The plaintiff's family and personal circumstances
137 The plaintiff separated from his wife in 1983. He commenced living with Carol Franklin in 1992. He continues to live with Ms Franklin. Their circumstances are modest.
138 The plaintiff has two children, a son and a daughter, from his first marriage. The children were still dependent in 1991. Between 1991 and 1994, the plaintiff paid fees of around $9,000 to $10,000 per annum to send his son to a private boarding school. In his evidence he explained that he accepted this obligation because of problems his son was having at home. He said in his evidence:
"My wife had indicated some time earlier she couldn't handle him and when he went into high school, after speaking to Barbara Holborow, who is a Children's Court Magistrate, I came to the conclusion that I was willing to fund him in a boarding school to try to overcome the problem. That was well before I had the taxation problem."
139 Up until the end of 1996, the plaintiff made child maintenance payments of about $5000 annually for his daughter.
140 The plaintiff has not owned a house since 1990, the properties in which he had an interest being transferred to his wife as part of his divorce settlement. He has lived in rental accommodation since that time. Since before 1990, the plaintiff has driven the same 1988 model motor vehicle.
141 The plaintiff has not been prosecuted for any tax or related offence.
The process of the Bar Council
142 The plaintiff first notified the Bar Association of the fact that he had been declared bankrupt by letter dated 3 April 2001. His letter incorporated the explanatory statement required by the Act. He stated:
"On 16th October 2000 I filed a Debtor's Bankruptcy Petition at the Sydney Registry and was declared a bankrupt.
Notwithstanding the above declaration I believe that I am a fit and proper person to hold a practicing certificate in light of the history leading to my bankruptcy.
In the financial year ended June 1990 I make, what was for my then Solicitor's Practise, (sic) a particularly high profit, and was faced with a provisional tax bill that was beyond my capacity to pay at that time. My Accountant advised that I should try to delay payment until the following year, as this would even out the provisional tax payable. He further advised me that he believed the ATO would waive penalties.
I thereafter made another large profit in 1993 and my Accountant and I approached the ATO about payment by instalments and waiver or reduction of penalties. The ATO refused to either, reduce or, waive any penalties and indicated that I must pay the tax owing within approximately 6 months. To meet this demand I would have had to pay approximately two years pre-tax income to the ATO in 6 months. The demand was impossible for me to meet. I did make several payments of about $2,500 per month but was not able to sustain the payments. The ATO's demand was about $10,000.00 per month. My then income was about $40,000.00 per year before tax. I do not have full (but some) records of this history largely because my Accountant carried out most negotiations verbally. The tax owing at this time was approximately $60,000.00.
During the early 1980's I had a joint interest in 3 or 4 properties but in the mid 1980's I went through a divorce and property settlement and by 1990 my only assets were a Sole Practitioner Suburban Legal Practise (sic) and the freehold and business of a 24-place kindergarten at Seven Hills. The kindergarten had a negative net value and I was living from the income from the Practise. (sic)
During the first half of the 1990's the Federal Government introduced fee relief for childcare. Over a period this increased the value of the kindergarten and I believed that I might be able to meet my tax commitment.
I engaged another Accountant and he negotiated with the ATO to obtain some relief for me from the penalties to enable me to pay my tax. The ATO again refused any relief from penalties, which had increased my indebtedness to approximately $260,000.00, and I suffered the further setback in that the Federal Government abolished fee relief. I had placed the kindergarten on the market but had to accept a sale price of approximately one half of what I would have obtained 6 to 12 months earlier.
In 1998 I sold both my Legal Practise and the kindergarten and was admitted to the Bar. From the proceeds of sale of the kindergarten I paid out its' debts. The Legal Practise was sold on terms, as this was the only way that I could obtain a buyer.
My creditors are the Commonwealth Bank ($9,500.00) and the ATO (approximately $350,000.00). The debt to the ATO is only about $65,000.00 in tax and the balance is penalties, which run at 20% (which I believe is cumulative).
In October 2000 I attempted to enter into a Part 10 arrangement giving to my creditors the amount of the proceeds of sale of the Practise. This offer was accepted by the Commonwealth Bank but not by the ATO. The ATO presented a debtors petition against me in October 2000 and I then declared myself bankrupt.
My tax returns have been lodged reasonably in time over the years and are in order at present. The reasons for my bankruptcy are as set out above and do not had (sic) any flavour of avoiding taxation or creditors. For these reasons I do believe that I am a fit and proper person to retain a Practicing Certificate."
