1. In relation to the charges set out in the Notice of Charges dated 28 June 2007, the Tribunal makes the following findings:

1. In respect of charges 3, 5 and 11, the Tribunal finds the respondent Michael Richard Brereton guilty of misconduct at common law; 2. In respect of charges 2, 4, 6, 9, 10 and 13, the Tribunal finds the respondent Michael Richard Brereton guilty of misconduct within the meaning in paragraph (a)(i) of the definition of 'misconduct' in s 137 of the Legal Practice Act 1994;

1. In respect of charges 8, 14 and 15, the Tribunal finds the respondent Michael Richard Brereton guilty of unsatisfactory conduct within the meaning in paragraphs (ab) or (b) of the definition of 'unsatisfactory conduct' in s 137 of the Legal Practice Act 1994;

1. For the avoidance of doubt, the findings of guilt in respect of charges 4, 5, 6 and 8 are only to the extent set out in the Tribunal's reasons accompanying this order, and not to the full extent of those charges as alleged by the Legal Services Commissioner; 2. In respect of the remaining charges 1, 7, 12, 16, 17, 18 and 19, the Tribunal finds that there is insufficient evidence to satisfy it that the respondent is guilty of either misconduct or unsatisfactory conduct.
2. The matter is listed for further hearing on 27 August 2008 for up to two days to hear submissions on the penalty the Tribunal should impose and/or the further orders the Tribunal should make given its findings in Order 1.
3. By no later than 12 noon on 25 August 2008, each party must file 3 copies with the Tribunal and serve a copy on the other party of :
   1. the witness statement of any witness it proposes to call at the further hearing; and
   2. any written submission it proposes to rely upon at the further hearing.
4. The parties must arrange for a transcript of the further hearing, and arrange for three (3) copies of transcript to be provided to the Tribunal as soon as possible following the further hearing. The cost of transcript must initially be borne equally by the parties, with the cost being a cost in the proceeding.
5. (per Deputy President Dwyer, as presiding member) Pursuant to ss 101 and 146 of the Victorian Civil and Administrative Tribunal Act 1998, and unless or until the Tribunal or a court orders otherwise:
   1. a person must not publish or broadcast or cause to be published or broadcast any material or information arising from this proceeding concerning the personal information of any client or former client of the respondent Michael Richard Brereton save for material or information disclosed in the witness statements filed by the parties (other than in the attachments or exhibits to such witness statements), the hearing transcript, or the reasons accompanying these orders; and
   2. no person may inspect that part of the Tribunal's file containing the attachments or exhibits to the witness statements filed by either party or the exhibits formally tendered during the hearing.

This Order 5 does not apply to the parties or their legal representatives, or to any person or body authorised to obtain or disclose information under Part 7.2 of the Legal Profession Act 2004.

Ms Kerri Judd SC with Ms Kate Anderson of counsel, instructed by the Legal Services Commissioner. Ms Judd called the following witnesses:

• Ronald William Hall, investigator and inspector for the Law Institute of Victoria
• Mark Crew
• David Boyd
• Bradley Jones
• Bruno Alderuccio
• Michael Gudinski

Mr Peter Murley of counsel, instructed by Zolis Lawyers. Mr Murley called the following witnesses:

Mr Sandip Mukerjea, solicitor, of Minter Ellison lawyers, appeared on behalf of the proprietors of 'The Age' newspaper on 15 July 2008 in support of an application by 'The Age' and 'The Financial Review' for access to copies of witness statements and exhibits tendered in the proceeding.

Mr Eric Oates, solicitor, appeared (by telephone) on behalf of the witness Michael Gudinski on 17 July 2008

1. The Legal Services Commissioner has brought nineteen disciplinary charges against the respondent, Michael Richard Brereton.
2. Mr Brereton is an 'Australian lawyer' under the Legal Profession Act 2004. At the time of the hearing, he had not renewed his practising certificate for the period from 1 July 2008[1].
3. The charges relate to a period prior to the commencement of the Legal Profession Act 2004. At all material times relevant to the charges, Mr Brereton was a legal practitioner under the Legal Practice Act 1996, and held a principal practising certificate under that Act.
4. The charges are set out in a 'Notice of Charges' dated 28 June 2007 and allege misconduct by Brereton in his handling of trust monies and the mixing of his own interests with those of his clients, arising out of five matters comprising:
   • 'The Collendina Project' - a project relating to the purchase and development of land at Collendina for a retirement village;
   • Two off-shore transactions relating respectively to entities known as 'Westminster Finance' and 'Indoexchange'; and
   • Two loan transactions relating respectively to Michael Gudinski and 'Zinn Records'.
5. These orders and reasons deal with our findings on these charges. We have found some (but not all) of the charges to be made out on the evidence before us. A separate hearing has thus been convened to consider what penalty should be imposed, or what further orders should now be made, based on these findings.

1. There were a number of preliminary or procedural matters arising in the proceeding that it is appropriate to note, albeit in somewhat of a summary fashion.
2. The proceeding was held against a backdrop where the respondent's legal team had indicated that Mr Brereton was being investigated by the Australian Crimes Commission and was likely to be charged with various criminal offences. It was suggested that some of the possible ACC charges covered material that might overlap with some of the material relevant to the disciplinary charges before us[2]. As it transpired, and apart from one relatively minor matter[3], the ACC investigation is irrelevant to the particular disciplinary charges and hearing before us, and it has not formed part of our deliberations.
3. In the week prior to the commencement of the hearing, the respondent had sought an adjournment or stay of the Tribunal hearing until any criminal charges had been determined. The respondent also sought that the Law Institute of Victoria produce all documents relating to its contact with the Australian Crimes Commission. DP Dwyer refused both applications[4]. A further application for adjournment was made on the first day of the Tribunal hearing, based on a review then being sought in relation to the first adjournment refusal. This application was also refused, although the Tribunal did not sit on the day the review motion was returnable in the Supreme Court. The Supreme Court dismissed the application for review[5].
4. It is fair to reflect that the hearing was conducted on occasion with a degree of rancour and frustration between the parties and their counsel, and with countless objections and counter-objections in relation to procedure and evidence. Some of this was no doubt tactical, but the Tribunal expresses concern at the apparent lack of respect for its process in some instances, or lack of understanding of its general procedures[6]. It is not strictly bound by the rules of evidence or the practices or procedures of a court, although it is clearly bound by principles of natural justice. Whilst the subject matter of this proceeding is such that a level of formality was warranted in the receipt and testing of evidence, the Tribunal approached the matter with a desire to give both sides 'a fair go' and to provide a degree of latitude in the admission of evidence and cross-examination in an endeavour to avoid undue technicality and to get to the substantial and underlying merits of the case before it. Examples of this included:
   • Allowing the Legal Services Commissioner to call the evidence of Michael Gudinski via telephone from the United States, with his Sydney-based lawyer on another line[7];
   • Allowing Brereton to withdraw three witness statements previously filed on Brereton's behalf - this occurring some days into the hearing after the Legal Services Commissioner had closed her evidence[8];
   • Allowing Brereton leave to file an amended witness statement by David McLeod, and to adduce further evidence from Mr McLeod in oral testimony[9].

1. Part way through the hearing, two media outlets made application for access to witness statements, attachments and exhibits forming part of the Tribunal file. The parties were invited to make submissions and, with the parties' consent, the Tribunal also heard from a lawyer who appeared to represent 'The Age' newspaper in support of the application.
2. DP Dwyer (as presiding member) subsequently directed the release of all witness statements for each party after the evidence and cross-examination for that party had concluded, but without the attachments and exhibits. A continuing order has been made to similar effect, subject to any further Tribunal or court order. The reasons for this may be summarised as follows:
   • It is a basic principle of justice that hearings before courts and tribunals are held in public unless there are special circumstances. The disciplinary charges against Mr Brereton are properly in the public domain. Moreover, the Tribunal's proceeding file is commonly available for public inspection under s 146(3) of the Victorian Civil and Administrative Tribunal Act 1998;
   • Section 146(3) is however subject to the exceptions in s146(4) and s101, including any contrary direction or order of the Tribunal. The Tribunal may suppress the contents of documents that contain confidential information or may prejudice the administration of justice, or for any other reason 'in the interests of justice'[10]. In the interests of open justice, this power is used sparingly;
   • The attachments to the witness statements and some of the hearing exhibits in this case comprise trust account ledgers and other documents that disclose personal or confidential information about clients or former clients of Brereton, and identify some persons or transactions not even forming part of the conduct called into question in this proceeding. The Tribunal is mindful of confidentiality provisions in the Legal Profession Act 2004 and its predecessors, and the desirability of maintaining the confidentiality of solicitor-client dealings where they are not relevant to the proceeding and/or the non-disclosure will not affect the administration of justice in the proceeding;
   • In this case, all of the material relevant to the disciplinary charges is sufficiently summarised (for public reporting purposes) in the witness statements - in particular, the statement of Mr Hall[11]. It is sufficient to allow inspection and copying of these statements (without the attachments or exhibits) from the Tribunal file after the evidence has been tendered, in the same way as if the evidence had been adduced by oral testimony in an open hearing.

1. Both parties approached the proceeding on the basis that it was a case largely to be decided on the facts and evidence, and there was little in the way of legal contentions. The Tribunal agrees.

1. The proceeding was conducted under the Legal Practice Act 1996. It is a matter of record that this Act has been repealed by the Legal Profession Act 2004[12]. Although the transitional provisions in the latter Act are not without some ambiguity, the Legal Services Commissioner provided us with a detailed written submission on jurisdiction[13] that satisfies us that the former Act remains applicable for conduct occurring under that Act and where the investigation had been conducted under that Act. Mr Murley did not seek to contest this view.

1. The standard of proof in matters of this nature is generally as set out in Briginshaw v Briginshaw[14] - that is, on the balance of probabilities bearing in mind the seriousness of the allegation. There, the Court had stated;

...when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found.

Except upon criminal issues ... , it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature or consequence of the fact or facts to be proved. The seriousness of an allegation, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters, "reasonable satisfaction" should not be produced by inexact proofs, indefinite testimony, or indirect inferences.

1. We agree with Mr Murley that the seriousness of the allegations against Brereton is such that a relatively high degree of satisfaction is required on our part. Equally, we agree with Ms Judd that:
   • Disciplinary proceedings are not criminal proceedings but are proceedings sui generis concerned with the protection of the public. As such, they cannot necessarily be determined on the same basis as adversarial proceedings[15]; and
   • Judicial statements to the effect that clear, cogent or strict proof is necessary where fraud is alleged, should not be understood as directed to the standard of proof[16]. The comments in Briginshaw do not alter the position that the civil standard of proof 'on the balance of probabilities' applies.
2. Ms Judd also referred us in her written submissions to Re Hodgekiss[17]. In that case, the court had stated that although the seriousness of a charge of professional misconduct did not elevate it to a level where it had to be proved beyond reasonable doubt, the tribunal must be 'comfortably or confidently satisfied' that the charge has been made out.
3. In considering the evidence to this standard, we note for the record that the Tribunal has been constituted with two lawyers, both of whom have held full solicitor practising certificates, and an accountant/auditor.

1. We agree with the Legal Services Commissioner that the rule in Jones v Dunkel[18] can apply in a proceeding of this nature, whereby an unfavourable inference of fact can be drawn where a party without explanation fails to call as a witness a person that party might reasonably be expected to call who could have spoken to, or explained, that fact.
2. Although the Tribunal is not strictly bound by the rules of evidence and practices of a court, we agree that it is open to us to apply the rule in Jones v Dunkel in this case, and that it is appropriate to do so in a proceeding of this nature[19]. This does not of course mean that either Mr Brereton personally, or other witnesses he might potentially call, have a 'duty' to come forward and give evidence. The respondent is not obliged to help the Legal Services Commissioner prove its case, and is entitled to put the applicant to its proofs save for risking the possibility that a Jones v Dunkel inference may be drawn in relation to some facts.
3. Mr Murley did not seek to materially contest that view, conceding that the rule in Jones v Dunkel should apply in this Tribunal, but contending that exceptional circumstances existed in this matter that limited its application. In terms of the component of the rule relating to a failure to call a witness 'without explanation', we do not accept that Mr Brereton's business dealings in the United States provide a satisfactory explanation for his inability to attend the hearing, as alluded to by his counsel. The hearing date was set several months in advance, as part of a timetable resolved through a directions hearing process and in consultation with his lawyers.
4. We also do not accept as a satisfactory explanation, the indication by Mr Murley that he was unable to call two of Brereton's former office staff (Ms Moran and Ms Price) on the basis that they did not wish to participate or had received separate legal advice not to voluntarily participate given the ACC investigation into certain of Brereton's activities and the coercive powers of that body. As we have indicated, we do not consider that the ACC investigation is directly relevant to our consideration and determination of the disciplinary charges before us[20], and the disciplinary charges appear to cover a range of transactions well beyond what we have been told by Brereton's lawyers is the ambit of that investigation.

