ground.
Accordingly, during the hearing we expressed our strong doubt that the Law Society's chosen method of presentation of the alleged offences and their particulars was so inadequate as to justify the possible termination of the proceedings, as sought by the Solicitor, or the making of some alternative appropriate order, such as for summary dismissal of the proceedings.
We did accept that there was some merit in Dr Blount's submissions. We considered that the concerns raised would be best addressed by an Amended Application that more clearly tied the specific grounds to specific particulars, and made reference directly to material in the supporting affidavits (and their annexures) that was relied upon.
We reserved our decision in relation to points (1) and (2) of the Solicitor's application on that basis, pending receipt and consideration of the Amended Application.
We made directions for filing and service of an Amended Application and a Further Amended Reply. The Law Society filed and served an Amended Application on 12 May 2016. The Solicitor filed and served a detailed Further Amended Reply on 7 July 2016.
The Amended Application made more explicit linkages of the kind we have set out above in our summary of the original Application. It tied each ground to specified particulars, and also incorporated exact references to the relevant parts of the investigators' reports relied upon. It identified expressly the grounds that had been laid against the Solicitor on a vicarious basis. It recited expressly relevant provisions in that regard, in particular s 250 and s 719.
In our view Amended Application dealt adequately with the concerns raised under points (1) and (2) of the submissions.

[12]

