Plaintiff v Defendant

2 The Board regulates legal practice in Victoria pursuant to the Act. It has a number of powers to intervene or to cause external intervention to take place in a law practice. These powers may be exercised when the Board forms a belief on reasonable grounds that the practice or an associate of the practice is in breach of the trust accounting requirements of the Act or the Regulations.

3 The defendant is a legal practitioner in sole practice who practices under the name 'Hollows Lawyers' ("the law practice"). At the time the breaches are said to have occurred, the defendant's practice consisted almost exclusively of personal injury claims brought by former navy personnel against the Commonwealth for injury arising from the collision in 1964 between HMAS Voyager and the aircraft-carrier, HMAS Melbourne. The law practice handled more than 82 of these claims. By any measure, the proceedings arising from the claims were difficult and protracted. The files to which the Court was referred and which formed the basis for this application were opened in 2000 and many were not concluded before 2008, when the Commonwealth appointed Mr Gormly QC to settle the claims. There was a flurry of settlements in early to mid-2008, according to the evidence of the defendant. Understandably, the defendant and his staff at the law practice were placed under considerable pressure during this period.

4 In late 2008, trust account inspectors were appointed pursuant to the Act to carry out an inspection of the law practice. As a result of that inspection, the Board now makes this application to have a receiver appointed to the law practice.

5 The application is strongly resisted. The defendant argues that the preconditions for the exercise of the Court's jurisdiction to appoint a receiver do not exist, in that the Board's determination to apply for a receiver under s 5.2.2(c) of the Act was not based on reasonable grounds. In the alternative, it is the defendant's case that the requirements of the Act for the appointment of a receiver are not satisfied because:

(a) the errors identified by the trust account inspectors on which the application is based were inadvertent accounting errors which were not deliberate or dishonest;

(b) the errors were promptly restored and adequately rectified;

(c) revised management systems were promptly introduced;

(d) a design flaw in the software system used by the practice that caused the inadvertent accounting errors has been rectified;

(e) the practice does not intend to continue with no win/no fee litigation in any event; and

(f) the law practice provided valuable support for the litigants in the Melbourne-Voyager cases ("a David v Goliath battle").

6 For the reasons that follow, I have decided that a receiver should be appointed to the law practice for a limited purpose. Having considered evidence from the Board and the defendant about the accounting practices of the law practice and the rectification of the errors that were identified, I have concluded that while the errors identified by the trust account inspectors were for the most part inadvertent accounting errors that were not deliberate or dishonest, their existence has exposed a lack of understanding of the trust accounting requirements of the Act and the Regulations, and a somewhat cavalier attitude towards the management of trust funds. The defendant ought not to have allowed the errors to occur. In particular, I have found that:

(a) Although the defendant blamed the errors on the accounting software used by the law practice, the errors were not principally attributable to a design flaw in the software system;

(b) Rather, the accounting errors were caused by a lack of understanding of how the accounting software worked and a lack of attention to the requirements of Part 3.3 of the Act and Part 3.3 of the Regulations;

(c) The accounting errors should have been readily apparent and might have been avoided had the law practice prepared final trust account statements as required by the Regulations;

(d) Further, the manner in which the trust account irregularities were remedied by the law practice gives rise to concern because -

(i) trust moneys that were appropriated in breach of the Act and Regulations were actually restored to the trust account in only a very small number of cases;

(ii) in the majority of cases, to deal with the deficiencies identified, amounts 'written off' were 'written back in' or new invoices were raised, even though many of the matters had been finalised some time earlier;

(iii) in the matter of Rann, the new invoice that was raised to partially offset the deficiencies identified included fees for professional services that the defendant was not able to properly explain;

(iv) the review conducted by the law practice to identify deficiencies in its Melbourne Voyager files looked only for deficiencies created by one means (the double payment of disbursements) and did not look for errors of other kinds, such as those identified by the inspectors in the files that were reviewed by them.

7 Accordingly, I cannot be confident that trust account deficiencies have been properly identified and restored or that the errors that gave rise to them have been rectified. It is necessary for the protection of clients and former clients of the law practice that a suitably qualified person to be appointed to examine the Melbourne Voyager files held by the law practice to ensure that all irregularities in relation to trust money, trust property or the affairs of the practice have been fully identified and rectified and, in particular, that all trust deficiencies have been properly restored.

8 The Act contains a chapter (Chapter 5) providing for 'external intervention' in the affairs of a law practice. Section 5.1.1 sets out the purposes of Chapter 5 and provides:

(a) to ensure that an appropriate range of options is available for intervention in the business and professional affairs of law practices and Australian- registered foreign lawyers for the purpose of protecting -

(ii) the interests and the trust money and property of clients; and

(iii) the interests of lawyers, including the owners and employees of law practices, so far as their interests are not inconsistent with those of the general public and clients; and

(b) to ensure that there is an accountable and transparent process for the appointment of interveners and for the conduct of interventions.

9 It will be observed that the interests of the general public and clients are paramount. The interests of lawyers are protected only "so far as their interests are not inconsistent with those of the general public and clients".

10 Section 5.2.1 sets out the circumstances in which external intervention may take place. Relevantly, subsections (d) and (e) provide:

(d) in any case - where the Board forms a belief on reasonable grounds that the practice or an associate of the practice -

(i) is not dealing adequately with trust money or trust property or is not properly attending to the affairs of the practice; or

(ii) has committed a serious irregularity, or a serious irregularity has occurred, in relation to trust money or trust property or the affairs of the practice; or

(iii) has failed properly to account in a timely manner to any person for trust money or trust property received by the practice for or on behalf of that person; or

(iv) has failed properly to make a payment of trust money or a transfer of trust property when required to do so by a person entitled to that money or property or entitled to give a direction for payment or transfer; or

(v) is in contravention of the regulations or legal profession rules with the result that the record-keeping for the practice's trust account is inadequate; or

(vi) has been or is likely to be found guilty of an offence relating to trust money or trust property; or

(vii) is the subject of a complaint relating to trust money or trust property received by the practice; or

(viii) has failed to comply with any requirement of an inspector or external examiner appointed under this Act; or

(ix) has ceased to engage in legal practice without making provision for properly dealing with trust money or trust property received by the practice or for properly winding up the practice; or

(e) where any other proper cause exists in relation to the practice.

11 The present application for the appointment of a receiver is made by the Board on the grounds in s 5.2.1(d) (i) - (vii) and (e).

12 Under s 5.2.2(2)(c) of the Act, the Legal Services Board may apply to the Court for the appointment of a receiver if it is of the opinion -

(i) that the appointment is necessary to protect the interests of clients in relation to trust money or trust property; or

(ii) that it may be appropriate that the provision of legal services by the practice be wound up and terminated.

13 The statutory requirements for dealing correctly with trust money are contained in Part 3.3 of the Act and Part 3.3 of the Regulations. The present application is founded in part on potential breaches of the requirements in ss 3.3.13(1), 3.3.14(1)(b), 3.3.14(3), 3.3.21 and 3.3.22 of the Act and reg 3.3.28 of the Regulations. For convenience, those provisions are set out below:

s 3.3.13 Certain trust money to be deposited in general trust account

(1) Subject to section 3.3.17A, as soon as practicable after receiving trust money, a law practice or an approved clerk must deposit the money in a general trust account of the practice or clerk unless-

(a) the practice or clerk has a written direction by an appropriate person to deal with it otherwise than by depositing it in the account; or

(b) the money is controlled money; or

(c) the money is transit money; or

(d) the money is the subject of a power given to the practice or an associate of the practice to deal with the money for or on behalf of another person.

Penalty: 120 penalty units.

s 3.3.14 Holding, disbursing and accounting for trust money

(1) A law practice or an approved clerk must-

...

(b) disburse the trust money only in accordance with a direction given by the person.

Penalty: 120 penalty units.

...

(3) A law practice or an approved clerk must account for the trust money as required by the regulations.

Penalty: 60 penalty units.

s 3.3.21 Deficiency in trust account

(1) An Australian legal practitioner or an approved clerk is guilty of an offence if he or she, without reasonable excuse, causes-

(a) a deficiency in any trust account or trust ledger account; or

(b) a failure to pay or deliver any trust money.

Penalty: Level 4 imprisonment (15 years maximum).

...

(3) In this section-

cause includes be responsible for;

deficiency in a trust account or trust ledger account includes the non-inclusion or exclusion of the whole or any part of an amount that is required to be included in the account.

s 3.3.22 Reporting certain irregularities and suspected irregularities - legal practitioners

(1) As soon as practicable after a legal practitioner associate of a law practice becomes aware that there is an irregularity in any of the practice's trust accounts or trust ledger accounts, the associate must give written notice of the irregularity to-

(a) the Board; and

(b) if a corresponding authority is responsible for the regulation of the accounts concerned - the corresponding authority.

Penalty: 60 penalty units.

reg 3.3.28 Trust account statements - law practices

...

(6) A trust account statement is to be furnished-

(a) as soon as practicable after completion of the matter to which the ledger account or record relates;

...

First preliminary issue: Does the Court have jurisdiction to appoint a receiver?

14 The defendant submitted that under the Act, there are a number of preconditions for the exercise of the special jurisdiction to appoint a receiver to a law practice. Given the drastic consequences of an order appointing a receiver, the necessary preconditions to the jurisdiction must be strictly complied with. It was submitted that the necessary preconditions did not exist, and could not be established, in the present case.

15 The preconditions for the appointment of a receiver identified by the defendant were as follows:

(a) First, either:

(i) the Board must form the belief based on reasonable grounds that the practice or an associate of the practice is, or is not acting, or has acted in the manner set out in paragraphs (i) - (ix) of s 5.2.1(d) of the Act; or

(ii) any other proper cause must exist in relation to the practice;

(b) when the Board becomes aware of one or more of the circumstances referred to in s 5.2.1 existing in relation to the law practice, it must decide that, having regard to the interests of the clients of the practice and to other matters that it considers appropriate, external intervention is warranted;

(c) the Board must determine to apply to the Supreme Court for the appointment of a receiver premised on the requisite opinion (s 5.2.2(2)(c));

(d) if the Board determines to apply to the Supreme Court for the appointment of a receiver, the Supreme Court may, on the application of the Board, appoint a person as a receiver for the law practice (s 5.5.1(2)).

16 It was the defendant's submission that the exercise of the Court's special jurisdiction to appoint a receiver to a law practice is predicated on the Board forming the requisite opinions referred to in ss 5.2.1 and 5.2.2 of the Act. These opinions must be opinions that can be formed by a reasonable man who correctly understands the meaning of the law under which he acts.[1] The jurisdiction of the Court is therefore dependent on the Board having formed the opinions referred to in ss 5.2.1(d) and 5.2.2(c) reasonably or on reasonable grounds. It was submitted the Court had to be satisfied that there was material before the Board on the basis of which the Board could form a belief based on reasonable grounds that the matters the subject of the opinion existed.