143 The letter was acknowledged by letter dated 5 April under the hand of J Macken, Deputy Professional Affairs Director. On 14 May 2001 the Bar Association wrote asking for further details of the plaintiff's taxation liabilities. The plaintiff responded and provided further details with his letter of 21 May 2001. The Bar Association again sought further information in its letter dated 6 June 2001.
144 By letter dated 15 June 2001 addressed to Mr Brendon A Murphy but forwarded to the plaintiff, Mr Seth, the Executive Director of the Bar wrote:
"The details of the notifiable incident have been considered and you are advised that no further action is to be taken with respect to the matters disclosed in the notification."
145 Upon receiving this letter, the plaintiff telephoned Mr Macken and the following conversation occurred:
"Plaintiff: Barry Murphy is my name, Mr Macken, I have received a letter from the Bar Association mailed to my address. I don't know if it is for me or misaddressed - it is to Brendan A Murphy.
Macken: What does it say?
Plaintiff: I then read out the text of the letter. I also received a letter of the 6th June asking me for information. One of the questions is about a failed business venture, which I don't understand. I did have a kindergarten - is that what is being referred to?
Macken: Yes. I remember a kindergarten - there was only one person with a kindergarten, so it is definitely for you. What is the file reference?
Plaintiff: I then read it to him. He said: Oh yes. I think that's right. There was a pause and he then said: The file is out. I said: What do I do about the 6 June letter?
Macken: Ignore it, but guard the other one with your life."
146 It was later discovered that the letter of 15 June 2001 had been sent in error. The error was corrected by letter dated 28 August 2001 when a response to the letter of 6 June was requested. A more formal demand for information was made by letter dated 19 September 2001 which was followed by a further letter of 25 September 2001.
147 At about this time a report entitled "Interim Report to Bar Council - 11 October 2001" was prepared. The section headed "Discussion" was in the following terms:
"On the information presently available, it appears that the barrister has failed to pay any taxation for an approximately seven year period from 1993 to 2000. During that period, whilst in respect of some years he was not required to pay any further primary tax, nevertheless from 1993 onwards his account was always in debit with the ATO. The barrister has not properly explained why he was unable to pay any tax for that seven year period. Clearly he was deriving some income in respect of some of those years because from the information that is available it is apparent that he incurred taxation liabilities in respect of some of those years.
It is the Committee's view that the barrister has had sufficient opportunity to provide a proper explanation for his failure to pay any tax for the seven year period. On the information that is available, the Committee is of the view that it is appropriate to infer that the barrister deliberately chose not to meet his taxation obligations, but rather chose to spend his earnings on other expenditure, presumably of a private nature.
In these circumstances the Committee recommends that Bar Council resolve that, after investigation, it considers that the bankruptcy arose in circumstances that shows that the barrister is not a fit and proper person to hold a practising certificate, and therefore that the barrister's current practising certificate be cancelled under section 38FE.
This draft report will be sent to Mr Murphy for any comments."
148 It is not apparent whether the relevant committee of the Bar had in fact considered the draft report although I infer this had occurred. In any event, the draft report was forwarded to the plaintiff with an invitation for him to review it and:
" … let me know if:
1. you consider it contains any errors of fact or emphasis; or
2. there are any other facts that are material to the subject matter of the interim draft report you would wish Bar Council to consider."
149 The letter then contains this statement:
"As has been indicated my letters of 23 and 31 July, the obligation is upon you to satisfy the Bar Council that you are a fit and proper person to hold a practising certificate notwithstanding the notifiable event. You should carefully consider the amendments introduced into the Legal Profession Act 1987 by the Legal Profession Amendment (Disciplinary Provisions) Act 2001 before you respond to this letter."
150 Three matters should be noted about the draft report and the letter. Firstly, the draft report recommends that the Bar Council take a decision pursuant to s 38FE, although the requirements of the section are not discussed, and the context of the statement not considered. I have already indicated that, in my judgment, the discretion under s 38FE was no longer available.
151 Secondly, the letter suggests that the legislation imposes an onus on a barrister to satisfy the Bar Council that they are a "fit and proper person". The inference is that failure to satisfy the Bar Council will bring regulatory action. This view is no doubt a reflection of the Bar Council's understanding of s 38FE(3). For the reasons I have explained I do not believe it is correct.