1. Six of the charges[21] of 'misconduct' allege misconduct at common law. We agree with the Legal Services Commissioner that the test here is as stated in Myers v Elman[22]:

Before a solicitor may be found guilty of misconduct it must be shown that he has been personally implicated in conduct which would reasonably be regarded as disgraceful or dishonourable by solicitors of good repute and competency.

1. The remaining thirteen charges of 'misconduct' allege statutory misconduct, as set out in paragraph (a)(i) of the definition of 'misconduct' in s137 of the Legal Practice Act 1996; namely:

Wilful or reckless contravention of this Act, the regulations or practice rules that apply to the practitioner or firm or any other Act that relates to legal practice.

1. The Commissioner need only prove a wilful or reckless contravention. We agree with the Legal Services Commissioner that, for the purposes of this definition:
   • A 'wilful' contravention involves some consciousness that the conduct involved is a contravention of the Act or rules[23]; and
   • A 'reckless' contravention is where the practitioner has proceeded with reckless indifference as to whether what he was doing was or was not in contravention of the Act or rules[24].
2. By reason of s 161 of the Legal Practice Act 1996, a legal practitioner charged with misconduct may be found guilty of the lesser charge of 'unsatisfactory conduct' even though the lesser charge has not been separately laid or pleaded. Such a situation may arise, for example, where the conduct is not wilful or reckless, or where a contravention of the Act or rules exists but the breach is not sufficient to warrant a more serious finding of professional misconduct. 'Unsatisfactory conduct' is defined in s137 of the Legal Practice Act 1996 to include:

(a) conduct by a legal practitioner or firm in the course of engaging in legal practice that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent legal practitioner or firm; or

(ab) conduct by a legal practitioner or firm in the course of engaging in legal practice that would be regarded by a legal practitioner or firm in good standing as being unacceptable, including -

(i) conduct unbecoming a legal practitioner or firm;

(b) contravention of this Act, the regulations or practice rules that apply to the practitioner or firm or any other Act that relates to legal practice, not amounting to misconduct;

The Legal Services Commissioner relied primarily on paragraph (b) of this definition, although paragraph (ab) is perhaps also relevant where the conduct does not relate to a specific contravention of the Act or rules[25]. Obviously, the Commissioner contended that all of the conduct in question amounted to 'misconduct', and a possible finding of 'unsatisfactory conduct' was put very much as a fallback position.

1. Mr Murley did not seek to contest the meaning of 'misconduct' or the tests that we might apply. Unsurprisingly, he simply argued that the Legal Services Commissioner had not made out a case for 'misconduct' in respect of any of the charges brought against Brereton. His fallback position was that the conduct in a few instances, at most, raised conduct that might support a finding of unsatisfactory conduct.

1. It is appropriate to make some introductory comments on the evidence and submissions in this case.
2. The charges are set out in a detailed Notice of Charges[26] dated 28 June 2007 signed by the Legal Services Commissioner. The Notice of Charges is structured so that material facts are set out in numbered paragraphs (essentially as pleadings) with each charge then alleging that the conduct referred to in certain specified paragraphs constitutes misconduct. The charges are therefore very specific to the facts pleaded in the relevant paragraphs, rather than arising out of more general conduct by Mr Brereton.
3. The primary evidence for the Legal Services Commissioner was led through the witness statement of Ronald William Hall, an accountant and auditor and, at the relevant time, employed by the Law Institute of Victoria as an inspector/investigator. Attached to the witness statement were some 93 tabbed documents[27] comprising a range of trust ledgers, bank statements, correspondence, company searches and other documents arising from Mr Hall's investigation of Brereton's practice, and many of these documents formed the basis of detailed analysis at the Tribunal hearing.
4. To our mind these documents, when considered as a whole, reflect poor and sloppy record keeping by Brereton over an extended period and, in some instances, a clear intermingling of his business interests with his role as a lawyer. Given these overlapping interests, he had perhaps a 'heavier burden'[28] in maintaining his trust account records and supporting files in a manner that allowed a transparent audit process to be undertaken, although this obligation arises even without such a burden.
5. The auditor of Mr Brereton's firm, Mark Crew, gave evidence that there had been plenty of mistakes in Brereton's trust register from time to time - more so by way of comparison with other small firms he audited, where mistakes were rare - but the mistakes were rectified when pointed out[29].
6. Equally, however, poor record keeping and overlapping business interests do not of themselves prove the more specific charges laid by the Legal Services Commissioner against Mr Brereton. As we have indicated, the charges are referenced to specific numbered paragraphs in the Notice of Charges. Moreover, it is only in relation to the Westminster Finance and Indoexchange transactions that the Commissioner has laid the charges of failing to maintain trust account records in a manner that enables them to be conveniently and properly audited. There is no corresponding charge before us, for example, in relation to the Collendina project or Zinn Records transactions.
7. It is also the case that there are a large number of gaps in the material provided to us by Mr Hall, and by the Legal Services Commissioner generally. We appreciate that, in some instances, this reflects the difficulty that Mr Hall had in obtaining documents from Brereton's office or the fact that some documents may not exist or may no longer exist. This in turn has led to the Commissioner's reliance on the rule in Jones v Dunkel (discussed above) and the argument that we should draw unfavourable inferences in the circumstances of some of the unexplained gaps in the material.
8. However, we make the following observations:
   • The Legal Services Commissioner retains the burden of proof in relation to all charges.
   • The rule in Jones v Dunkel is not a panacea for all gaps in the material before us. We must be persuaded from the available material and circumstances when and why it is appropriate to draw an unfavourable inference - particularly where there are a range of plausible explanations for particular conduct.
   • Despite the overall volume of evidence, the Commissioner has failed in some instances to carefully articulate the relevant components of the charge (including by reference to authorities where appropriate), and to 'join the dots' from the available facts and evidence, and the factual inferences we should draw. This had led to the Commissioner failing to persuade us to the necessary standard of proof that the respondent is guilty of some of the charges, or all of the matters alleged in some of the charges.

1. The background facts to the Collendina project are complex. For present purposes, the following initial facts are relevant:
   • The 'Collendina project' essentially relates to the purchase of land and proposals to develop a retirement village at Lot 2, Bonnyvale Road, Collendina in Victoria ("Lot 2");
   • Brereton opened a trust ledger account on 31 January 2000 in the name of GDK Financial Solutions Pty Ltd ("GDK")[30] - a company owned and controlled by David McLeod and two associates. The matter is described as 'residential development site Collendina';
   • Seachange Management Pty Ltd was incorporated on 3 February 2000[31]. Seachange Management Pty Ltd was at the time 50% owned by Young Turks Pty Ltd (a company owned and controlled by Brereton) and 50% owned by GDK. Brereton and McLeod were the two directors of Seachange Management Pty Ltd[32];
   • Seachange Management Pty Ltd purchased Lot 2 under a contract of sale dated 16 February 2000[33]. The contract shows Brereton as the purchaser's solicitor. The purchase price was $1,000,000 with a $100,000 deposit, and $900,000 payable at settlement. The trust ledger reflects GDK depositing $50,000 as its half of the deposit, although the full deposit is paid out of Brereton's office account on 1 March 2000[34];
   • Seachange Management Pty Ltd almost immediately on-sold Lot 2 to Seachange Village Nominees Pty Ltd[35] under a contract of sale dated 10 March 2000[36]. The contract shows Brereton as the vendor's solicitor, with Bruno Alderuccio acting as the purchaser's solicitor. The purchase price was $31,370,000 with a deposit payable on the day of sale of $6,274,000. The contract still reflects a land value of $1,000,000. The balance of the purchase price relates to the development to be undertaken by the vendor (i.e. Seachange Management Pty Ltd) pursuant to special conditions;
   • Under clause 9.1 of the special conditions of the contract of sale, the vendor's solicitor (i.e. Brereton) was to hold the deposit in a special purpose account until authorised for release. By letter dated 5 May 2000[37], Alderuccio requested confirmation from Brereton that the amount held in trust was the full deposit of $6,274,000. Brereton did not respond. There is no record of this full amount ever being held in Brereton's trust account;
   • Under clause 6 of the special conditions of the contract of sale, the vendor (i.e.Seachange Management Pty Ltd) was required to commence the development 'as soon as practicable' and to proceed with each stage 'generally in an expeditious manner'. The conditions are however loosely worded and provide no absolute time lines[38];
   • The Collendina project was largely funded by investment syndicates. Part of a structure chart copied by Mr Hall from Brereton's files[39] shows that the purchaser Seachange Village Nominees Pty Ltd was the bare nominee for the Seachange Retirement Village Partnership. This partnership comprised seven entities, at least five of which were companies as bare nominees for partnership syndicates each comprising between nine and twenty investors. Insofar as it is relevant to later discussion, these syndicates included:
     1. Villager Collendina Nominees Pty Ltd, which included Embridge Trial Pty Ltd, Bronak Pty Ltd, Oceaill Pty Ltd, and Seratino and Giuseppe De Simone;
     2. Jones Financial Management Pty Ltd, which included Bradley Jones; and
     3. Bodero & Associates Pty Ltd, which included David Boyd.

Although not of direct relevance to us, the benefit of the Collendina project appeared to be twofold - an ultimate return on the development, and an immediate up-front tax deduction of the entire estimated development cost in excess of $31million[40];

• From late March 2000, and over a period of a few months following, the investors deposited funds individually or in groups into Brereton's trust account. They are recorded variously as 'settlement monies', 'deposit monies' etc, and in most cases with a name that corresponds to one of the investors or syndicates shown on the structure chart. The total amount deposited was approximately $5,800,000[41];
• The settlement of the initial purchase of Lot 2 by Seachange Management Pty Ltd under the first contract was scheduled for 23 May 2000 and occurred shortly thereafter[42]. There was then a balance of just over $1.2 million in the trust account and the trust ledger records a bank cheque drawn on 23 May 2000 for $889,748.27 and a cheque to the vendor's solicitors for $5,550.00 which (allowing for adjustments) accords with the balance of $900,000 due under that contract;
• So far as we are aware, no final settlement has ever occurred under this second contract with Seachange Village Nominees Pty Ltd. Mr Lewis ceased to be a director in 2001. A company search in 2004 indicated that the company had become owned and controlled by GDK with Mr McLeod as its director.

1. It seemed to us that there may be other relevant documents not placed in evidence before us by the Legal Services Commissioner that may have helped explain the Collendina project. For example, Mr Boyd (an investor) indicated in cross-examination that he had a whole file of documents[43], but none were tendered despite the Tribunal having very limited material before it on the structure of the transaction and the roles and responsibility of various entities within that structure[44]. We can only presume that the Commissioner had formed a view that this material was not relevant. It has led to some difficulty on our part where we consider a more adequate explanation was warranted in relation to some charges.

1. The first two charges in relation to the Collendina project are as follows:

The conduct referred to in paragraphs 1 to 19 [of the Notice of Charges] constitutes misconduct within the meaning of paragraph (a)(i) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice, between 31 January 2000 and 18 June 2002 you engaged in a course of conduct by which you wilfully or recklessly contravened Rule 19(1) of the Trust Account Rules by failing to maintain a separate ledger account in your trust ledger in respect of each matter and in respect of each client or person for whom trust money had been received by you.