17 The defendant submitted that the Court could not be satisfied that the preconditions to the exercise of its jurisdiction were satisfied. He gave a number of reasons why this was the case:

(a) First, at the time of issuing the application for the appointment of a receiver on 2 June 2009, the defendant had already restored the errors that had been identified on a 'self-help', but co-operative and informative basis.[2]

(b) Secondly, the present application has not been characterised by any urgency, the inspection having taken place in late 2008 and the inspector's report having issued on 28 April 2009. The Board's application to the Court to appoint a receiver was not made until 2 June 2009 and the hearing of the application did not commence until 9 November 2009.

(c) Thirdly, the fact that the Board also determined to appoint a supervisor of trust money to the law practice shows that the Board did not hold a reasonable belief that a receiver should be appointed because of issues relating to the practice's trust accounts or because it is appropriate that the practice be wound up and terminated.

18 Approaching these grounds in reverse order, the basis for the third ground is that on 23 June 2009 the Board made a determination to appoint a supervisor of trust money to the law practice under s 5.5.2(a), having already made the determination to apply for the appointment of a receiver under s 5.2.2(c). The Board has not revoked either the determination to apply for the appointment of a receiver or the appointment of the supervisor of trust money. Both the application for the appointment of a receiver and the appointment of the supervisor remain on foot. The defendant submits that the determination to apply for the appointment of a receiver and the determination to appoint a supervisor cannot sit together and that the determination to appoint a supervisor undermines the legitimacy of the determination to apply for the appointment of a receiver.

19 Section 5.2.2(2) relevantly provides that the Board may determine:

(a) to appoint a supervisor of trust money of the law practice, if the Board is of the opinion-

(i) that external intervention is required because of issues relating to the practice's trust accounts; and

(ii) that it is not appropriate that the provision of legal services by the practice be wound up and terminated because of those issues; or

(b) to appoint a manager for the law practice, if the Board is of the opinion-

(i) that external intervention is required because of issues relating to the practice's trust records; or

(ii) that the appointment is necessary to protect the interests of clients in relation to trust money or trust property; or

(iii) that there is a need for an independent person to be appointed to take over professional and operational responsibility for the practice; or

(c) to apply to the Supreme Court for the appointment of a receiver for the law practice, if the Board is of the opinion-

(i) that the appointment is necessary to protect the interests of clients in relation to trust money or trust property; or

(ii) that it may be appropriate that the provision of legal services by the practice be wound up and terminated.

20 The defendant submits that the Court cannot on any basis be satisfied that the Board has formed the opinion referred to in s 5.2.2(2)(c), as it has subsequently determined to appoint a supervisor, which required it to form the opinion that it was not appropriate that the provision of legal services by the law practice be wound up and terminated because of issues relating to the practice's trust accounts: s 5.2.2(2)(a)(ii). As a result, the Court cannot now be satisfied that the Board reasonably formed the opinions required by s 5.2.2(2)(c) for its application for the appointment of a receiver.

21 The Court's power to appoint a receiver to a law practice is contained in s 5.5.1 of the Act. Section 5.5.1(1) of the Act provides that s 5.5.1 applies if the Board determines to apply to the Supreme Court for the appointment of a receiver to the law practice. Thereupon, the Supreme Court may, pursuant to s 5.5.1(2), appoint a person as a receiver for the law practice. Section 5.5.1 contains no express criteria for the exercise of the power to appoint a receiver.

22 However, by reason of s 5.5.1(1) of the Act, the Board must satisfy the Court that it has made the relevant determination. Ms Amalia Castos, who is a Litigation Officer for the Board, gave evidence of the determination having been made by resolution of the Board. The determination was made on the basis that the Board was of the opinion that the appointment was necessary to protect the interest of clients in relation to trust money or trust property, that is, under s 5.2.2(2)(c)(i) of the Act.

23 The jurisdiction to appoint a receiver to a law practice is invoked once an application has been made to the Court based on a determination of the Board made in accordance with s 5.2.2(2)(c). Accordingly, the Court has become validly seized of the Board's application to appoint a receiver to the defendant's law practice.

24 In deciding whether or not to appoint a receiver upon an application by the Board, the Court is not concerned to judicially review the Board's determination to apply to the Court. Under the precursor legislation to the Act, the Court was required to consider the reasonableness of the determination made by the relevant body to apply for the appointment of a receiver. Under s 250 of the Legal Practice Act 1996 (Vic), the Court had to be satisfied that the statutory regulator had reasonable grounds for making an application to appoint a receiver. Likewise, under s 104B(2) of the Legal Profession Practice Act 1958 (Vic), the Court had to be satisfied that the regulator had reasonable grounds for the opinion that it formed regarding the necessity to appoint a receiver.

25 By contrast, the Act contains no requirement for the Court to be satisfied that the Board's determination to apply for the appointment of a receiver was made on reasonable grounds. Section 5.2.1 of the Act provides generally that "[e]xternal intervention may take place in relation to a law practice in any of the following circumstances - ", including where the Board forms "a belief on reasonable grounds" that the practice is not dealing adequately with trust money. That belief may then form the basis for the determination to apply to this Court for the appointment of a receiver. However, the power of the Court to appoint the receiver is not conditioned on the Court being satisfied that the Board formed the requisite belief on reasonable grounds. It is for the Court to decide on the evidence before it whether the law practice has conducted itself so as to require the appointment of a receiver. Accordingly, it is not relevant that the Board was not provided with certain evidence that the defendant now relies on to resist the application to appoint a receiver.[3]

26 In Law Society of NSW v Clapin,[4] Harrison J considered an application to have a receiver appointed to a law practice under the New South Wales uniform legislation, on the basis that the Court had to be satisfied that the determination to apply for the appointment of a receiver had been made on reasonable grounds. Both the plaintiff and the defendant argued their case on that basis and by reference to the principles developed in cases under the precursor legislation. It appears not to have been submitted to Harrison J by either party that the uniform legislation does not refer to the opinion of the regulator as the basis for the exercise of the Court's power to appoint a receiver and his Honour proceeded on the basis that the opinion of the regulator conditioned the appointment.

27 In my view, it is not a condition for the exercise of the power to appoint a receiver that the Court satisfy itself that the Board's determination to apply for the appointment of a receiver was based on an opinion reasonably formed. However, if that were a condition for the exercise of the Court's power to appoint a receiver, I would be satisfied on the basis of the material in the inspectors' report that founded the application[5] that the Board's opinion that the appointment of a receiver was necessary to protect the interests of clients in relation to trust money or trust property was an opinion that was reasonably formed and that its belief in the matters described in s 5.2.1(d)(i) - (vii) of the Act was formed on reasonable grounds.

28 In any event, in the present case there is no requirement for the Court to satisfy itself that the Board's determination to apply for the appointment of a receiver was based on an opinion reasonably formed that it was appropriate that the provision of legal services by the practice be wound up and terminated, for that is not the basis upon which the Board made its determination to apply for the appointment of a receiver. The current application was made on the basis that the Board had formed the view that it was necessary to apply to the Court for the appointment of a receiver to protect the interests of clients in relation to trust money or trust property. Accordingly, the determination made by the Board to apply for the appointment of a receiver was not inconsistent with the determination that it made to appoint a supervisor of trust money.

29 Although it is the role of the receiver to be the receiver of regulated property and to wind up and terminate the affairs of the practice, a receiver is not required to wind up the practice. Sections 5.6.1 and 5.6.5 permit the Court to impose conditions on the appointment of an intervener and to give directions in relation to any matter affecting the intervention or the intervener's powers, duties or functions under the Act. The receiver is at all times subject to the control of the Court, and in appropriate cases, the Court can direct him or her not to wind up the law practice.

30 Finally, the use in s 5.5.2(2) of the disjunctive "or" between the paragraphs providing separately for the appointment of a supervisor, a manager and a receiver is not determinative. The Act expressly provides that more than one determination may be made under s 5.2.2 of the Act in relation to external intervention. Section 5.2.2(3) provides that further determinations may be made "from time to time". Moreover, ss 5.5.4 and 5.6.5A contemplate the coexistence of a manager and a receiver.

31 The third and most substantial ground for submitting that the preconditions for the exercise of the Court's jurisdiction do not exist therefore fails.

32 As to the absence of urgency in pursuing the application, the time that it has taken to bring the Board's application to a conclusion has been in part due to the defendant's vigorous opposition to the application. A supervisor of trust money was appointed to the law practice when it became evident that the application to appoint a receiver would not be heard and determined for some time. The effluxion of time is not fatal to the application. The files in question are for the most part closed, funds have been appropriated to pay legal costs and disbursements and the balance of settlement moneys has been paid to clients. What is said to be required is a thorough review of those actions. There is no exceptional urgency to that task. It is not suggested that the funds will be dissipated if a receiver is not appointed straight away.

33 As to the first ground raised by the defendant, that the law practice has fixed the problem and there is no need for the appointment of a receiver, that is a matter for determination by the Court.

Further preliminary issue: The validity of the Board's resolution

34 In closing submissions, the defendant submitted that the Court lacked jurisdiction to appoint a receiver on the basis that s 6.2.16 of the Act had not been satisfied. Section 6.2.16 concerns the procedures of the Board and provides for resolutions to be passed by the Board without meetings. Section 6.2.16(1) provides:

If -

(a) the Board has taken reasonable steps to give notice to each member setting out the terms of a proposed resolution; and

(b) a majority of the members, including at least one appointed member and one elected member, sign a document containing a statement that they are in favour of the resolution in the terms set out in the document -

a resolution in those terms is deemed to have been passed at a meeting of the Board held on the day on which the document is signed or, if the members referred to in paragraph (b) do not sign it on the same day, on the day on which the last of those members signs the document.

35 In her affidavit sworn on 14 October 2009, Amalia Castos deposed that on 21 May 2009, she caused an email to be sent to members of the Board attaching a facsimile response sheet for a vote pursuant to s 6.2.16 of the Act in respect of a resolution to be made by the Board without a meeting. The resolution was, in summary, that the Board apply to the Court for the appointment of a receiver to the law practice on the grounds set out in s 5.2.1(d)(i)-(vii) of the Act.

36 On that same day and on 22 May and 25 May 2009, she received signed copies of the circular resolution from four Board members. Two of these were sent by facsimile, one was delivered by hand and one was forwarded by email. The resolution received via email was signed electronically. The covering email stated:

Dear Debbie, Please find attached my response re Hollows. The signature is typed in as I am away at the moment and don't have access to a printer.

37 It is clear from this email that the signatory, Ms Bennett, intended the electronic signature to stand as her signature.

38 Section 9(1) of the Electronic Transactions (Victoria) Act 2000 provides:

If, by or under a law of this jurisdiction, the signature of a person is required, that requirement is taken to have been met in relation to an electronic communication if -

(a) a method is used to identify the person and to indicate the person's approval of the information communicated; and

(b) having regard to all the relevant circumstances at the time the method was used, the method was as reliable as was appropriate for the purpose for which the information was communicated; and

(c) the person to whom the signature is required to be given consents to that requirement being met by way of the use of the method mentioned in paragraph (a).

39 It was the defendant's submission that compliance with s 9(1)(c) had not been established: there was no evidence before the Court that the person to whom the electronic signature was required to be given had consented to the requirement being met in this way. In order for the Board to avail itself of s 9 and rely on the resolution signed by Ms Bennett, the Board had to formally consent to Ms Bennett using a typed signature. Consent would have to have been given at the time of the resolution, and not subsequently. It would have to have been exhibited to Ms Castos' affidavit.