152 Thirdly, the letters said to be dated 23 and 31 July were not in evidence. As they were not referred to earlier in the letter, when all previous correspondence was apparently identified, it may be that no such letters were sent.
153 The letter concluded with the following paragraph:
"If the Bar Council concludes in terms of s 38FC(1) of the Legal Profession Act 1987 that the matters investigated were committed in circumstances that show that you are not a fit and proper person to hold a practising certificate or in terms of s 38FE(1)(b) that you have failed to show that you are a fit and proper person to hold a practising certificate, you will be invited separately to make submissions to Bar Council as to the course that it should take consequence upon its finding."
154 This is the first mention of s 38FC(1) of the Act. It was not referred to in the draft report.
155 The plaintiff responded with a detailed letter of 15 October 2001. He attached a detailed account of his affairs and various documents from the Australian Taxation Office.
156 At its meeting of 24 October 2001 the Bar Council considered a further report from the relevant committee. The section headed "Discussion" was as follows:
"The barrister's main difficulty is that for an approximately ten year period, the barrister only paid $13,000 taxation, and those payments were made in the context of advice from the barrister's accountant that this would assist in negotiations at that time with the ATO. No further payments were made.
The barrister's explanation is that in 1990 his practice income was high. He states it to be an income of $60,000-$65,000 in that year. The barrister says that his accountant at that time confirmed that the barrister could delay lodgment of his tax return to even out the provisional tax burden. The barrister states that he was not aware that provision tax could be varied. Returns for 1990 and 1991 were then lodged together or close to one another. That brought about an assessment notice in July 1993 requiring a payment of tax including provisional tax and penalties in the sum of $94,774. The barrister states that that was totally beyond his capacity to pay at that time. There was then an attempt to negotiate with the ATO. It was in that context that the three payments were made. The ATO did not agree to an instalment program, nor to the waiver of penalties.
The barrister then states that from 1997 he attempted to settle the kindergarten business. He states that he expected to obtain enough from that sale to clear all of his kindergarten debts and pay out the ATO. In 1998 the kindergarten sold, but for a lower price than expected. The sale price was sufficient to meet all outstanding debts of the business but no more.
In 1995 the ATO served a statement of claim upon the barrister. The amount claimed was $195,000 as at 9 December 1998. It is not clear why the barrister says that the ATO commenced proceedings in 1995. Judgment was obtained in March 1999 in the sum of $186,821.
The barrister states that his problems started with the poor professional advice he received from his first accountant. Further, the barrister states that the ATO did not assist, as their attitude is intransigent and unrealistic. The barrister states that the penalties and interest imposed (he did not indicate what period of time) meant that once he had fallen behind he had very little chance of redeeming the situation. He states that he did not give up on it until 1998.
The difficulty with the explanation is that whilst it is understandable that the barrister may have been unable to meet the outstanding balance due in 1993, given that - it is assumed - he had made little provision to meet the upcoming taxation bill, nevertheless this does not explain why no tax was paid thereafter. The barrister continued to derive a taxable income from his practice as a solicitor until 1998, and thereafter from his practice as a barrister (although the income from the practice as a barrister was very modest, after costs).
Further, despite being confronted with a large tax bill in 1993, the barrister was only able to pay $13,000 in total. There is no explanation as to why he was unable to pay more than that at that time, or thereafter.
On the other hand, it appears that the barrister is up to date with his BAS and IAS (although there has been inadequate independent verification of these matters).
The main problem is that for a lengthy period of approximately ten years, it appears that the barrister chose not to pay his taxation debts, but rather, it can be inferred, chose to spend his money on other expenditure, presumably of a private nature.
In these circumstances the Committee recommends that Bar Council resolve that, after investigation, it considers that the bankruptcy arose in circumstances that shows that the barrister is not a fit and proper person to hold a practising certificate, and therefore that the barrister's current practising certificate be cancelled under section 38FC."
157 It is notable that the report makes a recommendation that the Bar Council cancel the plaintiff's practising certificate under s 38FC. Sections 38FE is not mentioned. The report contains no discussion as to the elements which should inform a decision as to a person's fitness to practice. The reason for the recommendation appears to be the conclusion based upon the presumption referred to in the penultimate paragraph.