Submissions in relation to procedure followed by the Law Society

At our hearing on 15 April 2016 Dr Blount also made submissions in support of point (3) of the Solicitor's interlocutory application. He argued that there were procedural irregularities in the process adopted by the Law Society in making its Resolutions to refer the matter to the Tribunal for hearing.
We accept that a procedural irregularity in the resolutions-making process may invalidate an Application, as may a failure to accord a respondent due process in the conduct of the investigative and resolution-making procedures. The issue will turn on whether the irregularity or failure identified is of a kind that deprives the Tribunal of jurisdiction.
On behalf of the Law Society, Mr Maddigan submitted that objections of these kinds would be better dealt with by a judicial review application to the Supreme Court and not by way of an interlocutory application to this Tribunal.
However, we do not consider that this Tribunal can simply ignore objections of this nature where are raised before us, though we accept that it would be preferable for applications of that kind to be pursued by way of a judicial review application. The Tribunal must be satisfied it has jurisdiction to determine an application.
Mr Maddigan submitted that the Tribunal had an obligation under s 553 of the LPA to hear and determine a disciplinary application regardless of the merit or otherwise of Mr Hocking's objections. Section 553 provides: 553 Hearings The Tribunal is to conduct a hearing into each allegation particularised in a disciplinary application made to the Tribunal.
In our view, a provision such as s 553 has in mind a disciplinary application that it is within jurisdiction. The Tribunal cannot deal with a disciplinary application that is outside its jurisdiction. The terms of s 553 do not, in our opinion, relieve the Tribunal from its obligation to satisfy itself as to its jurisdiction where the question is raised - even if that means a satellite proceeding must be conducted by the Tribunal to examine compliance, for example, by the referring party (here the Law Society) with any obligations that may constitute jurisdictional preconditions to the exercise by the Tribunal of its jurisdiction. See for an example, New South Wales Bar Association v de Robillard [2004] NSWADT 45.
Dr Blount referred to the Resolutions made by the Law Society. Their history is set out in affidavits from the Law Society's solicitor, Ms Foord, received at our final hearing into evidence as Exs A2 and A10.
Section 537 of the LPA provides: 537 Decision of Commissioner or Council after investigation (1) After completion of an investigation of a complaint against an Australian legal practitioner, the Commissioner or a Council must: (a) commence proceedings in the Tribunal under this Chapter, or (b) dismiss the complaint under this Part, or (c) take action under section 540 (Summary conclusion of complaint procedure by caution, reprimand, compensation order or imposition of conditions)). (2) Unless section 540 (Summary conclusion of complaint procedure by caution, reprimand, compensation order or imposition of conditions) applies, the Council or the Commissioner must commence proceedings in the Tribunal with respect to a complaint against an Australian legal practitioner if satisfied that there is a reasonable likelihood that the practitioner will be found by the Tribunal to have engaged in unsatisfactory professional conduct or professional misconduct. (3) Nothing in this section affects section 512 (Withdrawal of complaints).
Section 541 provides: 541 Record of decision The Commissioner or a Council must cause a record of their decision with respect to a complaint, together with reasons for the decision, to be kept in respect of each complaint dealt with under this Part.
The submissions referred to the principles set out in Murray v Legal Services Commissioner [1999] NSWCA 70, i.e. 1. The proper performance of the duty and powers conferred on the complaints investigation body (in this instance the Council of the Law Society, as distinct from the Legal Services Commissioner) requires that before the body completes an investigation into the complaint against the practitioner and decides how the complaint is to be dealt with, the practitioner must be given the opportunity to see a copy of the complaint and advance argument against it, and in favour or the lesser ground than that of professional misconduct or in mitigation. This will enable the legal practitioner to submit to that the body should be satisfied that there was no reasonable likelihood that the legal practitioner would be found guilty by the tribunal of either unsatisfactory professional conduct or professional misconduct and that the complaint should be dismissed. (See per Sheller JA at [90], Priestley JA and Stein JA agreeing.) 2. The need for the complaints investigation body to cause a record of its decision to be kept in respect of an investigation is to protect both legal practitioners and complainants from arbitrary decision-making and to emphasise, by the express inclusion of these functions, the quasi-judicial nature of the decision-making process. This, in itself, lends support to the conclusion that the legal practitioner is entitled to a copy of the complaint and an opportunity to meet it before a decision is taken. (See per Sheller JA at [96], Priestley JA and Stein JA agreeing.) 3. The mere making of a statement in the notice of decision that 'there is a reasonable likelihood that you will be found guilty by the Tribunal of unsatisfactory professional conduct or professional misconduct' does not qualify as 'reasons' in the way that word is used in the Act. The body should, at the least, explain by reference to the material before it how it came to the conclusion that it did. (See per Sheller JA at [97], Priestley JA and Stein JA agreeing.)
Dr Blount criticised the Law Society for failing to give adequate reasons for its Resolutions. The Law Society's notices gave dot point short reasons as to the basis for the Resolutions. They went on to refer in a dot point way to the material relied upon. The requirement to give reasons is not, as we see it, to be read with the rigour that the law applies to the reasons of a Court, of a Judge sitting in a Tribunal, or to Tribunals that do not include a judicial officer. In our view that difference is recognised in the way Sheller JA approached the obligation to give reasons in the third of the principles laid down in Murray.
In our view, the Resolutions all dealt with matters of complaint that were well known to the Solicitor by the time the resolutions were made. The reasons were brief but, in our view, sufficient.
It follows that the Solicitor has not satisfied us that the Tribunal lacked jurisdiction to deal with the Law Society's Application because of failure by the Law Society to satisfy any jurisdictional preconditions.
In the Equititrust matter, it may be as submitted for the Solicitor, that the Law Society investigator misunderstood the meaning and effect of the court orders as they affected DC Legal. In our view, these submissions are relevant to the final hearing of this Application but do not put in question the Law Society Council's compliance with its obligation under s 537(2).
Similar complaints were made in relation to the legal understanding brought by the Law Society to its Resolutions in respect of the Grossman and FEA Matters. Again in our view, the issues raised as to are relevant to liability for the conduct rather than the validity of the Resolutions. Some further submissions (for example, as to admissibility of evidence, the need for expert evidence on what is a reasonable fee and the like) were also ones more relevant to the final hearing of the Application.
For these reasons, the Solicitor's interlocutory application is dismissed.

[14]

Hearing

As foreshadowed the Solicitor failed to appear at the final hearing before the Tribunal on 9 September 2016 and was not represented. The Law Society was represented, as previously, by Mr Maddigan of counsel.
The Tribunal had been reconstituted with respect to one member. General Member, Elayne Hayes, had replaced General Member Ross Fitzgerald, following his resignation from the Tribunal.
The Law Society relied on the following material in support of its application:

Affidavit of Garry Terence Napier, trust account investigator, Law Society (the Grossman Case) (Ex A1 in the proceedings); affidavit of Anne-Marie Foord, solicitor, Law Society (Equititrust Matter and Pavliuks case) (Ex A2); affidavit of Lucia Moliterno, appointed investigator (conduct of DC Legal in connection with the Sons of Gwalia and FEA Matters) (Ex A3); affidavits from claimant Avery (Ex A4), claimant Graham (Ex A5), claimant Robertson (Ex A6); claimant P Pavliuk (Ex A7), claimant Outhred (Ex A8), further affidavit of A-M Foord (company extracts re DC Legal Pty Ltd and Legalfund Pty Ltd) (Ex 9); further affidavit of A-M Foord (affidavit relating to the history of Law Society's investigation, and communications between Law Society and respondent during the investigation, issues raised by the preliminary application) (Ex A10); and affidavit of Richard Geoff Hancock, solicitor, Brisbane (in relation to conduct of the Equititrust case on behalf of Equititrust, and dealings with DC Legal in relation to his clients discharge of the consent orders) (Ex A11).
It also relied upon parts of the Solicitor's affidavit, filed 7 December 2015 (Ex A12); and the Solicitor's letter to the Tribunal dated 7 July 2016 (Ex A13).

It will be apparent that there is no sworn evidence before us from the Solicitor, apart from his affidavit filed 7 December 2015, and this was only placed into evidence by the Law Society to the extent that it assisted the Law Society's case. The result is that we have no evidence from the Solicitor regarding the conduct that is the subject of the proceedings.
Mr Maddigan relied upon written submissions prepared for the hearing, that had been served on the Solicitor. There were no written submissions in reply. These submissions addressed matters raised by the Solicitor in his Further Amended Reply.

[15]