40 In response to this, the Board submitted that there was no requirement in the Act for the consent of the person to whom the signature is supplied to be in writing or otherwise formalised. It is plain that the Board did consent to the receipt of Ms Bennett's electronic signature, because it instituted the proceedings on the basis that the resolution had been agreed to by the four members required. The determination to apply to appoint a receiver had properly been made.

41 The Board also submitted that the common law has long held that a signature is not necessarily the writing in of a name, but may be any mark which identifies it as the act of the party.[6]

42 In my view, it is clear that the Board consented to Ms Bennett providing her signature in the form that she did. As appears in the covering email, Ms Bennett intended her typed signature to stand as her signature. The Board instituted these proceedings on the basis that she had voted to adopt the resolution.

43 Accordingly, based on the determination made by the Board to apply to this Court to appoint a receiver, I propose to consider whether a receiver should be appointed to the law practice on the basis of the extensive evidence that was led by the parties in this proceeding.

Yet another preliminary issue: The exclusion of persons from the court

44 On 9 November 2009, prior to the commencement of the hearing of the receivership application and upon an application by the defendant, an order was made under s 5.5.1(4) of the Act ordering from the precincts of the Court any person who is not -

(b) a party or any of the persons associated with the party referred to in s 5.1.1(4)(b);

(d) a person who is about to or who is in the course of giving evidence.

45 On 12 November 2009, on the fourth day of the hearing, two persons entered the courtroom and sat down in the public area, apparently for the purposes of listening to the application. I was informed by counsel for the defendant that the persons in question were well known to the defendant as lawyers employed by the Australian Government Solicitor who had been charged with the conduct of the Melbourne Voyager litigation on behalf of the Commonwealth. I was informed that the defendant had a very strained relationship with them because of the manner in which that litigation had been conducted and that he was 'embarrassed' by their presence in the courtroom. Counsel for the defendant asked that I direct them to leave the Court in compliance with the order that had been made under s 5.5.1(4) of the Act.

46 Pursuant to s 2.3.9 of the Act, a person admitted to the legal profession under that Act becomes an officer of the Supreme Court of Victoria. Section 5.5.1(4)(a) exempts from the order to leave the precincts of the Court, "an officer of the Court". The Court had the benefit of detailed and helpful submissions from counsel for the defendant on whether the persons in question, who were admitted to practice in Victoria, were 'officers of the Court' for the purposes of s 5.5.1(4)(a). In essence, counsel for the defendant submitted that an officer of the Court for the purposes of s 5.5.1(4)(a) of the Act did not include a person who was an officer of the Court merely because he or she had been admitted to the legal profession under the Act.

47 The question is not an easy one. However, I decided that persons admitted to the legal profession under the Act were not excluded from the precincts of the Court by reason of the order that had been made on 9 November under s 5.5.1(4)(a) of the Act. My ruling on that question has been published separately.

48 Throughout the hearing of the Board's application, the defendant made repeated applications pursuant to ss 18 and 19 of the Supreme Court Act to have those persons and two former employee solicitors of the law practice who also attended from time to time excluded from the Court on the grounds that their presence prejudiced the administration of justice. I was informed that one of the former employee solicitors had made a complaint to the Legal Services Commissioner about the defendant and that the defendant viewed him as the reason for his difficulties with the LIV inspectors. It was submitted that the defendant felt intimidated by the presence of these people and would be impeded in the presentation of his case and in giving his evidence if they were allowed to remain in the court. I was told that one of the persons was making eye contact with the defendant and would "look daggers" at him. However, I declined to order the people in question to leave the Court, as I could not be satisfied on the material before the Court that their presence in the courtroom prejudiced the administration of justice.

49 I observed the defendant's demeanour in the witness box and at the bar table. He gave evidence in a manner that was confident and emphatic. He showed no sign of being intimidated by the presence of the persons to whom he objected. Likewise, I saw no sign that his ability to instruct his counsel was in any way affected by the presence of the relevant persons in the courtroom. He energetically and effectively instructed his counsel throughout the hearing. In this context, I should say that the four persons were rarely in the courtroom at the same time. I saw no evidence of aggressive staring or anything of that kind from any of them. To assist the Court, they agreed to sit where the defendant could not see them during the defendant's evidence. I am satisfied on the basis of my observations of the defendant's demeanour and the way that he gave his evidence that he was not intimidated by the persons in question.

50 In resolving to bring the application to appoint a receiver to the law practice, the Board relied on a report of an inspection of the law practice carried out by trust account inspectors employed by the Law Institute of Victoria Ltd ("the LIV") in November and December 2008. The report, dated 28 April 2009 ("the Chun Report"), was prepared by LIV inspector, Mr Colin Chun on the basis of the inspection carried out by Mr Chun and a former LIV inspector, Ms Val Kozovska, (who left the employ of the LIV on 24 February 2009).

51 Mr Chun and Ms Kozovska were appointed on 28 October 2008 by the chief executive officer of the LIV, Michael Brett Young, as inspectors pursuant to s 3.3.29 of the Act to conduct an investigation of the trust accounts of, and records relating to trust money received by, the law practice.[7]

52 Mr Chun and Ms Kozovska examined a sample of 12 of the approximately 82 Melbourne Voyager files handled by the law practice.

53 Pursuant to s 3.3.47 of the Act, an inspector must give a written report on the investigation to the Board as soon as practicable after completing an investigation. Prior to the preparation of the Chun Report, Mr Chun and Ms Kozovska wrote to the defendant setting out in detail the matters that had been identified giving rise to potential breaches of the Act and the Regulations and requesting written explanations and information from the law practice. The defendant responded in two letters dated 5 March 2009, which included a large number of attachments. The Chun Report was prepared after receipt and consideration of the defendant's responses.

54 The Chun Report identified irregularities in the law practice's trust account and records, which constituted breaches of the Act and Regulations by the law practice. These included failure to deposit trust money into the general trust account kept by the law practice (s 3.3.13 of the Act), failure to disburse trust money in accordance with the directions given by the client (s 3.3.14(1)(1b)), failure to account for trust money as required by the Regulations (s 3.3.14(3)), deficiencies in the law practice's trust account, principally arising from the law practice appropriating trust moneys for the payment for invoices that included disbursements that had already been paid from the trust account (s 3.3.21) and failure to notify irregularities in trust accounts (s 3.3.22).

55 The Chun Report identified two main types of breaches of the trust account provisions:

(a) In three files, the same item of disbursement had been billed twice to the client and paid twice ("the double billing of disbursements");

(b) In nine of the files examined, there had been a double payment of disbursements by the client on a slightly different, but more troubling basis. Disbursements were billed once, and paid once from funds held in trust for the client, but then subsequently appropriated or deducted from settlement moneys received on behalf of the client ("the double payment of disbursements").

56 The double payment of disbursements was the issue that occupied most of the Court's time. The sums of money involved were significant and the law practice benefited financially from the errors. In each case, the double payment of disbursements gave rise to a trust account deficiency, and a breach of the Act and the Regulations.

57 The Chun Report also found that GST had been charged on amounts that already included a GST component, and had thus been charged twice. This also gave rise to trust account irregularities, and breaches of the Act and the Regulations.

58 In addition, the Chun Report identified a number of other areas of non-compliance with the Act or the Regulations:

(a) failure to provide trust account statements upon completion of the file;

(b) failure to disburse trust moneys as directed;

(c) failure to pass on to the client discounts given by barristers;

(d) withdrawal of funds notwithstanding that costs were disputed;

(e) costing in a manner inconsistent with fees agreements;

(f) discrepancies between bills and work in progress reported.

59 In addition to these matters, the Board relies on further matters, in particular the manner in which the defendant proceeded to rectify the irregularities that had been found. The Board also points to the fact that the defendant has been unable to give a cogent account of how the double payment of disbursements actually occurred.

60 The double payment of disbursements in nine of the 12 files examined by the inspectors resulted in the law practice paying itself from trust funds approximately $370,000 to which it was not entitled. The Chun Report sets out the amount of third party disbursements paid from trust and billed again in invoices sent to the relevant clients:

61 In his affidavit sworn on 2 June 2009 in support of the Board's application, Mr Chun explained how he believed the double payment of disbursements had occurred:

The circumstances in which this (possible) offence occurred was that in many, if not most matters that I reviewed during the course of my investigation, the law practice renders a Bill of Costs before any settlement moneys are received. The correspondence sent to clients includes a statement of account. As a general practice, once the settlement moneys are received by the law practice its costs are paid to the general office account. However, no adequate accounting is provided to the client. Accordingly, the client does not know all the necessary details of the trust moneys received by way of settlement moneys by the law practice and how those moneys have been disbursed by the law practice.

62 To similar effect, in its opening statement the Board explained the double payment of disbursements by reference to the sequence of events in each file examined by the inspectors as follows:

(a) settlement agreement is reached with the Commonwealth;

(b) the defendant's practice sends the client a bill for professional costs and disbursements (raised from the client debtor account) together with a trust account statement to the date of the bill, as required by Regulation 3.3.34(4);

(c) settlement funds are received from the Commonwealth by the law practice on behalf of the client;

(d) disbursements are paid from funds in trust (i.e. settlement funds) to third party creditors; and

(e) the defendant's practice appropriates/deducts from the remaining settlement funds the full amount of the bill rendered to the client (as in (b) above), including all disbursements.

63 The Board says that for each client file examined by the inspectors, in all but the final series of transactions, some step was taken by the law practice to credit a paid disbursement in the client debtor account. As a result, disbursements paid before settlement moneys came in do not appear to have been billed twice to the client, and the debtors ledger does not show the third party debit (disbursement) amount as outstanding. This is as it should be. However, in the files examined, the final series of transactions following receipt of settlement moneys resulted in amounts for disbursements being taken by the defendant on account of professional costs. This resulted in the double payment of disbursements and, correspondingly, in the creation of deficiencies in the law practice's trust account. Clients could not have become aware that they had paid twice for disbursements because, contrary to s 3.3.28(6)(a) of the Regulations, no final trust account statements were sent to them. The Board submits that the double payment of disbursements would have been apparent if final trust account statements had been prepared and sent to clients, as required, and would have been avoided if invoices had been checked against trust account statements before funds were taken by the law practice on account of costs

64 It is therefore the Board's contention that the trust account deficiencies arising from the double payment of disbursements occurred as a result of the manner in which the post-settlement transactions (involving the payment of large invoices by appropriation from the trust account) were carried out by the law practice and the fact that final trust account statements were not prepared when they should have been.

65 From the outset, the defendant freely admitted that accounting errors were made resulting in the double payment of disbursements. He said that the double payments were made in error, and I accept this. Both he and members of the staff of the law practice gave evidence that they were extremely shocked when they learned from the inspectors about the double payment of disbursements. I also accept this evidence. I find that the trust account deficiencies resulting from the double payment of disbursements were created inadvertently.