158 The Bar Council further considered the matter at its meeting of 24 October 2001. By its letter of 26 October 2001 the Bar Association says the Council resolved as follows:
"For the reasons expressed in the report dated 18 October 2001 and having considered the letter from Barry James Murphy of 15 October 2001 and his statutory declaration sworn 16 October 2001 with annexure 'A', resolved:
(i) the Bar Council considers that the bankruptcy arose in circumstances that show that Barry James Murphy is not a fit and proper person to hold a practising certificate; and
(ii) the practising certificate of Barry James Murphy be cancelled under s 38FE.
Further resolved to defer cancellation of the practising certificate of Barry James Murphy so that it takes effect from midnight on Friday 2 November 2001, for the purpose of enabling the proper arrangement of the affairs of the barrister."
159 By resolving to cancel the plaintiff's practising certificate under s 38FE the Bar Council had acted contrary to its earlier indication, that if it intended to make a resolution pursuant to s 38FE, it would allow the plaintiff to make further submissions. The plaintiff responded to the Bar Association's letter with a letter from his solicitor dated 1 November 2001. Reconsideration of the matter was sought. The Bar Association responded by letter dated 2 November 2001. Notwithstanding that the Bar Council had apparently resolved to cancel the plaintiff's practising certificate at its meeting of 24 October 2001, the Executive Director wrote in the following terms:
"Having considered a letter dated 1 November 2001 from Stewart Cuddy & Mockler, on 1 November 2001 the Bar Council resolved to defer consideration of this matter to afford you the opportunity to make any further submissions you wish to make no later than 4 pm on Wednesday 7 November 2001 . The Council invites you to make submission on the basis that it may make a determination under s 38FC as well as, or alternatively, under s 38FE of the Legal Profession Act 1987.
Accordingly, Bar Council resolved to defer cancellation of your practising certificate until it has had the opportunity, on 15 November 2001, to consider any further submissions you wish to make.
The Legal Services Commissioner has advised that he has granted an extension of time (to 27 November 2001) to enable the Bar Council to make a determination in your matter."
160 The plaintiff's solicitors responded by letter dated 7 November 2001 which attached further detailed information and submissions. There was a further exchange of correspondence, followed by a further report to the Council dated 15 November 2001. This further report contains no reference to s 38FC but recommends "In terms of s 38FE(1), the Bar Council is not satisfied that Barry James Murphy has by his written statement shown that he is a fit and proper person to hold a practising certificate notwithstanding the notifiable event". The report recommended that the plaintiff's practising certificate be cancelled.
161 At its meeting of 15 November 2001 the Bar Council resolved:
"For the reasons expressed in the report dated 18 October 2001 and the further report to Bar Council dated 15 November 2001 and having considered the Executive Director's letter to the barrister dated 26 October 2001, Stewart Cuddy & Mockler's letter to the Executive Director dated 1 November 2001, the Executive Director's letter to the barrister dated 2 November 2001, Stewart Cuddy & Mockler's letter to the Executive Director of 7 November 2001 and annexure, the Professional Affairs Director's letter to the barrister of 9 November 2001 and Stewart Cuddy & Mocker's reply to the Professional Affairs Director of 13 November 2001 Bar Council resolved that, for the purposes of s 38FE(1)(b) of the Legal Profession Act 1987 the Bar Council is not satisfied that Barry James Murphy has by his written statement shown that he is a fit and proper person to hold a practising certificate. Further resolved to cancel the practising certificate of Barry James Murphy, effective midnight Friday, 23 November 2001 to enable the proper arrangement of the barrister's affairs."
162 A request was made of the Bar Council to state the reasons for its action. The response from the Council's solicitors was that the reasons are expressed in the report dated 18 October 2001 and 15 November 2001. This response is difficult to understand for the report of 18 October related to a prospective decision pursuant to s 38FC and the later report to s 38FE. The most that could be gleaned from the reports as to why the Bar Council made its decision is that since 1990 the plaintiff, although he met some of his tax obligations, did not pay all his tax, it being inferred that he chose to spend his money on other expenditure "presumably of a private nature".
163 Without identifying the circumstances in which the plaintiff fell short of his obligations to pay his income tax liabilities and, without consideration of the elements which contribute to determining whether a person is "fit and proper", the decision of the Bar Council, although relevant, should be afforded little weight. Furthermore, as I have already indicated, I do not believe it was appropriate for the Bar Council to determine the matter under s 38FE in any event.