The Vicarious Liability Issue

The Solicitor did not dispute (see Further Amended Reply [1] responding to Amended Application [8]) the history given by the Law Society as to his status as sole principal or co-principal of DC Legal, i.e.: Co-principal with Mr Dennis 21 July 2009 to 21 August 2009; Sole principal 22 August 2009 to 29 February 2012; Co-Principal 1 March 2012 to 16 January 2014. He was a director of the incorporated practice from 13 July 2009 to 16 January 2014.
The LPA, s 7(3), defines a 'principal' of a law practice as '(c) a legal practitioner director in the law practice (in the case of an incorporated legal practice)'.
During the period from 13 July 2009 to 16 January 2014 the Solicitor was therefore bound by the law governing the liability of principals with respect to the conduct that occurred.
Section 143 of the LPA effectively continues the personal obligations to comply with professional standards that partners and employees of law firms were bound by prior to the changes in the law that made it lawful for law practices to be organised in a company structure. The obligations apply to any legal practitioner directors of the company. It provides: 143 Obligations and privileges of practitioners who are officers or employees (1) An Australian legal practitioner who provides legal services on behalf of an incorporated legal practice in the capacity of an officer or employee of the practice: (a) is not excused from compliance with professional obligations as an Australian legal practitioner, or any obligations as an Australian legal practitioner under any law, and (b) does not lose the professional privileges of an Australian legal practitioner. (2) For the purposes only of subsection (1), the professional obligations and professional privileges of a practitioner apply as if: (a) where there are 2 or more legal practitioner directors of an incorporated legal practice - the practice were a partnership of the legal practitioner directors and the employees of the practice were employees of the legal practitioner directors, or (b) where there is only 1 legal practitioner director of an incorporated legal practice - the practice were a sole practitioner and the employees of the practice were employees of the legal practitioner director. (3) The law relating to client legal privilege (or other legal professional privilege) is not excluded or otherwise affected because an Australian legal practitioner is acting in the capacity of an officer or employee of an incorporated legal practice. (4) The directors of an incorporated legal practice do not breach their duties as directors merely because legal services are provided pro bono by an Australian legal practitioner employed by the practice.
Section 250 of the LPA is a provision specific to Part 3.1 of the LPA (ss 242-300), the Part which lays down detailed rules in relation to the management of trust money and trust accounts by law practices. The provision reaffirms the basic principle that obligations falling on the law practice are borne jointly and severally by the principals of the law practice. For the avoidance of any doubt in that regard, s 250(2) provides that references in the provisions to a law practice include references to the principals of the law practice.
The Solicitor's dispute with the Law Society, as set out in his correspondence with the Law Society, and the material he filed in these proceedings goes to the applicability of s 719.
Section 719 provides: 719 Liability of principals (1) If a law practice contravenes, whether by act or omission, any provision of this Act or the regulations imposing an obligation on the practice, each principal of the practice is taken to have contravened the same provision, unless the principal establishes that: (a) the practice contravened the provision without the knowledge actual, imputed or constructive of the principal, or (b) the principal was not in a position to influence the conduct of the law practice in relation to its contravention of the provision, or (c) the principal, if in that position, used all due diligence to prevent the contravention by the practice. (2) Subsection (1) does not affect the liability of the law practice for the contravention. (3) A contravention of a requirement imposed on a law practice by this Act is capable of being unsatisfactory professional conduct or professional misconduct by a principal of the practice.
The following personal background of the Solicitor is set out to assist in understanding the context in which his involvement in DC Legal arose. 1. He was born in October 1930. He commenced articles of clerkship in 1948. He obtained the degree of LLB from the University of Sydney in 1953. He was admitted to practice in 1953. In 1968 he was the charged with professional misconduct. He did not contest the proceedings. The relevant Tribunal found him guilty of professional misconduct and his name was struck off the roll (Re Hocking, Solicitors Statutory Committee, No 7 of 1968, 20 December 1968). In the period 1968 to 1986 he worked as the managing director or as a senior executive in various businesses some with a franchising model. They included Weight Watchers (Australia and New Zealand), Slimming Clubs Australia, M-Ray Corporation and Imperial Plantations Ltd (maker of Northern Rivers Tea). 2. Having obtained the approval required from the Law Society in the case of struck off solicitors, he returned to work in a law firm in Sydney in 1986 as a law clerk. In 1988 he moved (with the required approval) to Dennis & Co, principal Bruce Dennis. In 1996, he applied for readmission to the profession. The Legal Practitioners Admission Board granted his application. It decided that he could again be regarded as a person of good fame and character and suitable to be admitted as a legal practitioner (Decision, 19 April 1996). The Supreme Court readmitted him to practice on 24 May 1996, at the age of 65. 3. From 1996 and 2002 he worked at Dennis & Co as an employed solicitor. He had a stroke in 2002, and left Dennis & Co. He resumed work at a small firm, Rimmer & Associates, Conveyancers, and spent about 12 months there until it closed. He then ran a practice from home under his own name. In the period 2006 to 2009, he conducted a small practice called 'Martin Place Lawyers' based in the Sydney CBD. 4. In 2009 Dennis & Co restructured, and became an incorporated legal practice, 'DC Legal Pty Ltd'. On 9 July 2009 he joined DC Legal as an employee. On 13 July 2009 he became a director. We have set out at para [60] the times thereafter when he was a sole principal of the practice or a co-principal of the practice with Mr Dennis. 5. As previously noted, in the Further Amended Reply the Solicitor gave his account of his work relationship with Mr Dennis in the period 2009-2014. He depicted the arrangement as one where he continued to work from the separate office that he occupied as Martin Place Lawyers. He denied that he had ever been involved in any 'class actions', which we understand to be an allusion to the claims work done in connection with the Sons of Gwalia and FEA Matters. He made a number of statements in the Further Amended Reply disavowing any work with DC Legal or any principal-like connection its business, especially when it came to the management of trust money and trust accounts. 6. The Solicitor's key assertion in the Further Amended Reply was that he worked as a salaried part-time solicitor for DC Legal in the period 13 July 2009 to 16 January 2014 (the date he gives as the date of his resignation). He said that a received a 'nominal salary' of $1500 per week, and no other remuneration. However, he also acknowledged that he was a director of DC Legal Incorporated in that same period. He denied that he ever held shares in Legalfund Limited, the owner of 90% of the equity of DC Legal. He stated that Mr Dennis had complete control of DC Legal. 7. At the conclusion of the Further Amended Reply he noted that he had worked under Mr Dennis for many years from 1988 and 2002, and did exactly as he was directed. He was grateful to him for the support that he had given him. He reiterated that Mr Dennis was the sole beneficial owner of Legalfund and the controller of DC Legal.
The Solicitor has repeatedly denied culpability for many of the matters alleged against him as principal of the law practice, and he has contended that Mr Dennis was entirely responsible for the conduct. (Reply, affidavit in support, and the Further Amended Reply). His submissions have sought, as we see it, to invoke the defences provided by paragraphs (a), (b) and (c) of s 719(1).
His difficulty is that he has not filed any evidence in support of these defences. His affidavit has not been received fully into evidence, and his evidence has not been tested under cross-examination as he chose not to further participate in the proceedings.
In these circumstances, we must conclude that the primary rule applies and the Solicitor was bound as principal of the law practice with respect to any contravention of the LPA and the regulations which occurred at DC Legal while he was director and principal.