66 That, however, is not the end of the matter. The question remains whether the double payment of disbursements could and should have been avoided by more careful management of trust funds and trust account records by the defendant. In particular, the preparation of final trust account statements - as required by the Regulations - would have exposed the problem. That basic requirement was not met by the law practice.

67 The defendant gave an explanation for the double payment of disbursements that was based on defects in the accounting software used by the law practice. From 2005 onwards, the law practice used accounting software known as "Infinity Law". When advised orally of trust account irregularities identified by the inspectors in late November 2008, the defendant was concerned to identify the cause of the problem and to remedy it without delay. However, the defendant decided very quickly that the errors were not his or those of his staff, but were instead attributable to the Infinity Law accounting package.

68 On 27 November 2008, the law practice wrote to the inspectors confirming that it had requested comments from Mr Chun and Ms Kozovska on the appropriate way to rectify the trust account irregularities identified by them. The law practice stated that the problem needed to be attended to urgently and that consultations had already taken place with its trust account auditor to ensure that it was complying with its statutory obligations. The letter states:

It is now apparent to us the infinity computer package seems to be the problem.

69 On 28 November 2008, the defendant sent an email to the inspectors asking for details of alleged irregularities in order to enable deficiencies in the trust account to be rectified immediately. The email states:

I met with you today and indicated I was seeking an urgent meeting with infinity law for the purposes of rectifying the situation. It appears to us that the package is flawed in allowing the alleged deficiencies to occur in the first place. I advise that Kate Hay who was previously employed by infinity law was employed by us from 6 February '08 to 24 September '08, was responsible for our accounts and she did not pick up any of these alleged deficiencies. She was engaged in training staff to use the infinity package generally.

70 On that same day, the defendant wrote to Mr Male, the firm's trust account auditor, seeking help in reconciling the existing accounts "and advising me as to what changes you recommend should take place in the software package."

71 On 1 December 2008, the defendant wrote to the Board referring to a "form 5" that had apparently previously been submitted and making the following qualification to the form:

Due to an [sic] accounting errors caused by the accounting package, I am taking urgent measures to rectify the problem.

72 On 3 December 2008, the law practice wrote to the then LIV president, Anthony Burke, regarding the Infinity Law software. The letter describes the law practice contacting the LIV in late 2004 to seek its views on software packages and refers to the fact that it was advised that the Infinity Law software had no problems as far as the LIV was concerned. The letter continued:

It has subsequently transpired that the package has an inherent defect which has caused us to unwittingly provide accounts which are in error. Lindy Thewlis who is the Australian representative for Infinity Law advised our Mr Forster that she could have made exactly the same mistake as was made by our accounting staff. Given the ramifications of the errors and our Mr Forster's responsibilities we have taken a number of steps to rectify the problems. Infinity Law has now installed a new package to rectify the problem.

73 From that point onwards, the defendant vigorously pursued the LIV in relation to its knowledge of problems with the Infinity Law software package. It was the defendant's contention that he had been unfairly targeted by the LIV, which knew about the propensity of the Infinity Law software to cause the errors that were made by the law practice and failed to alert it to the danger. I deal with the allegations made against the LIV below, so far as those allegations are relevant to the measure of fault that can be attributed to the defendant and his staff for the trust account irregularities that were identified.[8]

74 On 10 December 2008, the law practice wrote to the manager of Legal Services at Fujitsu in New Zealand, which owned and developed the Infinity Law software. The letter stated that the law practice had previously advised Fujitsu of serious accounting problems caused by the Infinity Law software: "As explained, the package has resulted in double-dipping of clients' accounts and very substantial disruption to our business." The law practice sought to obtain from Fujitsu agreement that Fujitsu provide training courses to its accounts staff, suspend licence fees and make a representative available to assist in addressing the problem at the law practice.

75 As it transpired, Ms Lindy Thewlis, a representative of Infinity Law, did attend at the law practice on an ongoing basis throughout January and February 2009 to assist with redressing the accounting errors that gave rise to the double payment of disbursements. I deal with the manner in which the law practice remedied the double disbursement and other trust account irregularities in detail below.[9]

76 On 3 February 2009, the inspectors wrote to the defendant setting out in detail the problems that they had identified as giving rise to possible breaches of the Act and Regulations, including, but not limited to, the double payment of disbursements. In its letter of response dated 5 March 2009, the law practice explained the double payment of disbursements as follows:

At this time the software did not offset creditor trust payments against creditors recorded invoices. The software has since been rectified and it notes now if paid from trust it offsets to the creditors invoice. If the creditors invoice is unbilled it reduces the amount owed to the creditor and if it has been billed it returns the outstanding debt to Hollows Lawyers and the creditor's invoice. The Infinity Law system was originally designed for New Zealand audit rules where they have no separate trust account. This is no longer an issue.

77 The 5 March response to the inspectors also said:

We believed at the time that the disbursements previously billed were written off when the credit note was done. As explained the Infinity Law package did not write off the value of its disbursement from the bill. The new updated Infinity Law release has since resolved the problem.

78 In his affidavit sworn on 18 August 2009, the defendant explained the accounting errors as being due to a combination of factors including -

• Infinity Law software problems including design failures and data conversion limitations;
• Infinity Law software designed for New Zealand jurisdiction where practitioners maintain only a trust account;
• poor training and resources provided by Infinity Law and its Victorian agent;
• the fact that the Law Institute of Victoria approved an accounting package which did not comply with all Acts and Regulations and failure to provide assistance to practitioners using the package it knew was flawed;
• the failure of the Law Institute of Victoria to advise solicitors of problems that it knew existed with Infinity Law package; and
• the difficulties experienced by the firm's external accountant and external auditors in detecting complex accounting errors.

79 The defendant also deposed to the fact that, after inspecting documents subpoenaed from the LIV, he believed that the Infinity Law software package did not comply with Victorian trust accounting requirements, including the Act and the Regulations.

80 In cross-examination, the defendant singled out the double payment of disbursements as the substantial problem identified by the inspectors in terms of the number of files and the quantum. He was asked whether he attributed that problem to the flaws in the Infinity Law software. He said that he did. He then said:

Well in terms of the situation the flaws - the flaws are caused firstly by the fact that with the Infinity Law system we - our operators did our credit note and as a result of doing a credit note they put in the statement 'moneys paid from trust'. Now in terms of that particular problem that problem is caused by a badly designed system, a system that's been badly explained to the operators ... .

81 In essence, it was the defendant's case that the Infinity Law software required a three stage process to be followed by the law practice to avoid the double payment of disbursements. The law practice had known about and carried out the first two stages, including the entry of credit notes in the office accounts to reflect payments made from the trust account for disbursements. The third stage, involving the creation of a hitherto unknown document called an 'adjustment note', had not been carried out by the law practice because it was not aware of the need to do so.

82 The double payment of disbursements occurred when the law practice appropriated settlement moneys from trust to pay third party disbursements and then appropriated further moneys from trust to pay its own invoices. The defendant was repeatedly asked in cross-examination to describe the steps he took to appropriate money from trust to pay third party disbursements. His attempts to answer to this question resulted in a number of lengthy diversions which are not relevant for present purposes. He said that where there was money in trust, disbursements would be paid from the trust account. If the invoice for the disbursement had already been entered into the debtors ledger, the balance of the office account had to be reduced. He then said:

And that step - and that step of reducing off and taking it down is not done by a credit note, it has to have - it's a three - it's an extra step in the process and you have to do the adjustment note. I think I can't really explain myself any more clearly than that.

83 The defendant was also asked what he checked an invoice against before making an appropriation from trust to pay it. The defendant answered that he could not be specific. When pressed for an answer, he said "Well, you - you check against the invoices." He then said that there would be a whole range of factors, including whether the bill was due and payable, whether the bill was for the right amount, what the instructions were from the client, what the position was as to what the client knew, what had been agreed, what the oral and written agreement was. He said:

Solicitors' office and trust accounts are fairly complex creatures. You've got all these sorts of things and they're not just something where you flick a switch and then you say bang bang bang. So you just have to be prudent and careful, and when you consider what you do is that you have to - you obviously - you cross-reference people with - cross-reference your decision against the accuracy of the invoice. And these cases were frankly a nightmare. They were a nightmare because of the fact that all the invoices, no win, no fee, changing invoices, double invoices, they were very difficult cases ... All I can say to this court is I believe I was prudent and careful. Obviously we've made mistakes. We didn't pick up on the double - double accounting and I rue the day that I didn't pick up on it, but at the end of the day I'm not Superman and I try to be prudent and I try to be careful.

84 In my view, the defendant did not provide an adequate explanation of how the double payment of disbursements occurred and why the payment of disbursements from trust was not identified by the law practice before further appropriations were made from trust to pay the firm's invoices. It is not correct to say that the step of entering a credit note did not reduce the office account and that something more was required. In fact, the entry of a credit note was effective to ensure that a payment from trust was reflected in the office accounts.

85 The practice manager for the law practice, Mr Andrew Scott, had a better understanding of how the problem occurred, which he described in his affidavit sworn on 17 August 2009 in the following terms:

I was [sic] believed that Infinity Law would not allow moneys to be taken for our fees before the disbursements were paid. I was also aware that these disbursements were usually paid from trust once settlement moneys came in and later removed from the client's invoices using credit notes prior to the firm taking its due fees. I believed that this was correctly done.

The credit note entry included words like "paid by Trust" as this was the reason for removing them from the client accounts. I believe the accounting system was reducing the clients account at the same time as marking the disbursements as paid. Infinity Law's built-in warning regarding unpaid disbursements stopped after completing the credit notes. I was not aware that a further step of doing an adjustment note, for the same items and the same values as the credit note, was also required to actually reduce the client's account value. In fact I was not aware of the existence of adjustment notes at all, I did not know what they did or how to use them.

From a management point of view the procedure for paying disbursements from trust, writing them out of the client accounts and then taking our fees seemed to be correct and in accordance with trust procedures. With the benefit of hindsight I now know that when the Infinity Law accounting package was introduced the training was completely inadequate.