Further, the conduct described in paragraphs 1 to 18 and 20 [of the Notice of Charges] constitutes misconduct within the meaning of paragraph (a)(i) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice, between 31 January 2000 and 18 June 2002 you engaged in a course of conduct in that you wilfully or recklessly contravened Rule 19(1) of the Trust Account Rules by failing to maintain a separate ledger that specifically related to the purchase by your client Seachange Management Pty Ltd of land at Lot 2 "The Grove" Bonnyvale Road Collendina together with a further and separate trust ledger that related to the sale by your client Seachange Management Pty Ltd of land at Lot 2 "The Grove" Bonnyvale Road Collendina to Seachange Village Nominees Pty Ltd.

1. Both charges refer to Rule 19(1) of the Trust Account Rules. The correct title appears to be the Trust Account Practice Rules[45]. The relevant rule provides as follows:

19(1) A separate ledger is to be maintained for each matter in respect of which trust money has been received and for each client or person for whom trust money has been received in that matter.

1. Charge 2 is clearly made out on the facts and evidence[46]. Brereton continued throughout to maintain a trust ledger only for GDK, and to apparently use that trust account for all dealings in respect of the Collendina project. However, Brereton is named as the solicitor for Seachange Management Pty Ltd in both contracts of sale for Lot 2 at Collendina, and he ought to have properly maintained a separate ledger for each matter in the name of that client as required by Rule 19(1).
2. Mr Murley did not really offer any defence to Charge 2, arguing only that if separate ledgers should have been maintained, there was no evidence of detriment having been caused by such failure as all transfers are recorded in the GDK ledger[47]. This to our mind is no excuse. As we have indicated elsewhere in these reasons, the fact that no detriment or loss may arise is irrelevant on a charge of professional misconduct in the management of trust monies[48].This is particularly the case where GDK (in whose name the ledger was maintained) was Brereton's business partner in the venture, and where there appears to be a clear intermingling of Brereton's business interests and his role as a lawyer. In the circumstances, we believe Brereton's conduct to be reckless and amounting to professional misconduct. We agree with Ms Judd that, in reaching this view, we are entitled to take into account the broader conduct comprised in the other charges against Mr Brereton arising from the Collendina project.
3. We are more troubled by Charge 1. On its face, Rule 19(1) requires a separate ledger to be maintained for each client or person for whom trust money has been received. Unlike Charge 2, Charge 1 does not specify the particular clients or persons to whom the charge is intended to relate.
4. The Notice of Charges does however refer to six 'examples' where it is alleged that a separate trust ledger was not maintained, being the deposits made by Embridge Trial Pty Ltd $150,000, Bronak Pty Ltd $50,000, Oceaill Pty Ltd $100,000, Greg Watts $72,650, FP Bannon $109,160.46, and De Simone Consulting Pty Ltd $100,000. By reference to the structure chart, at least five of these are individual investors in the syndicates[49]. We have therefore presumed that Charge 1 relates generally to the investors, with the allegation therefore being that a separate trust ledger ought to have been properly maintained for each investor depositing funds into the trust account for the Collendina project. This appears to accords with Mr Hall's opinion where, in cross-examination, he expressed a view that there should be a separate ledger for each investor[50].
5. We have therefore not considered Charge 1 as being directed towards Seachange Management Pty Ltd as the nominal person for whom trust money was received, given the more specific Charge 2 in relation to that company.
6. The individual investors were not 'clients' of Brereton, and neither Mr Boyd nor Mr Jones (both of whom gave evidence for the Legal Services Commissioner) suggested a solicitor-client relationship existed between Brereton and themselves as individual investors.
7. Given the investors were not clients, for there to be a breach of Rule 19(1) it would need to be established that the investors were persons 'for whom' trust money had been received. The Legal Services Commissioner did not offer any submission or authority as to how Rule 19(1) should be interpreted in this context. The rule uses the words 'for whom' not 'from whom', so the mere receipt of funds from the investors is not sufficient to trigger the operation of the rule. It needs to be established that Brereton received the funds from these investors to be held individually on their behalf. They must be capable of being characterised as persons 'for whom' the money was received.
8. We disagree with Mr Murley that the inference to be drawn is that the person for whom the monies were received was GDK as the client for whom the trust ledger was raised. We consider it more likely that the funds were received for the ultimate benefit of Brereton's client Seachange Management Pty Ltd as the purchaser of Lot 2 under the initial contract, and as the vendor responsible for the development under the second contract. Although not clearly recorded as such, we consider that the funds ought to be characterised as part of the deposit of $6,274,000 payable by Seachange Village Nominees Pty Ltd to Seachange Management Pty Ltd under the second contract. There is no other plausible explanation, given the documents before us. The person 'for whom' the funds were received was not the individual investors. This also accords with the evidence of Mr McLeod, the director of Seachange Management Pty Ltd[51] and, as a director of that company and GDK a promoter of the project.
9. Whilst it may have been prudent to record individual investors by way of separate ledger, we are not satisfied that this was strictly required by Rule 19(1) in the circumstances of these transactions - particularly given the multi-layered investment structure for the Collendina project.
10. Although Brereton's conduct is clearly inappropriate in the general manner in which he has managed the Collendina project through a trust ledger for GDK, we are not persuaded that the Legal Services Commissioner has made out its case for Charge 1 in relation to the individual investor funds. The Commissioner, for example, did not indicate who she considered was the actual person 'for whom' the trust money had been received - i.e. as between Seachange Management Pty Ltd and Seachange Village Nominees Pty Ltd or others. Moreover, there was no submission, evidence or authority in the context of Charge 1 that related to whether the funds received from investors might be considered to have been held in some form of 'constructive trusteeship' or other arrangement by Brereton that warranted them being recorded in a particular (and separate) way for the purpose of Rule 19(1). We do not consider it our role to draw such inferences in the absence of such submissions and evidence. Accordingly, Charge 1 is not established as either misconduct or unsatisfactory conduct.

1. The third charge in relation to the Collendina project is as follows:

The conduct described in paragraphs 1 to 18 and 21 to 24 [of the Notice of Charges] constitutes misconduct at common law within the meaning of paragraph (a) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice, between 30 March 2000 and 11 May 2000 you applied deposit monies held by you in your trust account as a stakeholder pursuant to the terms of a contract of sale dated 10 March 2000 between Seachange Management Pty Ltd as vendor and Seachange Village Nominees Pty as purchaser before such deposit monies were released by the purchaser in accordance with the provisions of the contract of sale.

1. Special condition 9.1 of the contract of sale[52] provided for a deposit to be paid to the vendors solicitors to be held in a special purpose account in accordance with s 9AA(2)(b) of the Sale of Land Act 1962, and to be released in accordance with s 9AA(3) of that Act and the remaining provisions of the special condition. Special condition 9.2 provided as follows:

9.2 The Purchaser agrees upon the registration of the Plan of Subdivision to sign a statement immediately upon it being submitted by the Vendor pursuant to section 27 of the Sale of Land Act 1962 (Vic) authorising the release of the deposit to the Vendor provided that such statement discloses that the total of all monies owing by the vendor to the Existing Financiers, secured by the Existing Securities, does not exceed the Security Limit.

1. Special conditions such as these are relatively common in conveyancing transactions. Section 27 of the Sale of Land Act 1962 (as in force at the relevant time[53]) set out the basis upon which a vendor can obtain a release of deposit monies upon the purchaser accepting title and providing written authorisation, and following the vendor providing a notice setting out certain particulars in relation to any mortgage or caveat. Unless released in accordance with section 27, the general rule is that the deposit is not released until settlement[54].
2. Much of the evidence in relation to this charge is comprised in the evidence of Bruno Alderuccio (the purchaser's solicitor called by the Legal Services Commissioner) and David McLeod (the director of GDK, called by Brereton), as well as a chain of faxes and correspondence passing between Brereton, Alderuccio and Hayden Lewis (a director of the purchaser, Seachange Village Nominees Pty Ltd)[55]. The key evidence of money alleged to have been released prior to the release of the deposit is in the Notice of Charges and Hall's witness statement[56].
3. In relation to the steps leading to the release of the deposit:
   • The plan of subdivision was registered on or about 15 March 2000. Brereton apparently forwarded a section 27 statement directly to Mr Lewis on 31 March 2000 seeking release of the deposit;
   • On 6 April 2000, Mr Alderuccio objected to the release of deposit pending answers to requisitions and particulars in relation to mortgages or caveats. He urged Lewis to forward information and clarify issues so as to protect the purchaser's interests[57];
   • Brereton continued to request, and subsequently 'demand', the return of an executed section 27 statement. His clear agitation is evident in his correspondence, as he required the release of deposit under the second contract to provide the funds to complete the purchase of Lot 2 on 23 May 2000 under the initial contract. Equally, even on 23 May 2000, Alderuccio wrote to Brereton indicating that he was yet to receive answers to requisitions or a dated contract of sale;
   • On 23 May 2000, Lewis faxed a signed but undated section 27 statement to Alderuccio via GDK. On 24 May 2000, Alderuccio confirmed his instructions by fax to Lewis, noting he had not been instructed in relation to the contract documentation or the retirement village project. Mr Alderuccio then dated the section 27 statement on 25 May 2000 and forwarded it on the same day to Brereton[58];
4. We disagree with Mr Murley that it is sufficient that no deposit monies were released prior to registration of the plan of subdivision[59]. By reason of Mr Alderuccio's objection on 6 April 2000 (made well within 28 days from Lewis' receipt of the section 27 statement from the vendor on 31 March 2000), the vendor cannot claim that it is entitled to release of the deposit through any 'deemed consent' under the Sale of Land Act 1962[60]. There was nothing in McLeod's evidence to the contrary. Mr McLeod conceded that he, as a director of GDK and Seachange Management Pty Ltd (but not Seachange Village Nominees Pty Ltd), had no authority to authorise release of the deposit notwithstanding his view that it could have and should have been released earlier.
5. It is clear to us that Brereton was not entitled to release the deposit until 25 May 2000 when he received the signed (written) copy of the section 27 statement from Alderuccio.
6. Brereton had obviously 'released' certain of the deposit monies when he drew the bank cheque for $889,748.27 on 23 May 2000 for the scheduled settlement of the initial contract for the purchase of Lot 2. Had the charge related to this cheque, when Brereton had knowledge that Lewis had at least signed the section 27 statement, we would have found the conduct more understandable (albeit still in breach) - particularly as it appears Brereton deferred the settlement until receiving the release.
7. The charge is however more serious. The Legal Services Commissioner does not rely on the 23 May 2000 cheque, but rather a series of earlier transactions occurring between 30 March 2000 and 11 May 2000, all well before the section 27 statement was signed. These transactions amount to $2,400,000, and comprise a payment to another client Charles Morton/Bigshop $100,000, 'retainers' to Brereton himself totalling $600,000 as well as a payment to his company Majestic Theatre Co of $200,000, a transfer to another investment project 'Western Retirement Village' of $600,000, and 'retainers' to GDK totalling $900,000[61].
8. We will deal separately with the issue of whether these funds were misappropriated under Charges 4 and 5, below. Given our earlier characterisation of the payments into the trust account by individual investors of some $5,800,000 as part of the $6,274,000 deposit for Lot 2 under the second contract, and given the absence of any other sunbstantive funds in the account, this $2,400,000 can only be considered to form part of the deposit of the purchaser Seachange Village Nominees Pty Ltd in relation to the second contract. As such, it was required to be held on trust in a stakeholder capacity in accordance with the terms of the contract of sale, and was not capable of release to the vendor Seachange Management Pty Ltd (or for any other purpose) except in accordance with that contract and the Sale of Land Act 1962. Even if the payments were capable of being authorised by GDK or Seachange Management Pty Ltd (as McLeod contends), Brereton could not legally transfer these funds out of his trust account before 25 May 2000.
9. We are therefore satisfied that Charge 3 is made out on the evidence. Further, we consider this to be a serious contravention amounting to wilful conduct on Brereton's part, and consequently misconduct.