[16]

Equititrust Matter

There are four allegations which relate to conduct that occurred in or about May and June 2011.
DC Legal's clients were the second and third defendants in a dispute between a mortgage lender (Equititrust) and the mortgagor. The second and third defendants had leased the land from the mortgagor. The lender had taken action for possession of the land against the borrower and the second and third defendants as the occupants of the land. Under the terms of a Consent Order dated 18 May 2011 DC Legal's clients agreed to surrender any and all leases or licences in respect of the subject land, and surrender occupation of the land by specified dates (within 14 days in respect of the leases and licences, by 14 June 2011 in respect of surrender of occupation). Order 8 was that the lender pay the sum of $35,000 to DC Legal's trust account, and Order 9 was that DC Legal may release $5,000 of that sum immediately upon receipt, and the remainder only when the orders for surrender of leases, any licences and occupation have been complied with. DC Legal's clients failed to comply with the orders for surrender of leases and licences and surrender of the land.
Grounds A(i) and A(ii) each assert a breach of s 255, and relate to the dispersal by DC Legal of the balance of $30,000 from the trust account. The Grounds refer to separate events in the chain of transfers. We will not set out the evidence in detail. We are satisfied that DC Legal drew office account cheques in the following amounts on account of costs on the following dates ($5000, 8 June 2011, to client; $9,663.81, transfer for costs, 18 October 2011; $20,336.19, for costs, 21 October 2011, stated to include reimbursement of $5000 payment to the client made 8 June 2011). It will be seen that the entire balance the subject of the condition as to release was diverted towards payment of DC Legal's costs.
The evidence is clear that the Solicitor, as sole principal of the law practice, authorised each of these transfers. As the Law Society submitted, a solicitor has no implied authority from a client to withdraw funds of the client held in a trust account for the purposes of paying a solicitor's costs or disbursements: Stewart v Stevens [1976] 2 NSWLR 321.
Grounds A (i) and A (ii) are established.
The next two grounds arise out of attempts made by Equititrust to have refunded the balance of $30,000.
DC Legal's clients failed to vacate the subject property by 14 June 2011. In those circumstances Equititrust took action in the Supreme Court of New South Wales to recover the balance of $30,000. On 27 February 2012, the Court (Schmidt J) made the following orders (Equititrust Limited v Checkling Pty Ltd (receiver and Manager appointed) (in Liquidation) [2012] NSWSC 121: (c) that DC Legal Pty Ltd forthwith pay the said amount of $30,000 to the Plaintiff; (d) in the event that DC Legal Pty Ltd has paid the said amount of $30,000 to or at the direction of the Second Defendant and/or Third Defendant, that the Second Defendant and the Third Defendant repay the said amount of $30,000 to the Plaintiff.
The solicitors for Equititrust sent a copy of the orders to DC Legal on the same date. DC Legal did not comply with the orders. As at that date the Solicitor was the sole principal of DC Legal. His failure to ensure that the practice complied forthwith or, at least, promptly with the Court order amounted, at the least, to unsatisfactory professional conduct.
A legal practitioner has an overriding duty to the Court, one aspect of which is strict observance of any orders directed to the practitioner (in this instance in his capacity as sole principal of the law practice the subject of the court order): see generally, Rondel v Worsley [1969] 1 AC 191 at 227 per Lord Reid. DC Legal did eventually repay the amount of $30,000 to Equititrust's solicitors, but this did not occur until 28 October 2013, approximately 20 months later.
The Solicitor's written submissions dated 4 April 2016 (in connection with the interlocutory application) contended that DC Legal had dealt with the $30,000 in the way it did in keeping with an authority from Equititrust. No evidence was put before us that might support that proposition.
Section 674 of the Act provides: 674 Obstruction or misleading of investigator (1) A person must not, without reasonable excuse, obstruct or mislead an investigator exercising a power under this Act. Maximum penalty: 100 penalty units. (2) In this section: obstruct includes hinder, delay, resist and attempt to obstruct.
The Law Society alleges that the Solicitor repeatedly denied any involvement in the Equititrust matter in correspondence with its investigator despite his status as the sole principal of DC Legal at relevant times, his acknowledgement to the Law Society's investigator Mr Napper during a routine investigation on 23 January 2012 that: 1. he was solely responsible for the authorisation and signing of trust account transactions 2. that he had not delegated that authority to anyone in the past 12 months and 3. his signature appeared on the transfer documents of 18 and 21 October 201, and the letter and cheque sent 23 October 2011 bore his signature.
In his submissions of 4 April 2016, the Solicitor challenged the Law Society's interpretation of his conduct. He stated that the relevant account requisitions were all signed by Mr Dennis and the office accountant. He said that he had nothing do with the requisitioning of the transfers of trust funds from the trust account to the general office account. Again, these assertions are not the subject of any evidence, and they reflect a lack of insight into the responsibility of a principal in a law practice.
Grounds A(iii) (breach of Order) and A(iv) (misleading Law Society) are established.