86 Mr Scott was asked in examination-in-chief to describe the manner in which the double payment of disbursements error arose. He said as follows:

Alright. The clients go through their case. Now over the years the clients cases instead of taking a few years ended up taking eight to ten years, a long long time. There was a number of legal delays involved. There were things that had to go to the High Court, and other matters, but it took a lot longer than the clients or we expected. But during those years we would bill them for disbursements, but not for barrister bills and the like, because barristers bills and the like were like us, no win/no fee - they got paid at the end. But other disbursements that came along we would bill the clients for during those years, so they would get some bills. However, when it came up to the finalisation of the matter, whether it was in court or through a mediation, for the client to make a proper assessment of what his position is, and what debt he is in, at the time of the mediation we gave him a cost estimate which listed all the costs of all the barristers, all the court's costs, all the travel, all the doctors, all the psychologists, all the costs involved in the case, we made a very comprehensive document called a cost estimate, we gave them that. We gave them copies of potential bills, a draft bill - the draft bill would be a listing of all of the disbursements he had not yet been charged, plus all of our bills, which up until that time he wouldn't have seen our fees. So he suddenly gets this bill for hundreds of thousands worth of fees, and sometimes hundreds of thousands of disbursements ... It must have been very hard for them to take it in, but he would get this draft bill and he would be told "This is the amount that is outstanding on your account. It's not the final bill, because we can't bill until it's actually settled." Then the settlement would take place, and assuming he did settle it in mediation that draft bill within a few weeks would become the final bill, and he would be given a copy of this final bill. It did have a trust statement, all our bills have trust statements attached. Now, at that stage all the disbursements as far as barristers go would be listed in that bill, but they would be listed as accounts owed by the client, because they - at that stage they're accounts owed by the client. It takes 28 days for the cheque to clear from the time they finish their legal paperwork, sometimes it's a couple of months before the money came in, but when the money came in it would be put into the Hollows trust account. From the trust account we then send off a cheque to the client. At the time of the settlement we had instructions to settle document which listed the amount he was basically going to receive, this is the time that they knew they were going to settle, and the amount he would be paid out of that settlement. So we would know exactly how much the client was getting out of it and he would be sent off his cheque. We would then go through the barristers and other disbursements that hadn't yet been paid and pay them. If we tried to take money at that point in time, or Hollows money, the computer system would not allow us, it would pop up "warning" would appear in the middle of the thing saying there is still disbursements outstanding on this, you can't take your professional fees. We would then have to do a credit note to remove the professional fees, so each one of the professional fees we had to do a credit note for, so we'd have a bill there for Mr [Barrister X] for $2,200, we'd have to go and do a credit note on that. Then we'd have another bill for Mr [Barrister Y] for $3,200, we'd do - and there was sometimes listed 20 or 30 credit notes, we had to do individual credit notes for each of these. At the time we did those credit notes - I've always liked computers, I always thought computers worked for you and not against you - I thought that was automatically taking them off the bill as well. I thought when we did the credit note it was credit noting the original account and taking it out of our account. It didn't. All it did was take it out of our accounts payable and left it on our account. Now if you do it now since they've done their computer upgrade when you write a trust cheque - I'll just step back one - Australian Software Programs, if Mr [Barrister X] is owed $2,200 you can write the trust cheque for Mr [Barrister X]'s bill, it will pay the bill and reduce the client's account automatically. With the new software upgrade they put in in mid 2008, which we put in in the end of 2008, it now does that, it automatically does credit note and adjustment note, adjust the bill. It automatically does the two steps automatically and that's what I thought credit notes were doing, and they weren't.

87 Mr Scott was also asked what steps he followed when he wrote a trust cheque. He answered:

Well the trust cheque just paid the account. It didn't link in any way to all the - when we got say Mr [Barrister Y]'s bill in 2002 and put it in our system it would go into the accounts payable and it would still be sitting in accounts payable, it wasn't linked by the trust cheque to the accounts payable. So we would do the trust cheque to Mr [Barrister Y], pay his account. We'd then go to the accounts payable and do a credit note and take it out. So that was the step we did do. What we should have done as I now know is do an accounts - go into accounts payable, do a credit note and take it out and then do virtually the same thing again using an adjustment note to take it out of the bill. That part I wasn't aware that we had to do and wasn't aware that we had to do it until the inspectors arrived, and until they pointed out that it's a problem, and even then we didn't know it was called an adjustment note, it wasn't until Lindy told us later and they said what you have got to do is the adjustment note.

88 Mr Scott gave evidence that the first time he learned of the process that would enable payments of disbursements from trust to be taken over to client bills was when he met with Lindy Thewlis on 1 December 2008. "Myself, Mr Forster and Lindy sat down and said, okay we've got these problems, how do we fix them, and Lindy said, well you can do it by adjustment note. I said, 'Well, what's an adjustment note?', and she showed me and it was very, very complicated and it took me a while before I picked it up. But that was the first I heard of an adjustment note to reduce the bill".

89 Mr Scott, when taken to a debtor's ledger exhibited to the affidavit of the firm's bookkeeper, Ms Mulyadi, agreed that credit notes reduced the client's balance in the debtors ledger. However, he said that it did not reduce the bill. In order to reduce the bill another step had to be taken. He agreed that the information in a bill about disbursements was taken from the debtors ledger. He said: "If a bill had not been done, and it was done it would take information from the debtor's ledger, but if you reduced the debtor's ledger at some later stage it doesn't affect the bill. It doesn't affect that bill that's already been done. ... And that's what we had not done, this is what we hadn't done, the adjustment notes. They were needed to reduce the original bill."

90 This picture is obscured by the evidence of Sherly Mulyadi, the law practice's part-time bookkeeper. Ms Mulyadi commenced working at the law practice on 24 April 2008. In her affidavit sworn 12 August 2009, she explained that she was trained to produce credit notes. Her training notes were exhibited to her affidavit. The process involved prefixing the invoice with the notation "CN", describing the entry as "paid by trust - reversed on [client name]" and entering an amount "in the negative".

91 Ms Mulyadi deposed to first learning about adjustment notes in December 2008 from Lindy Thewlis. These were to be used, "when you pay a Barrister from Trust or another disbursement from Trust and it is already billed to the client." She said that she did not previously understand that the office account had not been reduced by doing credit notes. "In the description column, I would type in 'paid by Trust - Reversal and the name of the account.' I believed incorrectly that this meant that the office account would be reduced." She gave as an example an item in the debtors' ledger of the client Ramsay which reads:

Barristers Fees SHARPE

J.L. Sharpe Inv

CN120905 (Paid) Paid by

trust-reverse from

Ramsay's Account

92 The example is not a good one, because it is evident from the debtors ledger that the reversal has reduced the balance in the debtors ledger by the correct amount. Indeed, in a suite of similar entries following the entry in question, each of which is annotated "paid by trust" and "reverse from", the balance on the ledger is duly reduced by the relevant amount.

93 Ms Mulyadi was asked in examination-in-chief whether she was aware that when a cheque was paid from trust, the payment was not automatically recorded in the client's bill. She answered in the negative. She said that she thought that by doing a credit note it would reduce the client's bill automatically, but somehow it still allowed the law practice to take the money without giving any warning that the amount had already been paid by trust.

94 In cross-examination, Ms Mulyadi was taken to the example in her affidavit of an entry in the debtors ledger described as having been "paid by trust". This was the entry for payment to Mr Sharpe of $3,431.82. She was also taken to an earlier entry in relation to the same invoice from Mr Sharpe for $8,800.

95 Ms Mulyadi seemed confused by these two entries as she could not immediately reconcile them. The invoice from the barrister was for $8,800, but the reversal was only for $3,431. When asked to put the difference aside and concentrate on the entry for $3,431 as being an example of a reversal of a payment that had been made from trust, Ms Mulyadi suddenly decided that the payment might not have come from trust after all. Ms Mulyadi said she was pretty sure that the amount of $3,431.82 had not been paid by trust. Had it been paid by trust, the whole amount would have been reversed. She said it was not always the case that an amount had been paid from trust when a credit note was done: every time you reverse you do a credit note and write in "reversal - paid from trust". But that does not mean the payment has necessarily been made from trust.

96 Ms Mulyadi agreed that the reversal of the amount of $3,431 had two effects: first, it meant that the law practice did not send a second payment to the barrister for that amount; secondly, it meant that the client would not be billed for that amount. She qualified this last answer by saying:

It depends though, if the bill's already been - the bill already being created it won't come up.

97 Ms Mulyadi agreed that the amount owing by the client was reduced by the amount of the reversal.

98 The position is further confused by the affidavit of Kirsty Eccles sworn on 18 August 2009. Ms Eccles was employed by the law practice from 8 May 2006 to 24 December 2008. Her role was to manage its Sydney office in conjunction with the practice manager, Mr Scott, who was based in Melbourne. Ms Eccles deposed that she had worked in accounts in solicitors' offices for a number of years before joining the law practice and that she regarded her accounting skills as good. However, she found the Infinity Law accounting package complex. The packages she was familiar with had separate office and trust receipts and payment systems. She said:

Mr Forster requested me to reverse the office entries on most of the New South Wales files where write-offs were necessary prior to closing files. I now know that the process used to do this involved missing a step which I was not previously instructed to do.

99 Ms Eccles did credit notes to make write-offs, but was not requested to do a separate adjustment note.

100 The relevance of the write-offs in Ms Eccles' evidence is unclear. According to the evidence given by Mr Scott, 'write-offs' occurred only at the time of the closure of files. By contrast, credit notes were used on an ongoing basis to reduce the balance in debtors' ledgers in respect of disbursements that had been paid from trust.

101 The defendant also relied on an affidavit of Keith Anthony Fox sworn on 20 August 2009. Mr Fox had nothing to do with the law practice, but was the bookkeeper for another law practice in Castlemaine. That law practice also used the Infinity Law software in 2007 and 2008. Mr Fox described the difficulties experienced with Infinity Law as follows:

Initially Infinity would not allow payments from trust of disbursements recorded in the system. This would mean either a lengthy process of paying the disbursement from office and then reimbursing from trust or paying from trust and then reversing the original disbursement entry. Infinity Law provided an upgrade to allow paying disbursements from trust, after which we had errors with trust cheques appearing on our office reconciliations.

In August 2008 after an update the Infinity system allowed me to apply trust moneys to an invoice when there was no trust moneys being held for the client. The system had a feature allowing an invoice to apply any money held in trust towards the invoice. As a result it was causing a negative trust balance. The system often required you to resolve a problem manually when a good system would do it automatically. This meant you would have to do two or three entries and the extra entering often created more errors.

103 Again, this does not seem to me to explain the problem experienced by the law practice. Mr Fox plainly understood that the Infinity Law package required disbursements paid from trust to be manually reversed in the office account.

104 Finally, in relation to the double disbursement issue, the defendant relied on two affidavits of Lindy Thewlis, who worked in Infinity Law software support, sworn 6 August 2009 and 30 September 2009. Ms Thewlis' second affidavit repeats most of the matters in her first affidavit.

105 Ms Thewlis' first affidavit provides a cursory explanation of how the double payment of disbursements arose. According to Ms Thewlis, the double payments occurred as a consequence of the law practice missing one of the three stages required. These stages consisted of drawing the trust cheque, doing a credit note against the creditor and finally doing an adjustment note against the bill. The law practice had missed the final stage. As the law practice had "credit noted" the creditor's invoice, the system in effect considered that this invoice had been paid and therefore did not trigger any alarms at the time of receipting funds to the bill. The following explanation appears in the affidavit:

They however were making note on the credit note for the creditor that the entry had been paid from trust. This notation indicates that the person doing the account entry was under the mistaken belief that this was the correct way to ensure that the outstanding bill was reduced.

106 In her second affidavit, this statement was slightly modified to read:

Hollows were effectively making a note on the credit note for the creditor that the entry had been paid from trust. This notation indicated to me that the person doing the account entry was under the mistaken belief that this was the correct way to ensure that the outstanding bill was reduced.