1. The fourth and fifth charges in relation to the Collendina project are as follows:

The conduct referred to in paragraphs 1 to 18, 21 to 23 and 25 to 26 [of the Notice of Charges] constitutes misconduct within the meaning of paragraph (a)(i) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice, between 30 March 2000 and 25 September 2000 you engaged in a course of conduct being a wilful or reckless contravention of section 174(3) of the Legal Practice Act 1996 by withdrawing money from your trust account held for the purpose of the Collendina project and applying such money for another purpose without the consent or direction of the persons for whom you held that money on trust.

Further, the conduct described in paragraphs 1 to 18, 21 to 23 and 25 to 26 [of the Notice of Charges] constitutes misconduct at common law within the meaning of paragraph (a) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that you misappropriated trust moneys.

1. Charge 4 refers to s 174(3) of the Legal Practice Act 1996. The relevant part of that section provides as follows:

174(3) A legal practitioner or firm may withdraw trust money from the trust account only -

(a) for payment to the person for or on behalf of whom the money was received or in accordance with that person's direction; or

(b) in accordance with this Act and the practice rules, to satisfy a claim that the practitioner has against that person for legal costs; or

1. The withdrawal of money without consent and/or misappropriation alleged in Charges 4 and 5 arises from 16 trust account transactions specified in paragraph 25 of the Notice of Charges. These include the payments made prior to the release of the deposit (referred to in relation to Charge 3 above), as well as other payments made from the trust account for the Collendina project during the period until 25 September 2000. For our purposes, we summarise the payments as follows[62]:

Payments between 30 March 2000 and 11 May 2000 (prior to release of deposit)

Payment to Majestic Theatre Co. (a Brereton company)

'Loan' to Western Retirement Village/'The Mews', another GDK project in WA

Payments between 6 June 2000 and 25 September 2000

2 further transfers or 'monies borrowed on account of retainer fees' for 'The Mews' in WA

Transfer loan for reimbursement to Turtle Point[64]

1. The transactions for both periods total $4,436,010.52. It appears that approximately $1,150,000 of this relates to payments by way of retainers or 'loan' to Brereton and his company Majestic Theatre Co, with a similar amount totalling $1,150,000 by way of retainers to GDK. There is no explanation for these payments in the trust ledger, nor in any supporting material or files found by Mr Hall or made available to him. There is also no explanation by Brereton himself or his counsel.
2. The Legal Services Commissioner alleges that all of these payments represented a payment for purposes other than the Collendina project, without the consent or direction of the persons for whom Brereton held the money on trust. Two investors (Boyd and Jones) gave evidence to the effect that they had invested money solely for the purpose of the Collendina project, that they had not authorised the money to be spent on anything other than this project[65], and that they had not authorised the transfer of funds to other projects or by way of retainers to Brereton or GDK[66].
3. Given our finding under Charge 1 (i.e. that the investors were not Brereton's client, nor the persons 'for whom' the trust money had been received), we are not convinced that the investors, individually, needed to consent or direct to each transfer of funds. Through the multi-layered corporate structure, they had in our view collectively ceded this responsibility to Seachange Management Pty Ltd and Seachange Village Nominees Pty Ltd as the nominated vendor/developer and purchaser.
4. Moreover, it is not completely clear that Boyd and Jones' evidence can be construed as being representative of all investors. For example, in relation to the Western Retirement Village/'The Mews' development in WA to which some funds were transferred, the syndicate structure chart for that project[67] lists some of the Collendina investors (eg. Embridge Trial Pty Ltd, Bronak Pty Ltd, Oceaill Pty Ltd, and De Simone) as part of a GDK syndicate, and they may have been willing for a portion of the Collendina funds to be redirected to this development[68]. Certainly, the evidence of Mr McLeod was to the effect that he believed he was able to deal with funds in this way.
5. Mr Murley asserted that Mr McLeod, as a director of Seachange Management Pty Ltd could and did authorise the release of funds both before and after 25 May 2000[69]. Indeed, Mr McLeod's oral testimony was to that general effect.
6. We do not agree with Mr Murley in relation to this assertion for the period prior to 25 May 2000 when the deposit was released. Prior to this time, as we have found in relation to Charge 3, the trust monies formed part of the deposit paid by Seachange Village Nominees Pty Ltd and were being held in the trust account in a stakeholder capacity for the benefit of both vendor and purchaser under the terms of the second contract, and pursuant to the Sale of Land Act 1962. Mr McLeod was not a director of Seachange Village Nominees Pty Ltd. Without the section 27 statement, Seachange Management Pty Ltd could not alone consent to or direct the transfer of the part of the deposit for another purpose, and Brereton could not act upon any purported authorisation to that effect[70]. Charge 4 is therefore made out in relation to the $2,400,000 withdrawn from the trust account between 30 March 2000 and 11 May 2000.
7. However, after 25 May 2000, the situation materially changes. With the release of the deposit, and the then prevailing corporate structure for the investment, Seachange Management Pty Ltd could technically consent or direct the transfer of funds other than for the purpose for which they had been initially deposited - without breaching s174(3) of the Legal Practice Act 1996. [For the record, we disagree with Mr Murley that GDK could provide this consent or direction as the client in whose name the trust ledger had been set up. As we have found for the purpose of the earlier charges, the trust monies were being held, after the release of the deposit, for Seachange Management Pty Ltd and not GDK].
8. If Seachange Management Pty Ltd was directing the transfer of funds for an improper purpose or, worse, seeking to defraud the investors from whom it had obtained the money, this may support other charges or other civil action. It does not however satisfy us that there has been a contravention of s 174(3) for the trust funds redirected from the Collendina project after 25 May 2000 if there is evidence of consent or direction from Seachange Management Pty Ltd as the person for whom those funds were then held.
9. Because of this issue, we granted leave for Mr McLeod to give oral testimony beyond the scope of his witness statement. We found his additional evidence to be largely self-serving, and reflective of a view that the investors' funds were really for GDK to apply as it saw fit and where they were needed within GDK's broader organisational structure[71]. Despite some misgivings as to the veracity of Mr McLeod's evidence on all issues, for better or worse his evidence was that, as a director of Seachange Management Pty Ltd, he had authorised all of the payments referred to in the Notice of Charges. He recalled some payments specifically, although there were some that he did not recollect in detail but indicated 'would have been' authorised by him[72]. He did not resile from this view under cross-examination.
10. Faced with Mr McLeod's evidence, and the absence of any clear evidence from the Legal Services Commissioner to the contrary, we are not satisfied that the Commissioner has provided sufficient evidence to establish Charge 4 in relation to the payments between 6 June 2000 and 25 September 2000. As we have indicated, we do not believe consent or direction was required from individual investors, which was the Commissioner's primary assertion. Given the seriousness of this charge, and its reference to a specific statutory provision alleged to have been contravened, we are not sufficiently persuaded to the requisite standard of proof that Seachange Management Pty Ltd had not consented to or directed the payments made after 25 May 2000 for the purpose of s174(3) of the Legal Practice Act 1994.
11. Charge 4 is therefore only made out in relation to the earlier payments between 30 March 2000 and 11 May 2000. We consider Brereton's conduct in relation to this aspect of the charge to be a wilful contravention, amounting to misconduct.
12. Charge 5 is more general in nature, alleging misappropriation by Brereton of these trust monies. It thus gets more to the substance of the payments, rather than whether or not there was technical consent or direction from Seachange Management Pty Ltd.
13. Even so, we are only persuaded that this charge is made out in part. For example:
    • It is plausible, as Mr McLeod contended, that Seachange Management Pty Ltd could have legitimately redirected some funds to another retirement village project (such as 'The Mews'), with some of the same investors if that was likely to achieve a better return. (Mr McLeod gave evidence that Seachange Management was part of a structure that included 'The Mews'[73]). A civil liability may arise if some investors considered that this breached their contractual arrangements with Seachange Management Pty Ltd, but this does not necessarily support a disciplinary charge against Brereton for misappropriation in his capacity as a legal practitioner. The Legal Services Commissioner failed to satisfy us with any evidence of the contractual terms or investment arrangements in this regard;
    • Similarly, it is plausible, as Mr McLeod contended, that the purchase of the Collendina Hotel on Lot 1, adjacent to the proposed retirement village on Lot 2, may have been beneficial to the Collendina project as a whole, for example through the existence of facilities such as a swimming pool, tennis centre and conference facilities on this site. The Legal Services Commissioner did not provide sufficient evidence to satisfy us that this was clearly a misappropriation.
14. It follows that we are prepared to accept Mr McLeod's evidence as to the redirection of trust monies to other actual development projects in the face of no evidence that the money was not actually applied to those projects.
15. We have more difficulty with the retainers paid to Brereton and GDK. In these instances, the trust monies were appropriated to the use and benefit of GDK and Brereton, and we would therefore expect a higher level of explanation (for example, in the form of a commercial agreement or written authorisation) for such payments - if not from Mr McLeod then at least from Brereton himself.
16. We do not accept Mr McLeod's self-serving evidence as to the retainer payments, in the absence of such supporting material. Moreover, even McLeod's evidence is equivocal in relation to these payments. For example:
    • When asked why a $400,000 payment had been made to GDK, McLeod simply answered:

Because we were allowed to release the funds under the contract and we just decided we'd take the $400,000 across to our accounts. There may have been a matching one to Michael [Brereton] at the time.[74]

• When asked about the retainers to Brereton, McLeod simply agreed with Mr Murley that they were 'warranted', or in one case:

Michael had either done work for it or was owed the $50,000, but that - it was authorised to be released.[75]

• When asked about the transaction entered as a loan from McLeod to Brereton, McLeod stated:

We didn't lend Michael Brereton $200,000. Michael Brereton may have had a transfer of $200,000, but money wasn't lent directly to Michael Brereton.[76]

• In relation to the payment to Brereton's company Majestic Theatre Co of $200,000, McLeod stated:

I don't know specifically what it was for but Michael [would have said] "I need to transfer ...".

1. Contrasted to this is the evidence of the investor Mr Boyd. He indicated that he had no knowledge of entities such as Majestic Theatre Co, that he had never seen retainer statements for Brereton's fees despite requesting statements of account on numerous occasions and that, as construction never started, he failed to see why there would be any reason to make any payments to GDK[77]. Mr Jones gave evidence to similar effect in relation to the retainers[78].
2. Given McLeod and Brereton essentially controlled Seachange Management Pty Ltd, we do not believe Mr Brereton can hide behind the 'corporate veil' of that entity (and the 'consent' of that company to the payments via Mr McLeod) in relation to this more general charge of misappropriation. Given the intermingling of his business interests and his role as a lawyer responsible for trust money, he well knew (or ought to have known) his legal and fiduciary responsibilities to those beneficially entitled to the invested funds, and on whose behalf he and GDK were ostensibly managing those funds. He also well knew (or ought to have known) his obligations to properly account for the trust money. Brereton should not therefore have paid himself retainers from the project without clear contractual arrangements in place, clear authority and transparent disclosure. There is nothing in the material discovered in the course of Mr Hall's investigation that provides any evidence at all of such arrangement, authority or disclosure, or that indicates that Brereton had performed work for which a retainer was payable. A similar situation prevails in relation to the GDK retainers. We note that Mr Murley offered no response to Charge 5 at all in his written submission.
3. We are therefore satisfied that Charge 5 is established in relation to the payments made from Brereton's trust account to GDK and Brereton, or to related entities of Brereton such as Majestic Theatre Co. To our mind, there has been a systematic misappropriation of funds by Brereton for his own use and benefit, and for the use benefit of his business partner. This misappropriation amounts to approximately $1,150,000 to GDK and $1,150,000 to Brereton himself without reasonable explanation or excuse. We find this both on the facts and evidence before us, and by the negative inferences we are entitled to draw from the absence of any adequate explanation (indeed, no explanation at all) for these payments. Mr McLeod's evidence after the event that he 'would have' authorised these payments as a director of Seachange Management Pty Ltd is no defence to this charge, particularly as his company GDK appears to have shared equally in the funds misappropriated by Brereton from the trust account.
4. As we have indicated elsewhere in these reasons, Mr Brereton was perhaps under a 'heavier burden' in properly managing his trust account in circumstances where he was intermingling his role as a lawyer with his business interests, and where he was dealing with a client entity in which he had a personal interest and was managing significant trust funds beneficially belonging to others. Irrespective of this, his conduct in misappropriating over $2,300,000 in investor funds from his trust account (albeit held in the name of Seachange Management Pty Ltd) is disgraceful and dishonourable and clearly constitutes misconduct at common law.