[19]

Misappropriation

The Law Society has also laid the more serious matter of misappropriation in relation to the diversion of the fees due to counsel to the office account. That the appropriation was wrongful is clear. For a charge of misappropriation to be sustained it must be shown that the wrongful appropriation was done dishonestly. It is not necessary, however, to establish that the solicitor knew subjectively at the time of the transaction that what he or she was doing was dishonest. It is sufficient to establish that the conduct would be regarded as dishonest by the ordinary standards of reasonable and honest people,.
In Law Society of NSW v Shehadie [2016] NSWCATOD 46 (20 April 2016), the Tribunal summarised the relevant law in this way: 35 It is accepted that the legal meaning of misappropriation carries the connotation of a wrongful, dishonest use. Further in disciplinary proceedings of the present kind, it is accepted that the prosecutor must show that the respondent knowingly engaged in the conduct of concern, and that the conduct was dishonest. There has been debate as to whether the prosecutor must show that the respondent knew that the conduct in which he or she had intentionally engaged was dishonest, or is it enough to show that regardless of his or her belief in that regard, it would be regarded as dishonest, viewed objectively. 36 In Brereton v Legal Services Commissioner [2010] VSC 378 Bell J examined closely what is required by way of proof of dishonesty in a misappropriation case. His Honour emphasised that the general law (both civil and criminal) in dealing with proof of dishonesty does not go so far as to require that the defendant knew at the time of the conduct that what he did was dishonest. Proof of 'subjective' dishonesty in that sense is not required. Bell J said (some footnotes omitted): 53 While an allegation of dishonesty requires consideration of the person's mental state, in neither the criminal nor the civil context is it necessary to establish that the person subjectively knew or believed that the actions concerned were dishonest. What must be established is that the person subjectively intended to do the acts which are said to be objectively dishonest by the ordinary standards of reasonable and honest people. Thus the course to be adopted in determining whether conduct is dishonest was explained by Toohey and Gaudron JJ in Peters v R [1998] HCA 7; (1998) 192 CLR 493] as follows:[ 503-504] In a case in which it is necessary for a jury to decide whether an act is dishonest, the proper course is for the trial judge to identify the knowledge, belief or intent which is said to render that act dishonest and to instruct the jury to decide whether the accused had that knowledge, belief or intent and, if so, to determine whether, on that account, the act was dishonest ... If the question is whether the act was dishonest according to ordinary notions, it is sufficient that the jury be instructed that that is to be decided by the standards of ordinary, decent people. 54 The steps involved in this formulation are: (1) identify the knowledge, belief or intent which is said to render the acts dishonest; (2) determine whether the accused (or defendant in the civil context) subjectively had that knowledge, belief or intent; and (3) determine whether, on that account, the acts were objectively dishonest according to the standards of ordinary and decent (that is reasonable and honest) people. 55 When applying these principles in a civil case, the civil standard of proof on the balance of probabilities applies. Of course, where the allegation in a civil case is of misappropriation, a high standard of probability is required, due to the gravity of the allegation.[Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336, 361-363 per Dixon J] In a criminal case, the criminal standard of proof beyond reasonable doubt applies. 37 In disciplinary proceeding of the present kind, therefore, the three steps to which Toohey and Gaudron JJ refer, and reiterated by Bell J at para [54] apply. It will be seen that those steps draw a clear distinction between the understanding of the defendant when engaging in the conduct and the characterisation of that understanding. Commonly, evidence will establish a state of knowledge, belief or intent in relation to the conduct under notice, and the issue will then be (step three) whether the proven state of understanding can fairly and properly be found to be dishonest. In making that finding the tribunal of fact will look at the totality of the evidence, and apply the standards of the community to what has been put to it by the defendant in that regard.
We are satisfied that the Solicitor allowed the diversion of the funds to the office account to occur, and that he knew or should have known that this diversion was not permitted. As the evidence indicates that the office account was in overdraft to a significant amount, the law practice clearly benefitted from this diversion as its overdraft was reduced. The funds continued to be used to prop up the office account, for a long time after the problem had been identified and recognised, as the cheques were raised in January but not transmitted until May. There is no evidence that what occurred may have been due to mistake or isolated inadvertence, or a failure of office systems.
In our view the Solicitor's state of mind at the time of the diversion of the funds, and certainly after drawing and failing to forward the cheques to the payees would be regarded by reasonable and honest people as rendering the act of wrongful appropriation dishonest. Therefore, the ground of misappropriation is proven. We accept in that regard that this is not a case of the worst kind.