107 No more detailed explanation of how the double payments of disbursements occurred was given in the affidavits of Ms Thewlis. However, in examination-in-chief Ms Thewlis was asked to describe to the Court the error that was occurring. She said:

The firm had paid the creditor from the trust account, but they had already sent a bill, raised a bill to the client. When - at the time this happened when you paid a creditor from trust you had to reverse the creditor's invoice and you also have to - reduce the debtor's bill so it was a three stage step. What Hollows had not done was reduce the bill, and I think this was - I think they were under the impression that when they did the creditor's invoice reduction that it automatically reduced the bill, and that wasn't the case.

108 Ms Thewlis explained what an adjustment note was. Examples of adjustment notes that were sent to clients were put in evidence. The examples in evidence were simply statements crediting a particular amount to a particular invoice. They were produced to rectify discrepancies arising from the inclusion in the invoice of disbursements that had already been paid by the client. However, because both the disbursement and the invoice had been paid on behalf of the client by means of an appropriation from trust, the adjustment notes in question did not prevent the trust account deficiencies arising in the first place. Moreover, the adjustment notes did not restore moneys representing the amount of overpayment to the client's trust account. They were simply a mechanism to enable the law practice to 'net off' the overpayments to itself against other moneys owing or that would come to be owing to the law practice.

109 The defendant provided written final submissions which attempted to explain how the problem arose. In these submissions, the defendant said:

The failure to link trust cheques to accounts was a major software fault. The fact that Infinity Law created a patch to fix this fault is recognition of the reality of the problem.

The defendant and his staff understood that the preparation of a credit note was the appropriate way to complete the reduction in the office account to the payment made from trust for disbursements.

110 Plainly, this is not a satisfactory explanation. The evidence was that a credit note did reduce the balance in the office account in respect of a payment made from trust for disbursements.

111 Written reply submissions were also prepared in which the defendant submitted that:

The computer system was designed to prevent payments being made from trust to office when there were outstanding disbursements. When looking at the screen and seeking to transfer moneys from trust to office, warnings would appear and the system would refuse to allow the transfer unless all outstanding disbursements were accounted for. If a credit note was done when a payment was made from trust, there would be no warning and the system would incorrectly allow the transfer. The large bills usually with partial write-offs and partial payments of accounts over a number of years made the errors more difficult to detect. The firm had regular checks to ensure all disbursements were paid but depended on the system and its warnings for trust to office transfers.

112 Not surprisingly, the defendant was requested to explain more clearly how the double payment of disbursements occurred. During final submissions, the defendant handed up a further outline providing the following explanation:

1. The office account is all the firm's accounts other than the trust accounts. These are kept in a ledger called the debtors ledger which is linked to other ledgers including the creditors' ledger.
2. At the time the client's bill is made or created, it draws items from the debtor's ledger (such as office payments for disbursements, disbursement expenses), from the WIP, and from trust.
3. When a trust cheque is drawn to pay creditors that were previously billed to the client, there was no link to the other accounts.
4. Hollows created a credit note in order to reduce the amount paid by that trust cheque. The credit note was produced in the accounts payable and we believed it was reducing the creditor's invoices and the linked debtor's ledger to the linked client's bill. In fact it only reduced the creditor's and debtor's ledgers and failed to reduce the client bills.
5. Later the firm ascertained that not only did it have to do a credit note but that it should also do an adjustment note containing the same information. [Court Book reference is provided.]
6. The new software package correctly links the trust cheque with the creditor's ledger reducing it and then reducing the debtor's ledger and reducing the client's bills at the same time. What it does now is what the Practice thought it always did.

113 The explanation that was given by the defendant in final submissions by counsel seemed to attribute the double payment of disbursements to the fact that the drawing of trust cheques to pay creditors would not be reflected in a bill that had already been prepared. Counsel for the defendant, when again pressed to explain what had gone awry, said:

The specific situation that we have got here arises when in fact the client's bill has already been prepared, and the credit note reduces - the credit note which was produced at the time the trust cheque was drawn would have the effect of automatically - would have the effect of reducing the debtors' ledger but not the client's bill. ... The problem, as I understand it, arises when the client was - the bill was prepared previously, for example for the mediation, and a cheque was paid from trust, the credit note was created, that reduced the debtors' ledger but it didn't reduce the client's bill which was sitting there.

114 In effect, it appears that the double payment of disbursements occurred because the client invoice was prepared before settlement funds were received and third party disbursements were paid. The invoice included amounts for disbursements. It was a static document. Settlement moneys were then received, paid into the trust account and third party disbursements were paid from those trust moneys. There was then a further appropriation from the trust account to pay the invoice as a whole (including the disbursements that had since been paid). This resulted in trust account deficiencies, because moneys were appropriated from trust for the same purpose twice. The law practice had the benefit of the second payment.

115 In these circumstances, it seems to me to miss the point to attribute the trust account deficiencies that were created by the duplicated appropriations from trust to defects in the Infinity Law accounting package and the failure to produce adjustment notes. If funds are appropriated from trust to pay costs and disbursements on the strength of an invoice that has already been prepared (and given to the client), but disbursements are also separately paid from trust without reference to the invoice, then surely that is a problem with the way that the accounting system is being used rather than a problem with the accounting system per se. Invoices were prepared before disbursements were paid and a credit note entered in the debtors ledger to reduce the balance owing by the client. This is a process issue, not a problem with the software. The manual entry of a credit note would have ensured that the running balance of the debtors ledger reflected payment of disbursements.

116 I find the suggestion that the problem arose from a failure to create adjustment notes very odd in circumstances where the invoice that the adjustment note 'adjusts' was sent to the client before the payments to which the adjustment note refers were made.

117 The law practice could have avoided the double payment of disbursements if, as the LIV compliance manager Mr Dunn suggested, it had produced and checked a final trust statement before appropriating money from trust to pay itself. The trust statement would have disclosed that the disbursements had already been paid from trust. A number of invoices and trust statements were put in evidence. Although the invoices were often very large (that is, they described a very large amount of work on the file over a number of years and ran over several pages), disbursements were separately itemised and were not nearly as large in number as the itemised services. Trust account statements were generally quite short. It would have been a simple matter to check the disbursements in the invoice against disbursements in the trust account ledger before appropriating moneys from trust for the payment of invoices.

118 On the evidence before me, therefore, I am not satisfied that the double payment of disbursements was due to a fault in the Infinity Law software. I accept that payments made from trust were not automatically recorded in the office account ledgers (that is, the debtors or creditors ledgers). Infinity Law was designed to and did quarantine the trust account from the office account - transactions recorded in the trust account would not be automatically recorded in the office accounts. This was well known to the law practice, which made manual entries in the form of a credit note each time a payment was made from trust.

119 It is uncontroversial that credit notes entered in the office account ledgers served to reduce the relevant balances. An invoice prepared using those ledgers would properly reflect the payment of disbursements from trust, and the client would not be billed again for those disbursements. However, the credit note did not, as Ms Thewlis observed, automatically reduce an invoice that had already been prepared. A further step was required to remove the paid disbursements from any invoice that had already been prepared. I find this unsurprising. I find that the defendant has not given a satisfactory explanation for the double payment of disbursements.

The defendant's knowledge of the double payment of disbursements

120 The Board contends that there is evidence from which the Court should conclude that the defendant became aware of the potential for the double payment of disbursements in 2007, well before the inspectors carried out the inspection. The Board points to four 'events' that it says demonstrate that the law practice was aware, or ought to have been aware, of the potential for the double payment of disbursements.

121 It is sufficient to consider the first 'event', which is an inter-office memorandum dated 16 May 2007 drafted by a solicitor in the practice's Sydney office, Susan Johnson, in the matter of Ramsay. The memorandum is addressed to Diane Dawson, Peter Scott and the defendant. It records that the defendant asked Ms Johnson to review a cost estimate that had been prepared for Mr Ramsay, compare it with the accounts folder and check all the correspondence folders for invoices. Ms Johnson went through all the correspondence folders, the accounts folder, and the trust and debtors ledgers in an attempt to work out what had been done over the past five years. She identified 21 issues requiring attention. Six of those issues involved the identification of a potential double payment of disbursements. For example, in relation to a disbursement for a transcript fee, Ms Johnson said: "$1,462 has been paid from trust. I am not sure why we are billing Mr Ramsay again for this item."

122 Five other disbursements were queried in the same terms: " ... has been paid from trust. I am not sure why we are billing Mr Ramsay again for this item."

123 Neither the defendant nor Mr Scott would accept that the memorandum drew attention to a problem with the law practice's accounting that could have led to the double payment of disbursements. They said that the purpose of the memorandum was to identify all disbursements in the matter, irrespective of whether they had been paid. As the Board pointed out, this does not meet the relevant point. The importance of the memorandum is the fact that Ms Johnson had identified that the practice's records were showing disbursements as unpaid, when in fact they had already been paid from trust.

124 In my view, the defendant, as principal of the law practice, and Mr Scott as its manager, should have followed up on the problem identified by Ms Johnson. It is plain that that follow-up did not occur and the manner in which both the defendant and Mr Scott sought to minimise the impact of the 16 May memorandum is worrying. The defendant ought to have been alerted by the 16 May memorandum to a potential problem with the recording of payments made for disbursements across its accounting system. However, I do not consider that the existence of the memorandum shows knowledge of the double payment of disbursements so that it could be said that the double appropriation of trust funds for disbursements was deliberate.

125 It is worth briefly mentioning the second 'event' identified by the Board, which are transactions which took place on 18 June 2007 in the matter of Rann. Mr Rann's debtors ledger records that on 18 June 2007, two disbursements which were the subject of an invoice rendered by the law practice were written off in the debtors ledger with the accompanying narration, "Disbs paid from trust". Mr Rann's trust account statement shows that the two disbursements had been directly paid from trust on 25 May 2007. Invoice No. 3919, which contained the two disbursements, was entered on Mr Rann's debtors ledger on 19 April 2007. Consequently, the two disbursements would have been available to be paid twice had they not been removed from the debtors ledger. The Board contends that the write-offs which occurred on 18 June 2007 were correct and necessary. However, Mr Scott gave emphatic evidence that they were not.

126 The write-offs in question, and a further entry which 'wrote up' an amount that was the sum of the two write-offs, generated a great deal of confusion in the evidence of the defendant, Mr Scott and Mr Lombardo, the accountant to the law practice. Mr Scott insisted that the entries writing off the two disbursements were incorrect. That is why an equivalent amount was 'written back in' on the same day. He could only imagine that the write-offs were a mistake, because the law practice would not write things off in the middle of a case.[10]

127 I do not accept this explanation, if it can be described as such. The more likely explanation is that the writing off of "disbs paid from trust" recognised that the disbursements had already been paid from trust and that these payments had to be recorded in the client's debtors ledger as credits. The law practice knew that a credit note, or something like a credit note, had to be entered in the office accounts if a disbursement was paid from trust. Why the reversal was described as a write-off in this instance, but as a credit note in other instances, is not explained. Why the write-offs were reversed by a 'write-up' is a mystery.

128 I have concluded that the double payment of disbursements was inadvertent. However, there were clear signs that should have alerted the defendant and his staff to a problem with the firm's accounting processes and which highlighted the need to make inquiries to ensure that trust moneys were dealt with in accordance with the Act and Regulations and the client was not left out of pocket by an accounting error.