1. The final two charges in relation to the Collendina project are as follows:

The conduct referred to in paragraphs 1 to 18, 21 to 23 and 27 to 29 [of the Notice of Charges] constitutes misconduct within the meaning of paragraph (a)(i) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice, between 30 March 2000 and 25 September 2000 you wilfully or recklessly contravened section 188(1) of the Legal Practice Act 1996 by engaging in a course of conduct which resulted in you having a deficiency in your trust account without reasonable excuse.

The conduct referred to in paragraphs 1 to 18, 21 to 23 and 27 to 29 [of the Notice of Charges] constitutes misconduct within the meaning of paragraph (a)(i) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal conduct, between 30 March 2000 and 25 September 2000, having a deficiency in your trust account, you wilfully or recklessly contravened Rule 32 of the Trust Account Practice Rules by failing to forthwith notify your auditor of a deficiency in your trust account.

1. Charge 6 refers to s 188(1) of the Legal Practice Act 1996. The relevant part of that section provides as follows:

188(1) A legal practitioner, a firm or an approved clerk must not, without reasonable excuse -

(b) fail to account for any trust money or security received from a client.

Penalty: Level 4 imprisonment (15 years maximum)[79]

1. There are essentially two parts to these charges - a specific allegation of a deficiency of $184,530.39 arising in Brereton's trust account on 11 May 2000, and a more general deficiency arising through the transfer of money without consent, being the $4,436,010.52 alleged to have been misappropriated under Charges 4 and 5.
2. In relation to the $184,530.39:
   • The trust account ledger for Collendina[80] shows a $500,000 'retainer' paid to GDK on 11 May 2000. Prior to this transfer, the trust ledger discloses a balance of $315, 469.61. The effect of the $500,000 transfer therefore creates a deficiency in the ledger of $184,530.39. This is disclosed by the ledger itself, with the ledger not returned to a positive balance for 5 days (following further deposits by investors). The initial evidence of Brereton's auditor Mark Crew indicated that this deficiency had not been reported to him. These facts alone were argued by the Legal Services Commissioner to support the charge;
   • The trust ledger also discloses an inward transfer of deposit monies of $780,023.14[81]. The entry is not made until 22 May 2000, so it is not added to the ledger balance until this date. However, the ledger entry notes that is an 'Inward Transfer 10.05.00' and Mr Murley produced a bank statement for the period that confirmed that $780,023.14 had indeed been deposited into Brereton's trust account on 10 May 2000[82].
3. It follows that, whilst the ledger notionally discloses a deficiency of $184,530.39 on 11 May 2000, the sum of $780,023.14 had been deposited the previous day. The trust account actually remained in surplus throughout this period. Although there is no explanation for the 12-day delay in entering the deposit in the trust ledger, both Mr Hall and Mr Crew indicated in cross-examination that they were satisfied, on the evidence of the bank statement, that no actual deficiency had arisen[83]. We therefore find that this component of Charge 6 is not technically made out.
4. In relation to the more general 'deficiency' of $4,436,010.52, this relies upon a finding by us that this amount had been misappropriated under Charge 5. We have found there that the misappropriation is only proved to our satisfaction, on the evidence before us, in relation to the $2,300,000 in retainers and payments made by Brereton to himself and GDK. It follows that the more general deficiency for the purpose of Charge 6 is limited to this $2,300,000.
5. Ms Judd did not refer us to any specific material or authority to support the proposition that a misappropriated sum creates a 'deficiency' where the trust account balance does not fall below zero[84] However, we believe that a misappropriation of funds does create a 'deficiency' (as that term is commonly understood) if moneys held on trust are removed from the trust account without reasonable excuse, even when the account remains in credit. The charge however becomes a 'duplicate' of the more specific charge of misappropriation[85], and should not lead to a double penalty.
6. It follows that we are satisfied that Charge 6 is made out to the extent of the $2,300,000 we have found to have been misappropriated by Brereton under Charge 5, and that Brereton thereby created a general 'deficiency' in his trust account for the purpose of s 188(1) of the Legal Practice Act 1996. We consider Brereton's conduct to be wilful, and that the conduct constitutes misconduct.
7. Charge 7 refers to Rule 32 of the Trust Account Practice Rules. The relevant part of that rule provides as follows:

32(1) A legal practitioner must forthwith notify the legal practitioner's auditor upon a loss or deficiency occurring in any of the legal practitioner's trust accounts.

1. Given the further evidence at the hearing providing an explanation for the alleged deficiency of $184, 530.39 (i.e. the later trust account recording of an earlier bank receipt), and without conceding that the circumstances did not technically require notification, the Legal Services Commissioner did not press for a finding of guilt in relation to Charge 7[86]. We agree that the further evidence presented at the hearing does not support that charge.

1. It appears that Brereton acted as legal practitioner in Australia for Westminster Finance Limited, a company apparently conducting business in the United Kingdom. We were not provided with details of the exact nature of Westminster Finance's business, or Brereton's work for it. One of the trust account ledgers for Westminster Finance for a time referred to the matter transaction as 'Various Matters' and for a time as 'Various Matters re CDS debt collection, ATO, Jolson, Patsy Cline'[87]
2. It appears that Brereton also acted for an Indonesian company PT Indoexchange Dotcom TBK ("Indoexchange") that purportedly borrowed $8.1m from Westminster Finance for a tourism start-up business known as the 'Asia Witness Project'. Indoexchange subsequently confirmed that Michael Brereton & Co had a 20% revenue sharing arrangement in this[88].
3. Despite the notoriety of these matters, as apparently having some nexus with the ACC investigation, four of the charges before us related solely to the standard of trust accounting and whether Brereton and his staff had provided sufficient information to Mr Hall and whether the accounts were capable of being properly audited. The other two charges allege a misappropriation of $50,000.
4. The Legal Services Commissioner's evidence in relation to Westminster Finance and Indoexchange was solely through Mr Hall, and the documents arising from his investigation. Mr Brereton's counsel called no formal evidence on any of these charges.

1. Charge 8 (Westminster Finance) and Charge 12 (Indoexchange) are similar, and rely in part on overlapping evidence given that the Indoexchange transaction involved a loan from Westminster Finance. It is therefore convenient to deal with them together. The two charges are as follows:

The conduct referred to in paragraphs 30 to 43 [of the Notice of Charges] constitutes misconduct within the meaning of paragraph (a)(i) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice, between 13 September 2004 and 23 March 2005 you engaged in a course of conduct by which you wilfully or recklessly contravened section 194(1) of the Legal Practice Act 1996 by failing to produce to Mr Ronald Hall for the purpose of inspection and copying, accounting and other records of your legal practice and other documents reasonably requested by him that relate to the client Westminster Finance Limited.

The conduct referred to in paragraphs 61 to 74 [of the Notice of Charges] constitutes misconduct within the meaning of paragraph (a)(i) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice, between 2 August 2004 and 23 March 2005 you engaged in a course of conduct by which you wilfully or recklessly contravened section 194(1) of the Legal Practice Act 1996 by failing to produce to Mr Ronald Hall for the purpose of inspection and copying, accounting and other records of your legal practice and other documents reasonably requested by him that relate to the client Indoexchange Limited.

1. Charges 8 and 12 refer to s 194(1) of the Legal Practice Act 1996. The relevant part of that section provides as follows:

194(1) For the purpose of an investigation under this Division, a legal practitioner, a firm or an approved clerk must -

(a) produce for inspection or copying by the inspector any accounting or other records relating to the practice of the practitioner or firm or the business of the approved clerk; and

(b) give the inspector any other information he or she reasonably requires.

1. It can be deduced from this provision that the inspector has a wide power to obtain documents and information, but this power must relate reasonably to the purpose of the investigation - in this case, the audit of Brereton's trust accounts for the clients Westminster Finance and Indoexchange.
2. Hall's witness statement and attachments, and his oral testimony, attest to a number of visits to Brereton's office and correspondence seeking information or the production of documents[89]. Attempts to meet with Brereton in person were often cancelled or rescheduled at short notice, although his office staff were generally quite good at responding and provided much of the material requested - albeit not in Hall's view complete or in a form that he found easy to review. The evidence reveals an increasing level of frustration on both sides with Brereton, in March 2005, retaining independent lawyers (Charlesworth Josem) to act on his behalf. Communications cease shortly thereafter.
3. Mr Murley focussed his cross-examination on the assistance that had been provided by Brereton's staff and the material that had been provided in the initial and middle phases of the investigation and correspondence. This however fails to deal with the substance of the charges. If there are reasonable requests for information still outstanding, then the charges are made out despite other material perhaps having been provided along the way.
4. In relation to Westminster Finance:
   • Hall's letter of 13 September 2004[90] details four matters for which confirmation was sought from an authorised person at Westminster Finance. These related to four payments made by Westminster Finance into Brereton's trust account, two payments from the trust account to Westminster Finance, the ultimate recipients of these two payments and their identity, and whether Westminster had deposited the $8.1m loan to Indoexchange into a security account;
   • A fax dated 28 September 2004[91] purporting to be from Westminster Finance to Mr Hall asserts that many of the queries relate to proprietary information, but adds:

We can however confirm to the extent that Michael Brereton & Co acted for this company in relation to this transaction, and in relation to the dealings of Michael Brereton & Co through its trust account, these were either undertaken with the written consent of this company or expressly authorised.

• We say that the fax 'purports' to be from Westminster Finance because it is simply signed 'Westminster Finance' without any personal signatory or named contact person. Mr Hall's investigation revealed that the company does not appear to operate from the London premises shown on the letterhead, and the fax and phone number are redundant;
• Hall was sceptical as to the validity of the Westminster finance fax, and therefore requested all of Brereton's matter files for that client, and further evidence of the authorisations of that client. A further contact email was provided to Mr Hall, but he never received a reply to his attempts to contact Westminster Finance via that email address. The reply from Brereton's office was to the effect that it had an obligation to uphold its client's privacy in accordance with its wishes, and was not responsible if the client chose not to make contact with Mr Hall[92].