[26]

Overcharging

Section 498(1)(b) of the LPA lists the 'charging of excessive legal fees in connection with the practice of law' as conduct capable of being unsatisfactory conduct or professional misconduct. It is also established that that the charging of excessive costs may amount to professional misconduct at common law: Re Veron; ex p Law Society of New South Wales (1966) 84 WN (NSW) (Pt 1) 136; Veghelyi v Law Society of New South Wales [1995] NSWCA 483.
In its Circular of 17 September 2004 Dennis & Co offered to act on behalf of claimants in the Sons of Gwalia administration on a one-off fee basis of $550. It went on to state 'If the claim is successful we will ground such legal costs as the court may allow. We will not ask for any further funds unless the claim is successful'. Based on recitals contained in the tax invoices issued first by Dennis & Co in 2008 and later by DC Legal, the law practice purported to have undertaken work on behalf of its clients in support of claims for pre-investment deception against the directors of the Sons of Gwalia (Ex A3, Attmt I).
However, there is no evidence that Dennis & Co or DC Legal initiated any litigation. There were other shareholders who did take legal action for pre-investment deceit and misrepresentation. Those proceedings led to a High Court ruling that allowed claims by shareholders for the recovery of losses due to wrongdoings by a company to rank equally with the claims of unsecured creditors: Sons of Gwalia (subject to a Deed of Company Arrangement) v Margaretic (2007) 231 CLR 160.
During the time relevant to this application DC Legal charged additional fees to clients as dividends were paid from the administration. They are set out in Appendix A to the Law Society's submissions. As noted in the Law Society's submissions, in some cases the whole of the dividend was appropriated on account of costs and disbursements. All eleven clients the subject of parts C to N of the application were affected. None of them entered into any costs agreements with Dennis & Co or DC Legal; nor were they provided with tax invoices before the funds were appropriated as set out in Appendix A. Tax invoices were subsequently issued (see Ex A3, Attmt I).
During the relevant period, Dennis & Co and DC Legal received dividend distributions totalling $187,512.30. The total amount received by DC Legal on account of costs and disbursements from the Sons of Gwalia Shareholders (excluding the initial payments of $550 and amounts later refunded) was $49,282.45 (around 26% of the dividends received).
As Mr Maddigan observed during the second hearing drawing on the analysis by the Law Society's investigator, Ms Moliterno, there is no logic that can be discerned from the per-dividend rate of deduction. Viewed in percentage terms they varied from 6% to 45% of the dividend received, and some small dividend amounts were appropriated completely. There is no evidence before us from the Solicitor that explains the calculation of the fees.
Mr Maddigan invited the Tribunal to draw the inference that these charges bore no relationship to the work described in the tax invoices or the work actually done, especially in circumstances where the practitioner had failed to provide any explanation in reply.
In an appeal against a Tribunal decision relating to a complaint of gross overcharging against a barrister, the Court was strongly critical of the barrister's failure to give sworn evidence to the Tribunal to explain the basis for his charges: New South Wales Bar Association v Meakes [2006] NSWCA 340. at [78] and [82]-[83] per Tobias JA; Bryson and Basten JJA, agreeing. The fees had significantly exceeded those seen by an expert as reasonable. Tobias JA condemned (at [78]) the barrister's failure to mount the witness box and explain 'the mysteries surrounding charges which had been found to be grossly excessive'. His Honour added: 'In my opinion the failure of the respondent to give sworn evidence was inexcusable'. He observed (at [83]) that the evidence left open the inference that he charged for time that was not spent in providing the services in question, and concluded: 'As the matter may have been clearly elucidated by the respondent, his absence from the witness box renders it impossible to give any weight to the hypothetical alternative explanations may have been proffered by his counsel.'
In the material before this Tribunal, all we have by way of an account of the work done by DC Legal and its predecessor Dennis & Co are the recitals contained in the tax invoices. While this case, unlike Meakes case, has as its primary focus the practice's conduct as distinct from the conduct of an individual practitioner, we are satisfied that it is appropriate to draw against the Solicitor similar inferences to those drawn by the Court against the barrister in Meakes. In the absence of any evidence from the Solicitor, we infer that the practice's charges bore little or no relationship to the work described in the tax invoices or the work actually done. Being unauthorised the charges were necessarily excessive, and amounting to overcharging, and we are satisfied that they can properly be described as grossly excessive.
In his submissions of 4 April 2016, the Solicitor argued that the Law Society needed to demonstrate by reliance on expert evidence (which did occur in Meakes' case) that the charges were excessive or grossly excessive. While expert evidence on matters of this kind may be desirable, a disciplinary panel will have expertise of its own in matters of this kind upon which it may draw. This panel includes, for example, a solicitor with relevant experience. In any event, this is a case where the starting point is that the clients were all promised the work for a fixed fee that was low in amount. No evidence was placed before us to show any variation to that arrangement. This is not a case where any need for an expert report arose.
We are satisfied that DC Legal's contraventions in this regard also constitute contraventions by the Solicitor as principal, pursuant to s 719(1). It follows that Grounds C(i), D(i), D(ii), E(i), F(i), G(i), H(i), I(i), J(i), L(i), K(i) and M(i) are established.