129 Insofar as the 'events' referred to formed the basis for the Board's contention that the defendant failed to report trust account irregularities as required by s 3.3.22 of the Act, that failure is not made out in my view. The defendant was not aware of the double payment of disbursements until he was alerted to the problem by the inspectors.

Failure to provide final trust account statements

130 Regulation 3.3.28(6)(a) requires a trust account statement to be furnished as soon a practicable after the completion of the matter to which the ledger account or record relates.

131 At the conclusion of the inspection carried out by Mr Chun and Ms Kozovska, no final trust account statements had been sent out for any of the completed files examined by them. All but one of these files had been completed. Some of the files - for example, the matter of Rann - had been completed almost two years previously.

132 The defendant's explanation for the failure to send out trust account statements was inconsistent. On the one hand, he said that he did not realise there was a requirement to send out final trust account statements; on the other, he asserted that final trust account statements had been sent out in about two thirds of the files.

133 On the basis of the evidence in relation to the 12 files examined by the inspectors, I do not accept that final trust account statements were sent out in the majority of matters handled by the law practice. Nor do I accept that failure to send out statements in completed matters was due to oversight, mistake or ignorance. Rather, the failure seems to reflect a carelessness in accounting to clients once matters had settled, large sums had been received from the Commonwealth and the law practice was in a position to recoup its expenses and pay itself some fees. At this stage in the process, matters of accounting seem to have been handled in a rush, and important steps involved in proper accounting to clients were disregarded.

134 Had final trust statements been prepared and sent to clients in a timely manner, the clients would have been in a position to identify the double payment of disbursements. However, without a final trust account statement, clients were not in a position to know that payment for disbursements had been taken twice by the law firm. In the circumstances, the failure to provide final trust account statements had serious consequences.

135 In this context, it is convenient to say something briefly about the evidence of Mr Ronald Male, who was the approved external examiner for the law practice for the purposes of the annual examination of its trust records under s 3.3.52 of the Act for the years 2006, 2007 and 2008. Mr Male deposed to having used an audit program that he devised himself. He did not identify an problems with the "trust recording" by the law practice. However, he acknowledged that his testing would not have been nearly as comprehensive as that carried out by the inspectors. The errors identified appeared to be complex and difficult to identify.

136 It may well be that Mr Male's audits did not involve checking whether final trust account statements had been sent out in accordance with Regulation 3.3.28(6)(a), or the checking of trust account statements against invoices in individual cases. However, these were actions that were well within the capacity of the defendant and the staff of the law practice. Because they were not carried out, serious irregularities occurred in the law practice's management of its trust account.

137 It was the defendant's case that the LIV knew that there was a flaw in the Infinity Law software and failed to alert practitioners to the dangers. The defendant says that had LIV informed him of the flaws and required Infinity Law to act upon a review it had carried out, most of the problems identified by the inspectors would not have occurred or would have been readily rectified. According to the defendant, the LIV had a conflict between its obligations to members to assist them to access appropriate and compliant accounting software and the advertising revenue streams it received by promoting the greatest number of accounting packages on its website.

138 In his final written submissions, the defendant submitted that:

(a) LIV inspectors, Noel Henman and Bill McCormack, gave evidence of the problems caused by Infinity Law, providing an objective basis for the reasonable excuse of the law practice in not detecting the fact that a credit note entered when payments of disbursements were made from trust did not reduce the office account balance;

(b) The LIV had carried out a review of the Infinity Law accounting software ("the LIV software review") and became aware of the very flaws in the accounting software that caused the double payment of disbursement error, "viz. disbursements paid by the firm from trust were not automatically recorded in the debtors ledger." The review demonstrated that the Infinity Law system had substantial compliance problems and solicitors had provided negative feedback regarding the package. There were also resourcing and training problems;

(c) The LIV failed to warn the law practice and, subsequently, to inform the Board of the problems with Infinity Law. The LIV was aware of the errors in the accounting software package at all relevant times, and that these sorts of errors were likely to be experienced by the law practice. This was demonstrated by a memorandum written by Mr Dunn dated 29 October 2008.

139 These submissions are not supported by the evidence. The defendant's focus on the role of the LIV in the problems experienced by the law practice did not assist the Court to understand how the problems identified in the Chun Report arose or to be satisfied they had been properly remedied. The defendant spent far too much time establishing what the LIV did or did not know about the Infinity Law software package, and gave too little attention to dealing with the irregularities identified in the Chun Report.

140 In respect of the matters that are alleged against the LIV, I find, in summary, that:

(a) Although Messrs Henman and McCormack gave evidence that transactions in the trust account were not automatically picked up in the office account, it is not correct to say that the law practice was not aware of this fact or that a credit note did not reduce the office account balance. There was ample evidence in the records of the law practice that the debtors ledger was reduced by a credit note entry and that credit notes were regularly used by the law practice to align the office accounts with the trust account;

(b) The LIV software review, which included a review of the Infinity Law software, found that the software did not comply with the Regulations in certain respects, but the areas of non-compliance identified were unrelated to the double payment of disbursements or the other irregularities identified in the Chun Report;

(c) The LIV, in sending inspectors to the law practice, had no reason to believe that the law practice was likely to have experienced a problem with the double payment of disbursements. The memorandum referred to does not show that the LIV anticipated that there would be a problem with the double payment of disbursements at the law practice, and there is no evidence that the law practice was targeted because of its use of the Infinity Law software.

141 Starting with this last point, the memorandum in question is from Mr Dunn to the inspectors dated 29 October 2008, and relates to the conduct of the inspection. The memorandum commences by outlining briefly the nature of law practice's work by reference to the Voyager cases. It then says:

When you attend the practice please look at completed Voyager cases to see if costs have been double-dipped; that is has the practice charged clients for identical work. This check can be done from the trust ledger and bills. Costing of files or lengthy review should, I feel, not be necessary.

Lastly, please check complaints in the normal way. Aim to visit by mid November.

142 Mr Dunn gave evidence that he decided that an inspection of the law practice was timely in view of the fact that he had become aware that the Voyager matters had recently settled. He knew the law practice was one of two practices that handled most of these matters. He checked the LIV database and saw that the law practice had not been inspected since the introduction of the new legislation. He thought that it was time for an inspection. The memorandum makes clear that Mr Dunn did not expect the inspection to be detailed.

143 In the memorandum, 'double dipping' expressly refers to charging clients for identical work. On its most likely meaning, this means charging a number of clients for the same service. This would be a logical concern given that the law practice was acting for a number of individuals with claims arising from the same event. The law practice would inevitably perform some of the same work on a number of files and that work should not be charged in full to each file.

144 Mr Dunn said that he didn't know the law practice was using Infinity Law. Although there was evidence that the defendant spoke to Mr Dunn about Infinity Law software in 2004 (when he was contemplating changing the software the law practice was using at the time), it is entirely plausible that Mr Dunn did not remember that the defendant told him he was considering switching to the Infinity Law package.

145 Moreover, when it was put to Mr Dunn that he instructed the inspectors to look for the very problem that they subsequently found ("and that was that they were paying disbursements from trust, and that that payment wasn't automatically recorded on the debtors ledger"), Mr Dunn's response was unequivocal:

No, I certainly didn't say that to them [the inspectors] and I didn't think at the time.

146 I accept Mr Dunn's evidence. His memorandum does not show that the LIV was aware of faults in the accounting software package leading to the double payment of disbursements, or that he thought this problem was likely to be experienced by the law practice. Indeed, Mr Dunn gave evidence that he was not aware of any other law firm having problems with the double payment of disbursements.

147 Much was also made by the defendant of problems experienced by another law firm ("X") that used Infinity Law software. This firm was the subject of an inspection carried out by Mr Dunn and Mr Henman. It experienced problems using the Infinity Law software. However, firm X's problems arose from the fact that the software was designed for payment of disbursements to be made from the office account in the first instance. Firm X drew cheques from its office account for the payment of disbursements, but had insufficient funds to honour them, so it held on to the cheques and allowed them to become stale. Firm X communicated extensively with the LIV about what it considered to be shortcomings of the Infinity Law software, and established a users' group to put pressure on Infinity Law to modify the software.

148 The defendant exhibited to his affidavit sworn on 5 November 2005 and placed much reliance on a document entitled "Infinity Software" that had been produced to him by the LIV in response to a subpoena. The document runs for a page and a half, is undated and its author is not identified. It was so frequently referred to by the defendant that it came to be referred to as "CB1309". For convenience, I will continue to refer to it as CB1309.

149 CB1309 records that the Infinity Law software does not produce a number of reports and that it has problems, in that not all the required detail is produced in reports that are generated. It notes, for example, that a trust account transfer journal is not printed out at months end. At the end of the document, some text appears in a larger print that reads:

Infinity Software issues are known to Melissa and Bill. Noel Henman. My current investigation involves issues with Infinity software as well as other liquidity problems.

Infinity system requires that disbursements are drawn prior to receipting of trust office transfers, which is good if the firm can fund the barrister's fees etc.

Client creditors must be drawn from the office account to enable appropriate entries to be posted to the creditors system. Total client debtors receipts likewise must be transfers to office account to offset against the debtors system.

As reg. 3.3.34(3)(a)(iii) and (6) requires disbursements to be drawn & presented prior to the appropriation of client trust funds from trust to office the legal practice run [sic] into cash flow problems as the transfers are held up.

Client disbursements cannot be paid from trust as appropriate debtor receipts and creditor payments will not be posted to the firm's debtors and creditors systems to maintain the integrity of these systems. Systems upgrades are required to enable payment of disbursements from trust with offsetting notional entries to the firms debtors and creditors.

150 The defendant relied particularly on the last paragraph of the text.[11]

151 Mr Henman from the LIV was subpoenaed to give evidence by the defendant. He said that the first part of CB1309 was not prepared by him. However, he prepared the portion of CB1309 in larger print which is set out above. He believed that CB 1309 was created when Mr McCormack, another trust account inspector, merged two documents together. Mr Henman wrote his part because he understood that a review of some software products was being undertaken, and inspectors were requested to set out issues with software that they had come across. He had been involved in an inspection of a firm that used Infinity Law software and had provided his comments on its use.

152 When asked by the defendant's counsel to elaborate on his understanding of the Infinity Law system, Mr Henman explained that legal practices have trust accounting and office accounting software systems - the trust account is intended for the receipt of client trust moneys and disbursement of trust moneys; the office account has invoicing, creditors and debtors modules attached to it, and the transactions which affect those particular accounting modules are affected by transactions, receipts and payments that go through the office account. Transactions which are generated by the trust accounting system are not linked directly into the creditors and debtors systems in the office account. Accordingly, transactions which are processed from the trust account will not be reflected in the modules which are connected to the office account. This means that creditors must be paid from the office account before moneys can be transferred from trust to office.

153 In cross-examination, Mr Henman was asked whether what he meant was that payments could not be made from trust on the basis that the creditors and debtors ledgers would be automatically updated. He said that that was correct and agreed that there was a way of manually updating the office accounts by reversing amounts in the ledgers.