1. We are not convinced that there was a clear or 'reasonable' need for Mr Hall to continue to seek information about the payment of the $8.1 million for the purpose of his investigation. It was not made clear to us by the Legal Services Commissioner why this information was critical or relevant to the trust account audit. It was not a transaction passing through Brereton's trust account, but on its face a loan from a UK financier to an Indonesian company via a security account in the UK. If there is doubt about the legitimacy of the transaction, or the fax, that is perhaps a matter for others to pursue.
2. We are also not convinced that there was a clear or 'reasonable' need for Mr Hall to continue to seek information about the identity of the ultimate recipients of the payments from the trust account to Westminster Finance for the purpose of his investigation. If trust monies are returned to the client on whose behalf they are held, that is commonly a sufficient explanation. It was not made clear to us by the Legal Services Commissioner why this further information (i.e. where the money went once remitted to the client) was relevant to the trust account audit.
3. Mr Murley argued that Mr Hall's investigation of Westminster Finance had altered after his contact with the Australian Crime Commission, and that he had become susceptible to outside influence in the extent of his investigation and was attempting to flush out more information than required for his investigation. Mr Hall was cross-examined on this assertion. Whilst we considered Mr Hall to be a generally credible witness and we would not describe Mr Hall's conduct as over-zealous, given the very nature of an audit process, it was apparent to us that he had allowed his frustration arising from the investigation to affect his judgement on the extent or relevance of some of the information he sought, or continued to seek.
4. We are nonetheless satisfied that, at the time communications ceased between Mr Hall and Brereton's office and/or his retained lawyers, there were still reasonable outstanding requests for information. Mr Hall was entitled to be sceptical about the Westminster Finance fax, and Brereton could not hide behind client confidentiality - at least insofar as the continuing request related to the audit of the specific payments to and from the trust account. Mr Hall was entitled to call for the matter files and to seek a clear authorisation in relation to these matters.
5. One of the last letters from Brereton's office was to the effect that all files relating to the Westminster transactions had been made available and "there is nothing else in this office other than everything you have previously been provided with"[93].We find this difficult to believe, and prefer the evidence of Mr Hall on this issue - that there ought to have been more file material relevant to the transactions in question. However, the absence of an adequate response may be indicative of poor record keeping in Brereton's office, rather than a complete failure to comply with Mr Hall's requests. The Legal Services Commissioner has failed to establish to our satisfaction that Brereton was acting wilfully or recklessly in his failure to produce any remaining information[94] and, as we have indicated, Mr Hall's request for some additional information not relevant to the investigation has perhaps contributed to the stalemate that arose. We therefore find that the conduct in question supports only a lesser finding of 'unsatisfactory conduct' in relation to Charge 8.
6. In relation to Indoexchange:
   • there is a similar chain of correspondence, and Mr Hall again considered it necessary to go beyond what was available to him from the files provided by Brereton's office, and to seek to confirm the authorisations directly with the overseas client. In this instance, he makes contact with the President/Commissioner of Indoexchange (a Mr Walter Kaminski). Mr Kaminski provided some information in a letter of 19 October 2004[95]. He confirmed that he had reviewed the trust account ledger provided, and that the payments by Brereton were made on his company's instructions and that the fees and disbursements are approved;
   • Mr Hall sought further confirmation on two occasions that Indoexchange actually received the $8.1 million loan from Westminster Finance. Mr Kaminski indicated that he cannot confirm this, as Westminster maintained the security account within its own banking jurisdiction;
   • Mr Hall also sought four documents relating to the transaction - a deposit deed, and directions to pay the $8.1 million. Mr Kaminski responded that the project did not proceed and was sold, with all documents passing to the purchaser[96]. He provided contact details relating to the purchaser but there is no evidence that Mr Hall pursued this further.
7. Mr Hall also continued to seek this information from Brereton[97] without success. However, at the time communications ceased between Mr Hall and Brereton's office and/or his retained lawyers, this appears to be the only material outstanding information relating to Indoexchange. For the reasons outlined above, we are not convinced that there was a clear or 'reasonable' need for Mr Hall to continue to seek information about the payment of the $8.1 million for the limited purpose of his investigation, and it was not made clear to why this information (as an overseas transaction not passing through Brereton's trust account) was of continuing relevance to the trust account audit. Mr Hall was entitled to be sceptical about the $8.1 million, and we agree with him that it almost defies belief that a company president of a start-up business cannot confirm whether it received an $8.1 million loan or not. Again, however, if there is doubt about the legitimacy of the transaction in the context of other Australian law, that is a matter for others to pursue. We do not believe the information was reasonably required for Mr Hall to complete his investigation and, for this reason, we do not believe there is sufficient evidence to support Charge 12.

1. Charge 9 (Westminster Finance) and Charge 13 (Indoexchange) are also similar and convenient to deal with together. The two charges are as follows:

Further, the conduct described in paragraphs 30 to 34 and 44 to 49 [of the Notice of Charges] constitutes misconduct within the meaning of paragraph (a)(i) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice, between 30 October 1998 and 13 March 2003 you engaged in a course of conduct by which you wilfully or recklessly contravened section 182(2) of the Legal Practice Act 1996 by failing to keep your trust account records in relation to the client Westminster Finance Limited in a manner which adequately explains each transaction involving trust money and/or in a manner that enables your trust account records in relation to the client Westminster Finance Limited to be conveniently and properly audited.

Further, the conduct described in paragraphs 60 to 65 and 75 to 77 [of the Notice of Charges] constitutes misconduct within the meaning of paragraph (a)(i) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice, between 26 February 2001 and 31 March 2004 you engaged in a course of conduct by which you wilfully or recklessly contravened section 182(2) of the Legal Practice Act 1996 by failing to keep your trust account records in relation to the client Indoexchange Limited in a manner that adequately explains each transaction involving trust money and/or in a manner that enables your trust account records in relation to the client Indoexchange Limited to be conveniently and properly audited.

1. Charges 9 and 13 refer to s 182(2) of the Legal Practice Act 1996. The relevant parts of s 182 provide as follows:

182(1) An approved clerk or a legal practitioner or firm that is authorised to receive trust money must keep accurate records in accordance with sub-section (2) of all trust money received by them.

(d) adequately explain each transaction involving trust money; and

(i) in accordance with the practice rules that apply to the practitioner, firm or clerk; and

(ii) in a manner that enables them to be conveniently and properly audited.

1. Mr Hall is an experienced accountant and auditor of legal practices and his evidence can be treated as being of an 'expert' nature on such matters. His evidence that the trust account records for Westminster Finance and Indoexchange did not adequately explain the transactions and could not be conveniently and properly audited was not challenged by Brereton's counsel nor was any contrary evidence led as to the sufficiency of the accounts from an audit perspective. This, in itself, supports an adverse finding on these charges.
2. In relation to Westminster Finance:
   • The pleadings in support of the charge refer to eight specific transactions[98], although these are referred to 'inter alia' and the charge refers also to the broader conduct referred to in the preceding specified paragraphs;
   • We consider that Brereton's conduct in merging several purported Westminster Finance matters in a broader trust ledger marked as 'Various Matters re CDS debt collection, ATO, Jolson, Patsy Cline' (including what appears to be client transactions, tax matters, and some business matters in which Brereton himself has an interest) to comprise a failure to maintain the records in a manner that allows for a proper audit;
   • In terms of providing an 'adequate explanation', it is sufficient in our view for the trust ledger itself to contain a very brief statement of purpose (particularly as these now exist in electronic form), provided the underlying documents adequately explain the transaction[99].
   • We are not satisfied, in the absence of other material, that the transactions recorded as 'payment of tax $88,000', 'commission $35,000', 'Omni Finance-limited payment of purchase $807,287.64', 'Office Account on Acc costs $100,000' (without a bill of costs), or 'withholding tax $100,000' provide an adequate explanation of their purpose or enable the accounts to be conveniently and properly audited. Even for the purported tax payments, there is no explanation as for whom the tax was payable;
   • Although Mr Hall placed some emphasis on it, we are not concerned with the fact that on 22 January 1999, Brereton appears to have made a tax payment of $88,000 from his office account, which was then 'reimbursed' from the trust account. Whilst a client's tax would ordinarily be paid directly by trust cheque, little turns on this departure from common practice for the purpose of this charge.
   • We are also not concerned (at least not to a significant degree) with the payments from the trust account to Westminster Finance itself. There are bank transfer records evidencing the transfer of these funds to the client in the UK. Ordinarily, a remittance of trust funds held for a client to that client would not require a detailed explanation (unless, for example, held in a stakeholder capacity), although a file note or other evidence of the direction or authorisation would be prudent.
3. In relation to Indoexchange, again the pleadings in support of the charge refer to seven specific transactions[100], such as 'transfer to Westminster Finance $1,317,233.42', 'Westminster Finance - return of overdrawn funds $89,891.10' and 'Westminster withholding tax' - both a $49,994 receipt and a $34,000 payment. These brief references might be sufficient in the trust account ledger if other material existed in supporting documents as an explanation. We are not satisfied, in the absence of other material, that any of these transactions provide an adequate explanation or enable the accounts to be conveniently and properly audited.
4. We believe Mr Brereton well knew, or ought to have known, his important responsibilities in relation to the proper maintenance of his trust account records. In her written submission, Ms Judd referred us generally to Law Society of NSW v Moulton[101]. There, the court had stated that it is no defence to a charge of professional misconduct in relation to transactions with a client's money that a solicitor did not appreciate that what he was doing constituted misconduct[102]. We do not believe it is sufficient for Brereton to argue his trust account had been audited annually by his firm's auditor without any adverse report. These specific transactions may not have been specifically audited within that process.
5. Although it is difficult on the evidence to make a finding of wilful conduct in the absence of evidence from Brereton or representatives of his clients (although open to us by inference), we are satisfied that his conduct in relation to his trust record keeping for Westminster Finance and Indoexchange was, at the very least, reckless. We note again that Brereton's counsel led no evidence against these charges. As such, we believe there is sufficient evidence to support a finding of misconduct in relation to both Charges 9 and 13.

1. The remaining two charges in relation to Westminster Finance relate to a specific transaction, and are as follows:

The conduct referred to in paragraphs 30 to 34 and 50 to 60 [of the Notice of Charges] constitutes misconduct within the meaning of paragraph (a)(i) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice, on or about 13 March 2003 as a legal practitioner you engaged in a course of conduct by which you wilfully or recklessly contravened section 174(3) of the Legal Practice Act 1996 by withdrawing trust money otherwise than in accordance with section 174(3).

Further, the conduct described in paragraphs 30 to 34 and 50 to 60 [of the Notice of Charges] constitutes misconduct at common law within the meaning of paragraph (a) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice, on or about 13 March 2003 as a legal practitioner you debited the trust ledger for the client Westminster Finance Limited in the sum of $50,000 and transferred it to your office account, thereby misappropriating that sum to your own use and benefit.

1. Charge 10 refers to s 174(3) of the Legal Practice Act 1996. We have set out the relevant part of that section in relation to Charge 4.
2. The evidence in relation to these charges was essentially as follows:
   • On 13 March 2003, Brereton transferred $50,000 from the trust account for his client Westminster Finance to his office account. Ostensibly, this accorded with a bill of costs indicating it was a disbursement incurred on the client's behalf for withholding tax[103]. An office account cheque was drawn, payable to the Deputy Commissioner of Taxation, for $50,000[104].
   • The cheque was unsigned and still remained unpresented when it was discovered by Mr Hall at his inspection in February 2004. In his witness statement, Mr Hall indicates Brereton's staff offered no explanation, although the handwritten note accompanying the cheque indicates it was 'given to MB 13/3/03 at 4:43pm - await assessment'[105]. Mr Hall's witness statement indicates Brereton later told him he was still awaiting the tax assessment[106] .
   • Mr Hall advised Brereton that he should not withdraw trust funds prior to receiving the assessment, and to return the money to trust immediately. Brereton did this on 17 February 2004[107], but it appears he re-transferred the $50,000 to his office account on 19 February 2004 via three journal entries, ostensibly for costs of $40,000, $6,044 and $3956[108].
3. The charges only relate to the initial transfer of $50,000 to Brereton's office account on 13 March 2003, and Mr Murley argued that we should draw no adverse inference from the later re-transfer following the return of money to trust. Mr Murley suggested the initial recorded transfer and repayment at Mr Hall's request did not evince an intention to misappropriate the $50,000. He further relied upon the Westminster Finance fax purportedly ratifying all transactions on its trust account[109], although we share Mr Hall's scepticism with this fax.
4. We do not believe that Mr Murley's submission at all excuses the conduct in this instance. Even assuming that the tax payment was legitimate, we agree with Mr Hall that Brereton should not have transferred trust money to his office account for the payment without having first received the tax assessment, and the tax liability would ordinarily be paid directly by trust cheque. The conduct does not disclose any short-term oversight - the office cheque remained unsigned and unpresented for nearly a year until discovered by Mr Hall and Brereton had the benefit of these funds for this period.
5. We are satisfied that the evidence discloses a breach of s 174(3) of the Legal Practice Act 1996 through the withdrawal of trust money other than in accordance with the client's direction. Even allowing for the purported subsequent ratification in the Westminster fax (about which we remain sceptical), the client could not have given a proper direction to pay trust money in respect of a tax liability without a tax assessment. Moreover, Brereton could not have issued a legitimate bill of costs indicating that a disbursement for withholding tax had been 'incurred' when it had not. We are satisfied that Brereton's conduct in this regard was both wilful and reckless.
6. We are also satisfied that, in the circumstances, we are entitled to draw the inference that Brereton by his conduct misappropriated the $50,000 to his own use and benefit through his office account. A practitioner has an obligation not to deal with trust monies as his property unless or until they are properly paid out of the trust account[110]. The repayment to the trust account when discovered by Mr Hall is an implicit acknowledgment that the money was not properly paid to him. There is no evidence provided to us of any $50,000 tax liability ever arising that might in some way negate the inference that the money had been misappropriated by Brereton for his own use.
7. We are satisfied on the material before us that both Charges 10 and 11 are made out to the requisite standard of proof. In our view, these matters are serious and clearly amount to misconduct.