[29]

Professional Misconduct

All of the grounds of the Amended Application have been established. They related to defaults on the part of the law practice during the time that the Solicitor was its principal. He, as we have noted, has resisted the grounds largely on the basis that his arrangement with Mr Dennis for the conduct of the practice was such that Mr Dennis handled the matters under notice in these proceedings, and he had no involvement in them.
The Solicitor took on the responsibility of being a director of the practice, and for most of that period he was also the sole principal. He was obliged to oversee the practice, and ensure that it was conducted in a manner that complied with relevant requirements of the LPA and the applicable regulations. He manifestly failed to do so.
A principal of a legal practice bears personal responsibility for any contraventions committed by the law practice unless one of the defences given by s 719(1) is demonstrated to apply. While in his correspondence with the Law Society and his filings in the Tribunal he asserted that he should be excused, he failed to furnish any evidence in support of that assertion. He also failed to appear before the Tribunal during the second hearing to provide his account of the circumstances in which the conduct occurred. From this, we infer that he recognised that his case was a hopeless one.
Clearly each of the grounds proven involved an instance of unsatisfactory professional conduct in that the conduct '[fell] short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent Australian legal practitioner' (s 496 of the LPA). Further, many of the matters fell within the categories of conduct that are capable of being treated as unsatisfactory professional conduct or professional misconduct (s 498), i.e. contraventions of the applicable statutory provisions or legal profession rules ((1)(a)), and charging excessive legal costs ((1)(b)).
Professional misconduct at common law refers to conduct that would be regarded as disgraceful and dishonourable by reputable members of the profession: Allinson v General Medical Council [1894] 1 QB 750. Section 498 does not displace the common law meaning. Instead it elaborates it to cover unsatisfactory professional conduct that 'involves a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence' (s 497(1)(a)) and 'conduct ... that would, if established, justify a finding that the practitioner is not a fit and proper person to engage in legal practice'.
In our view, the breadth of the misconduct proven clearly warrants a finding of professional misconduct. We are satisfied that The Solicitor is no longer a fit and proper person to engage in legal practice.

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Judgment (32 paragraphs)

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Cases Cited (14)

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