1. Charges 14 to 19 comprise three pairs of similar charges, each relating to Mr Brereton purportedly borrowing money from a client other than in accordance with the relevant practice rules, and in a manner that created a conflict between his interests and those of the client.

1. The specific charges in relation to the Gudinski transaction are as follows:

The conduct referred to in paragraphs 78 to 83 [of the Notice of Charges] constitutes misconduct within the meaning of paragraph (a)(i) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice on or about 11 January 2002 as a legal practitioner you wilfully or recklessly contravened Rule 8(1)(a) of the Professional Conduct and Practice Rules 2000 by directly or indirectly borrowing the sum of $200,000 from one or other of your clients being Michael Gudinski or Michael Gudinski Promotions Pty Ltd.

Further, the conduct referred to in paragraphs 78 to 83 [of the Notice of Charges] constitutes misconduct at common law within the meaning of paragraph (a) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice, on or about 11 January 2002 as a legal practitioner you directly or indirectly borrowed money from one or other of your clients being Michael Gudinski or Michael Gudinski Promotions Pty Ltd., thereby creating a conflict between your personal interests and the interests of a client.

1. Charge 14 refers to Rule 8(1)(a) of the Professional Conduct and Practice Rules 2000. The relevant part of that rule provides as follows:

(a) directly or indirectly borrow money or receive finance from a client;

1. Rule 8(1) is subject to exceptions set out in the rule, such as where the client is a bank. There is also an exception where the client is:

an associate of the regulated practitioner and the regulated practitioner is able to discharge the onus of proving that a full written disclosure was made to the client and that the client's interests were fully protected in the circumstances, whether by legal representation or otherwise[111]

Ms Judd alerted us to this exception only as a 'possible' exception, although she did not refer us to any definition or authority for what might be considered an 'associate' of the practitioner for this purpose. In any event, Brereton does not seek to avail himself of this exception[112], arguing instead that the transaction was not in fact borrowing from a client.

1. The factual evidence against Mr Brereton on these two charges was relatively clear:
   • Mr Gudinski gave evidence that he was a client of Brereton. In January 2002, he loaned Brereton $200,000 to assist with Brereton's cash-flow problems. He was not advised by Brereton to seek independent advice, indicating that it was done as a short term loan by way of a gentleman's agreement[113];
   • The $200,000 is entered in the trust ledger and office account as 'loan from Gudinski'[114]. A hand written note also appears on Brereton's file showing how the repayment was calculated[115], with this amount corresponding with the 'final loan agreement and payout' also noted in the ledger;
   • Under cross-examination, Mr Gudinski maintained that the $200,000 "was completely and always a loan". He denied it was related to a share transaction in an entity known as Tox Free Solutions, explaining essentially that he had accepted a transfer of shares as security for the loan and was not affected by any change in the share price[116]. The shares were re-transferred when the loan was finally repaid.
2. Faced with this clear evidence, Mr Murley did not seek to seriously defend these charges in his final submissions, contending instead that no detriment had been suffered by Mr Gudinski.
3. Insofar as the charges allege the creation of a conflict of interest, Ms Judd referred us to a number of authorities, including Law Society of NSW v Moulton[117] and Zaitman v Law Institute of Victoria[118]. A practitioner stands in a fiduciary relationship to his or her client. Where a conflict may arise through a loan transaction, it should be clearly established that the client has made 'informed consent' - either through obtaining independent advice, or full and proper written disclosure of the terms. Indeed, the greater the trust of the client in the lawyer, the greater the need for independent advice[119], and the fact that the client may ultimately suffer no loss is irrelevant[120]. If the acts constitute misconduct, they do so at the time they occur.
4. Despite the overwhelming factual evidence as to the background facts, the Legal Services Commissioner offered no specific argument that the conduct by Brereton in borrowing from Mr Gudinski was wilful or reckless (for the purpose of Charge 14) or disgraceful or dishonourable (to amount to misconduct at common law, for the purpose of Charge 15). Whilst Brereton did not advise Mr Gudinski to seek independent advice, nor is there any record of written disclosure, Mr Gudinski is an experienced businessperson. We did not perceive from his evidence that he was ever under any illusion as to the nature and terms of the loan, or that he had not given informed consent to the transaction. Although Brereton's conduct in borrowing from his client in the manner described falls still short of the proper standards for a legal practitioner, we find on the evidence that it does not amount to 'misconduct' but is instead 'unsatisfactory conduct'.

1. The specific charges in relation to the Zinn Records transactions are as follows:

The conduct referred to in paragraphs 84 to 87 [of the Notice of Charges] constitutes misconduct within the meaning of paragraph (a)(i) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice on or about 21 January 2004 as a legal practitioner you wilfully or recklessly contravened Rule 11.1.1 of the Professional Conduct and Practice Rules 2003 by directly or indirectly borrowing the sum of $40,000 from your client Zinn Records Pty Ltd.

Further, the conduct referred to in paragraphs 84 to 87 [of the Notice of Charges] constitutes misconduct at common law within the meaning of paragraph (a) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice, on or about 21 January 2004 as a legal practitioner you directly or indirectly borrowed the sum of $40,000 from your client Zinn Records Pty Ltd, thereby creating a conflict between your personal interests and the interests of a client.

The conduct referred to in paragraphs 88 to 91 [of the Notice of Charges] constitutes misconduct within the meaning of paragraph (a)(i) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice on or about 27 January 2004 as a legal practitioner you wilfully or recklessly contravened Rule 11.1.1 of the Professional Conduct and Practice Rules 2003 by directly or indirectly borrowing the sum of $15,000 from your client Zinn Records Pty Ltd.

Further, the conduct referred to in paragraphs 88 to 91 [of the Notice of Charges] constitutes misconduct at common law within the meaning of paragraph (a) of the definition of misconduct in section 137 of the Legal Practice Act 1996 in that, in the course of engaging in legal practice, on or about 27 January 2004 as a legal practitioner you directly or indirectly borrowed the sum of $15,000 from your client Zinn Records Pty Ltd, thereby creating a conflict between your personal interests and the interests of a client.

1. It can be seen that these four charges are identical in nature to the Gudinski charges, save that they relate to two purported loans in January 2004 from a separate client Zinn Records. A similar rule to Rule 8(1) of the 2000 Rules appears in Rule 11 of the Professional Conduct and Practice Rules 2003[121] in force at the time of the Zinn Records transaction. The evidence in relation to these four charges is however quite different, and leads to a quite different outcome.
2. The evidence by the Legal Services Commissioner was that:
   • The two payments of $40,000 and $15,000 were transferred from the trust account for Zinn Records Pty Ltd as 'loan monies to MB & Co.'[122]. In submissions, and in the cross-examination of Keith Ridgway (a director of Zinn Records called by Brereton), Ms Judd sought to differentiate this trust ledger description from others where Brereton had been reimbursed for expenses or start-up costs previously provided by him to Zinn Records;
   • An internal email had described the $40,000 as a loan[123];
   • The directors of Zinn Records (Keith Ridgway and Pete Dacy) had acknowledged the 'advances to or at the direction of' Brereton[124].
3. The internal email referred to above is in our view equivocal. It is part of a chain of internal emails by Brereton's office staff. The emails query whether the $40,000 transfer is from trust, whether it is a loan or whether it requires a bill to be generated, and culminates in an email from a staff member:

I would probably put it down as a loan Suz. Michael didn't say exactly but maybe we can do the fax and then ask him how he want us to allocate it.

1. Such guesswork by largely unsupervised staff is unacceptable, and Brereton's conduct cannot be excused on such a basis alone. As the holder of the sole practising certificate within the firm of Michael Brereton & Co, he of course remains responsible for the proper management of his trust account. Equally, it is difficult to characterise the transaction as a 'loan' solely because of this email and the subsequent trust account entry based on this email.
2. As indicated, Brereton provided a witness statement from Keith Ridgway, and he was called as a witness. It is fair to reflect that we found Mr Ridgway's oral testimony to be at times evasive and self-serving[125]. However, his evidence was subject to vigorous cross-examination and, insofar as we accept it, was to the effect that:
   • Brereton had assisted with the start-up of Zinn Records, but had not wanted to become a formal partner in the business due to a matrimonial dispute at the time. Brereton had advanced significant funds to Zinn Records;
   • The nature of the business (and the music industry generally) was that Zinn Records was involved in speculative ventures finding and promoting new artists, such that the business was never fully established. Success with one act or artist didn't mean that the costs of the next act would be covered, and there were a variety of costs payable to artists, record companies, and for video clips and the like. Brereton often paid up-front expenses and claimed reimbursement as and when funds were available;
   • The $40,000 and $15,000 payments were not 'loans' from Zinn Records to Brereton, but reimbursement of prior advances by Brereton. Despite repeated cross-examination, including an assertion that he was lying under oath, Mr Ridgway remained resolutely of this view. In Mr Ridgway's view, Zinn Records still owed money to Brereton rather than the reverse.
3. The trust account ledger for Zinn Records records many transactions relating to items such as studio hire, dance lessons, video shoots, mastering tracks for a CD single etc. Brereton's mixing of his business interests and his role as a lawyer, including in particular the mixing of business transactions through his law firm accounts, is in our view quite inappropriate and has made the trust account extremely difficult to audit.
4. However, the four specific charges allege a borrowing by Brereton from his client. Given the equivocal nature of the entry of the two payments as a 'loan' in the trust ledger, and given the clear evidence of Mr Ridgway (a director of Zinn Records) to the contrary, we are not sufficiently persuaded that the two payments were borrowings by Mr Brereton from his client Zinn Records. It follows that none of these four charges are made out.

1. Based on the findings of guilt in relation to 12 of the 19 charges, it is necessary to consider the matter of penalty. Without in any way pre-judging the matter of penalty, it will be apparent that our findings reflect a range of seriousness in the misconduct or unsatisfactory conduct found by us to have occurred.
2. The Tribunal will therefore resume the hearing to consider submissions on penalty and any other orders arising from our findings. This will occur on the dates already tentatively scheduled for such purpose, in accordance with our orders. The parties should note that our findings are not open for further debate at the resumed hearing.

[1] A certificate to this effect was tendered by the Commissioner (Attachment to Exhibit A-1)

[2] These matters are canvassed in the order and detailed reasons of DP Dwyer following a directions hearing on 2 July 2008, reported at [2008] VCAT 1341. Apart from the matters dealt with there, the Tribunal remains largely ignorant of the nature of any ACC investigation. The directions hearing decision also refers to a letter dated 2 July 2008 from the ACC to Mr Brereton's lawyers indicating "... the matters raised by the LSC as the subject of those charges are not matters the ACC are involved in investigating."

[3] A chronology appended to Mr Hall's witness statement included a reference to a 'copy of notes' passing from the ACC to Mr Hall on 5 July 2004 're ownership of Westminster Finance Ltd'. Mr Hall's investigation report also indicates that there has been some 'speculation' that Brereton may be the owner or have an interest in Westminster Finance. Mr Hall was cross-examined on his involvement (if any) with the ACC investigation. Neither party ultimately raised or relied upon the ownership of Westminster Finance as a relevant or determinative issue in this proceeding. The Tribunal was not called upon to consider the ownership of this entity and remains ignorant of such ownership.

[4] The decision and reasons are reported at [2008] VCAT 1341

[5] The Tribunal has been notified by the Supreme Court of the order of Justice Hansen dated 11 July 2008 in proceeding No 7107 of 2008, dismissing the respondent's application to that court.

[6] In particular, those set out in s 97-98 of the Victorian Civil and Administrative Tribunal Act 1998.

[7] Mr Murley did not oppose this. As it transpired, Mr Gudinski appeared by mobile telephone whilst at a Billy Joel concert at a stadium in New York, with significant background noise and the phone line dropping-out on several occasions. Whilst the Tribunal is commonly willing to facilitate less formal means of receiving evidence in the interests of the efficient administration of justice, the Tribunal regards the Legal Services Commissioner's arrangements for Mr Gudinski's evidence to be unsatisfactory.

[8] The Tribunal has not had regard to the three witness statements withdrawn, and they no longer form part of the formal Tribunal record. Ms Judd's consent to the withdrawal of the respondent's witness material was conditional upon it not prejudicing her submissions on the inferences that might be drawn from the respondent's failure to call witnesses generally

[9] Ms Judd had opposed the introduction of additional oral testimony beyond the matters canvassed in the amended witness statement. Despite this, the Tribunal considered the additional evidence was likely to be of relevance. As a matter of procedural fairness, the Tribunal indicated it would acceded to Ms Judd's request for an adjournment whilst the additional evidence was committed to writing, and to enable her to prepare any additional cross-examination, although she subsequently withdrew that request.

[10] The Tribunal notes that, in Fletcher v The Salvation Army Australia [2005] VCAT 1523, Justice Morris P had stated that "... it has been widely recognised that the principle of public justice does not extend to providing unlimited public access to documents filed with a court or tribunal". See also on this issue, and the power to make a direction or order under s146(4): Herald & Weekly Times Pty Ltd v VCAT [2006] VSCA 7

[11] The investigator called on behalf of the Legal Services Commissioner

[14] [1938] HCA 34; (1938) 60 CLR 336, at p 361-3 per Dixon J

[15] Following Hannebery v Legal Ombudsman [1998] VSCA 142, at para [22] per Tadgell JA, with whom Phillips & Chernov JJA concurred

[16] Following Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 67 ALJR 170, at p 170-1 per Mason CJ, Brennan, Deane & Gaudron JJ

[17] (1962) 62 SR(NSW) 340 at p356 per Hardie J.

[19] Ms Judd referred us to Woods v Legal Ombudsman [2004] VSCA 247, where the Court of Appeal had endorsed the application of the rule in Jones v Dunkel in a Legal Profession Tribunal. The Tribunal is also aware of the decision in Golem v Transport Accident Commission [No2] where Judge Bowman VP indicated he could see no reason why the rule would not apply in a matter contested in an adversarial manner before the tribunal.

[20] Having regard to the ACC letter of 2 July 2008, referred to at footnote 2. DP Dwyer also discussed the issue of possible self-incrimination in his reasons refusing the adjournment, referred to earlier and reported at [2008] VCAT 1341

[22] [1940] AC 282, 288-9. This test derives from earlier cases such as Re a Solicitor [1912] 1 KB 302, and has been applied in many subsequent cases including, in Victoria, in Re a Solicitor [1960] VicRp 96; [1960] VR 617, 620.

[23] Following, amongst others, Zaitman v Law Institute of Victoria (unreported, VSC, 9 December 1994), and The Victorian Bar Inc. v Perkins [No6] [2006] VCAT 1226

[24] Also following, amongst others, Zaitman and Perkins, as well as The Victorian Bar Inc v Molyneux [2006] VCAT 1417

[25] i.e. as a fallback to what might, at a more serious level, constitute misconduct at common law.

[26] Pursuant to s 151(2) of the Legal Practice Act 1996. Mr Hall's investigation report and matter summaries were also appended to the Notice of Charges, together with a chronology.

[27] We will refer to these documents by their relevant 'Tab' number in the balance of our decision.

[28] Adopting the phrase used in the context of possible solicitor-client conflict in Law Society of NSW v Moulton [1981] 2 NSWLR 736, at p740 per Hope JA

[29] Transcript p239. Mr Crew was called by the Legal Services Commissioner primarily on other issues, but was cross-examined by Mr Murley on the level of mistakes in Mr Brereton's accounts over 10 to 15 years. Mr Crew readily conceded that, 'transaction-wise', Mr Brereton's firm was a 'big' firm compared to the other firms he audited.

[30] Attachment to Hall witness statement, Tab 68

[31] The trust ledger for the Collendina project, albeit in the name of GDK, also shows within the first few entries a small number of office account disbursements for the incorporation of a company, which accords with the timing of the incorporation of Seachange Management Pty Ltd.

[32] Company searches appear in the attachments to Hall witness statement, at Tab 72 and following.

[33] Exhibits A-6 and A-7. Only one copy bears the date 16 February 2000.

[34] The other $50,000 is not deposited into Brereton's office account until 31 March 2000, although no explanation is given.

[35] It appears that the purchaser was a company owned and controlled by interests associated with GDK.

[36] Attachment to Hall witness statement, Tab 71

[38] It might be reasonably assumed that the deposit was intended to fund the purchase of the land and the initial stage of development. Subsequent stages were to be funded with the proceeds of earlier stages or by borrowing via a vendor's mortgage - see also the 'Information Report' at Tab 69.

[39] Attachment to Hall witness statement, Tab 70

[40] see also the 'Information Report' available to investors, at Tab 69

[41] This figure comes from Mr Hall's summary at Tab 88

[42] A letter from Brereton to Alderuccio on 24 My 2000 suggests that the settlement was cancelled on that day due to the non-release of deposit under the second contract, which did not occur until the following day - see correspondence in attachment to Hall witness statement, Tab 89, and also witness statement of Bruno Alderuccio

[44] There were also broad references to civil litigation or claims arising out of the Collendina project, but no detail as to whether this had established the role and responsibility of various parties in that transaction, or whether the material was in some way privileged.

[45] A copy of the rules in force at the relevant time was tendered as part of Exhibit A4. It is titled Trust Account Practice Rules, and had been published in conjunction with the Professional Conduct and Practice Rules 2000 by the Victorian Lawyers RPA Ltd

[46] See also Hall's witness statement at [161]-[165]

[47] Respondent's submissions at [10]-[11]

[48] Generally following Law Society of NSW v Moulton [1981] 2 NSWLR 736 at p740.

[49] Attachment to Hall's witness statement, Tab 70. Although not named in the structure chart, we have assumed for the purpose of this charge that Greg Watts was also an investor, perhaps under a company name.

[52] The whole contract of sale is an attachment to Hall's witness statement, Tab 71

[54] McKewen v Theologidis [2004] VSC 244 at [17]- [18]

[55] The chain of faxes and correspondence is in the attachments to Hall's witness statement, Tab 89. Some of this material is also attached to the witness statement of Bruno Alderuccio

[56] At para [24] of the Notice of Charges, and paras [152]-[153] of Hall's witness statement

[57] This includes seeking confirmation that Lewis had paid the deposit of $6,274,000 (a matter he also enquired of Brereton) which leads us to believe that Alderuccio was retained only for the conveyancing transaction and was largely unaware of the commercial arrangements for Seachange Village Nominees Pty Ltd.

[58] Witness statement of Bruno Alderuccio

[59] Respondent's submissions at para [13]

[60] Under s 27 of the Sale of Land Act 1962, a purchaser is deemed to have authorised release of the deposit if no objection is made within 28 days.

[61] These are detailed in para 24 of the Notice of Charges, and the transactions are recorded in the trust ledger for the Collendina project - see attachment to Hall witness statement, Tab 68

[62] The payments are detailed in para 25 of the Notice of Charges, and the transactions are recorded in the trust ledger for the Collendina project - see attachment to Hall witness statement, Tab 68

[63] Mr McLeod gave evidence that this was a transfer to Brereton, not a loan - Transcript p502-503

[64] The client reference in the ledger (Client #7100) indicates this may be related to the 'The Mews' and McLeod also gave evidence to this effect - see Transcript p504

[65] For example, Jones at Transcript p298

[66] For example, Boyd at Transcript p224

[68] The references to 'The Mews' transfers in some instances as a loan or borrowings is also suggestive that the funds may have been transferred temporarily. The Legal Services Commissioner did not trace the money trail further in its evidence to us.

[69] Respondents submissions at para [15]

[70] Mr McLeod also conceded in cross-examination that he was broadly aware of the requirement to get a signed release for the deposit - see Transcript 516-517

[72] See for example Transcript p500-501

[73] Transcript p504. As we have indicated earlier, some of the Collendina investors (eg. Embridge Trial Pty Ltd, Bronak Pty Ltd, Oceaill Pty Ltd, and De Simone) were also part of a GDK syndicate in 'The Mews' project.

[79] Although a breach of s 188(1) of the Legal Practice Act 1996 constitutes an indictable offence, the Legal Services Commissioner can still bring a disciplinary charge for 'misconduct' under s 137 as a contravention of the Act.

[80] Attachment to Hall witness statement, Tab 68

[81] Also Tab 68. The entry appears about nine entries below the retainer withdrawal, on the same ledger page.

[83] Under the Trust Account Practice Rules, a deficiency does not arise where an auditor or inspector is satisfied it was caused solely by inadvertence and the amount is restored within two days of the discovery of the deficiency. Given that the definition of 'trust records' in the practice rules includes 'trust account bank statements', there is arguably no deficiency at all. To the extent there was still a notional deficiency in the trust ledger maintained by the lawyer, the Legal Services Commissioner did not press for any finding of guilt on this aspect of the charge, based on the bank statement tendered by Brereton's lawyers.

[84] The definition of 'deficiency' in the Trust Account Practice Rules simply refers to a 'lack of funds ...'

[85] The rule against duplicity does not apply in disciplinary proceedings in the strict way it applies in criminal proceedings, so long as the repetition does not give rise to an increase in penalty - see Woods v The Legal Ombudsman [2004] VSCA 247 at para [41] and [51], referred to in the applicant's closing submissions at paras [24] and [25].

[86] para [62] of the applicant's closing submissions.

[87] Attachments to Hall witness statement, Tabs 15 and 18. The ATO is presumably a reference to the Australian Taxation Office. We understand that 'Jolson' and 'Patsy Cline' were theatre shows in which Brereton had an interest.

[88] Attachments to Hall witness statement, Tabs 51 and 53

[89] References to particular correspondence are particularised at paras [36] and [67] of the Notice of Charges, and the letters themselves are included as attachments to Hall's witness statement, variously from Tab 34 onwards. Several of the letters deal with Hall's information requests in relation to Westminster Finance and Indoexchange in the same letter.

[90] Attachment to Hall witness statement, Tab 39

[93] Letter dated 17 February 2005, contained in attachment to Hall witness statement, Tab 50

[94] There was no allegation or evidence, for example, that Brereton or his staff had unlawfully removed or disposed of relevant documents.

[97] E.g. letter dated 23 February 2005, attachment to Hall witness statement, Tab 52

[98] Listed at paras [44] and [46] of the Notice of Charges

[99] Under the definition in the Trust Account Practice Rules, "trust records" includes files relating to trust transactions.

[100] Listed at para [75] of the Notice of Charges

[101] [1981] 2 NSWLR 736

[103] Attachment to Hall witness statement, Tab 14

[106] Hall witness statement at para [25]

[107] Attachments to Hall witness statement, Tabs 17 and 18

[109] I.e. the Westminster Finance 'fax' at Tab 40, discussed above.

[110] See for example, Re Hodgekiss (1962) 62 SR(NSW) 340 at p356, referred to in the applicant's closing submission at para [73].

[111] Rule 8(1)(vi) of the Professional Conduct and Practice Rules 2000, and Rule 11.2(vi) of the 2003 Rules. The only difference in wording is that the 2003 Rules refer to a 'practitioner' rather than a 'regulated practitioner'

[112] Given he bears the burden of discharging the onus under the exception

[113] Transcript p416, see also Gudinski's witness statement at paras [3]-[5],

[114] Attachments to Hall witness statement, Tabs 61 and 63

[115] Exhibit A-13. See also Hall witness statement at para [138]. The repayment included a write-off of fees.

[117] [1981] 2 NSWLR 736. The other authorities are noted at para [84] of the applicant's closing submissions.

[118] unreported, VSC, 9 December 1994

[121] We have not set out the text of the 2003 Rule given its similarity to the 2000 Rule and our ultimate finding that no breach of the 2003 Rule has been proven to our satisfaction.

[122] Attachments to Hall witness statement, Tabs 5, 7 and 8

[125] We found it difficult to accept, for example, that he could not attest to the signature of his business partner of many years, when this signature was called into question in one of the documents.