154 Mr Henman was taken by the defendant to another document that had been produced to the defendant by the LIV on subpoena.[12] This is a redacted document of a single paragraph headed "Item 10", accompanied by the following (typewritten) text:

Infinity has advised that they will not act until the LIV have provided them with directions as to what modifications are required. They have stated that they are awaiting a meeting with the LIV in August to seek direction from the LIV. Accordingly there is very little we can do unless the LIV can document the necessary changes they would like to see so that we can pass them on to Infinity. Clearly, it is in everyone's interest to have Infinity correct the necessary system deficiencies, as it seems very likely that all users of this particular software product will have similar breaches of the regulations as a consequence of the system handling of items that have been highlighted above. Infinity have confirmed that all users of their software are in conflict with 3.3.34 as interpreted by the LIV but the LIV know about the issue and have approved the use of their software.

155 To one side of this paragraph is a handwritten note that says: "Depends on funding. Changes to enable disbursement payments from trust while maintaining integrity of debtors and creditors system proposed".

156 In his affidavit sworn on 5 November 2009, the defendant asserted that the document in question was an extract from the minutes of the LIV "executive council".[13] Mr Henman's evidence was that while the handwriting on the side was his, the typewritten text was an extract from a letter the LIV had received from firm X, the firm that he and Mr Dunn had inspected.

157 When asked what his annotation meant, Mr Henman said:

Other systems have the ability to apply payment which comes in the trust, or the office account to offset against these creditors which are raised, basically connected to the office account. The offset would then reverse that particular credit.

158 Mr Henman also gave evidence about notes he prepared for the purpose of discussions with Mr Dunn and Mr Cottee of the LIV, and the partners and financial controllers of firm X. In these notes, he again observed that the Infinity Law software could not handle disbursements being drawn from the trust account in payment of creditors and that it was essential that disbursements or creditor payments were properly offset to maintain the integrity of the accounting system.

159 Mr William McCormack, another trust account inspector at the LIV, gave evidence about problems with the Infinity Law software. He said it was "hard to get reports out of". "A lot of computer packages are not user friendly. There's a whole range of different features that some of them have, and others don't have them and depending on how much you want to pay you get them or you don't." On a scale, he rated the Infinity Law software as being "like a Fiat 132". There were packages that were "more like a Ferrari. Infinity Law was only just average, it was not a great package. There were better packages for the money."

160 Mr McCormack said he had contributed to LIV software review. The main intention of the review had been to see if the software was comparable in order to determine whether there was value for money in the different packages. "However, the way that the packages were structured and written, the comparison just could not be done, so they gave up in the end." He said he did read the review when it was completed, but when he realised it was not going to fulfil its purpose, he (and others) lost interest in it.

161 It was Mr McCormack's recollection that CB1309 was produced after the LIV software review. He had told Mr Henman that he had come across the Infinity Law software and that it was "difficult to get reports out of it", so he sent Mr Henman a copy of his part of the document. Mr Henman gave him "a little bit that he stuck on the end". He just "stuck it in his directory and left it there for future reference in case anyone else came along." In this context, Mr McCormack said that in eight years he had only ever come across two firms using the Infinity Law software.

162 Mr McCormack was asked specifically about the statement made by Mr Henman in CB1309 that "[c]lient disbursements cannot be paid from trust as appropriate debtor receipts and creditor payments will not be posted to the firm's debtors and creditors systems to maintain the integrity of these systems". He was asked whether he was aware of that issue at the time. He said that he was not, because he had not looked at the office account. He said:

I think what he's saying there is that a lot of computer systems - and they've all got the same problem when it comes to doing this - if you pay a disbursement from the trust account, right, and you've raised the liability in the office account right, the computer doesn't know that you've paid it from trust. You have to tell the office account that you've paid it from trust, so it clears it, and if you don't do that, again it comes down to operator training, then it's going to stay there, and most computer systems are designed like that, so that the trust is sacrosanct in the office account, so you've got to raise - for example Locus does this very well, it's another computer program - it raises a liability for say a thousand dollars to a barrister, it stores the liability. Then it's assumed that you're going to pay it from the office account and the computer office account part of the computer assumes you're going to pay it from there, but if you pay it from trust and don't tell it you've paid it from trust it will never know and it will stay there as a liability forever, so you have to tell it that you've paid it from trust to clear that liability out.

163 For his part, Mr Dunn described the Infinity Law software as having "one good advantage": it required disbursements to be paid out of the office account. He said:

Well, Infinity always requires you to pay it [the disbursement] first from office and most practices simply pay it from office and then draw the funds across and bank the funds into office.

164 From the evidence given by Messrs Dunn, Henman and McCormack, I conclude that:

(a) The Infinity Law software was cumbersome and was not easy to use;

(b) Like many other legal practice accounting programs, it isolated the trust account from the office account and its various modules;

(c) This was generally a good thing, given the special status of trust moneys and the special accounting requirements for them;

(d) However, it did require manual entries to ensure that transactions in the trust account were properly reflected in the office accounts and the integrity of those accounts was maintained;

(e) The Infinity Law software was set up on the basis that third party disbursements would be paid initially from the office account and not from the trust account. If third party payments were made from the trust account, manual entries were required to ensure that the payment was recorded in the office accounts;

(e) This would require additional attention for a firm like the law practice that paid disbursements from settlement moneys received into trust.

165 The defendant placed particular importance on the LIV software review, because he submitted that it established that the LIV knew about the very problems that he experienced with Infinity Law softare. He subpoenaed Ms Val Kozovska to give evidence about the LIV software review and the LIV's knowledge of problems with the Infinity Law software. Ms Kozovska was formerly employed as a trust account inspector at LIV and carried out both the inspection of the law practice with Mr Chun and the LIV software review.

166 Ms Kozovska gave evidence about how the review was conducted and the results that it produced. She said that the purpose of the review was to ascertain which was the superior software product. A questionnaire was issued to software providers, which they were requested to complete and return. The providers were also asked to nominate law practices that used their product that the LIV inspectors could visit and from which they could obtain feedback about the product. The reviewers looked at the trust accounting side of the software to see whether it complied with Part 3.3 of the Act, that is, the trust accounting requirements.

167 The LIV software review was tendered in draft form. It records that ten software providers were invited to participate in the review, and seven providers actually participated. The review summary shows that compliance with trust accounting regulations was demonstrated by one product only, minimal changes were required to five products and many changes were required to the Infinity Law product. In relation to the latter, the review records that "feedback obtained from law practices was generally negative and highlighted issues with regards to data integrity and software provider support".

168 More specifically, the LIV software review identified the following problems with Infinity Law:

(a) Cash books could not be provided for the general office account;

(b) Numerous changes were required for product to be compliant with trust accounting regulations in Victoria. Regulations 3.3.15(2), 3.3.19(2)(b)(i), 3.3.18, 3.3.28, 3.3.23 and 3.3.26 were highlighted;[14]

(c) Infinity Law resources were strained to support Victorian law practices, which expressed concern as to the length of time taken to respond to user requests.

169 Ms Kozovska was asked whether the LIV software review had identified an issue relating to the payment of disbursements from trust. After briefly perusing the review document, she answered that that issue was not identified as a problem in the review. She said she did not understand from her own knowledge that it was a problem with the Infinity Law software. Ms Kozovska was also asked whether the explanation given by the law practice for the double payment of disbursements, involving "the non-allocation of payments to creditors from the trust account ledger against the creditors account ledger", was the same as the issue identified by Mr Henman in CB 1309. She said, "They're different, the way I interpret them is that they're different." In the case of the law practice, disbursements were paid from trust. Mr Henman's issue was that disbursements could not be paid from trust.

170 In cross-examination Ms Kozovska was taken to the problems with Infinity Law software identified in the LIV software review and asked whether any of these problems was related to the double payments of disbursements. Her answer was, "No". When asked whether, when she conducted the inspection at the law practice, she had found a large number of disbursements that had been paid from trust, she agreed that she had, and that it was not the case that disbursements could not be paid from trust.

171 The evidence of Ms Kozovska did not assist the defendant. The LIV software review found numerous problems with the Infinity Law software. However, the problems identified were not of a kind that contributed to the double payment of disbursements or the other issues identified by the inspectors at the law practice. The defendant's assertion that the LIV knew that the Infinity Law software caused the problem with the double payment of disbursements and failed to alert practitioners to the problem was not made out through the evidence of Ms Kozovska or any of the LIV inspectors or managers who were called to give evidence.

172 In four of the 12 files examined by the inspectors, clients were billed twice for the same disbursement. The defendant concedes that double billing occurred, but says that it was a result of administrative error, and that the numbers of such errors were small given the overall number of accounting entries made over the period of the litigation. I accept that these errors were inadvertent. The most likely explanation for them is that they occurred in the course of data entry.

173 However, the errors in question were not trivial. In one instance, the double billing of disbursements involved counsel's fees of $53,375.70. The Chun Report notes that the law practice did not receive full payment of the invoices in question and wrote off an amount of $512,417.93. Nonetheless, the double billing of disbursements creates a further trust account deficiency and shows poor record keeping by the law practice.

174 The Chun Report identified two instances where the law practice billed the client the full amount of a disbursement, but paid the creditor a lesser amount. In the matter of Simmonds, counsel's fees were reduced by agreement by $26,775.00. However, the law practice applied the full amount of the disbursement in its invoice to Mr Simmonds. In the matter of Smith, a discount of $3,525.00 was not passed on to Mr Smith, who was also billed for the full amount. In each case, the payments to counsel were made from the firm's office account, which made it impossible for Mr Simmonds or Mr Smith to see that the fees had been discounted.

175 The defendant gave evidence about the importance for the management of the litigation that he negotiate with counsel in relation to their fees. If he did not negotiate discounts, settlement moneys could be consumed by fees. I accept that this is so. However, although the defendant denied that he negotiated the discounts for the benefit of the law practice and maintained that he negotiated the discounts for the benefit of the client, he gave no proper explanation for the failure to pass on the discounts that he negotiated with counsel. In the matter of Smith, he does not assert that the Chun Report was wrong and that the discounted fees paid from the office account were in fact reflected in the invoice sent to Mr Smith and paid from trust. In fact, in the 5 March response to the inspectors concerning the matter of Smith, the defendant's response is "Credit note completed and amount reversed". This appears to be an acknowledgement that Mr Smith was not invoiced for the correct amount. In relation to Simmonds, the 5 March response to the inspectors says nothing at all about this issue.

176 In his final written submissions,[15] the defendant made a strange submission in relation to discounts given on barristers' fees: "Mr Forster assumed that barristers would comply with the spirit of their agreement when advising clients the payment they would receive". I am unsure what to make of this. The fact remains that clients were invoiced for barristers' fees by the law practice.

177 At the very least, the failure to pass on one or more of the discounts shows poor accounting practices on the part of the law practice. Because trust moneys were used to pay the law practice rather than the creditor, the failure creates a trust account deficiency.

178 In the matter of Ramsay, the Chun Report identified a payment from trust made contrary to an express written direction from Mr Ramsay. On 10 July 2005, Mr Ramsay forwarded $4,408.96 to the law practice with an instruction that it was to be used to pay two particular invoices: an invoice from the law practice and a doctor's invoice. However, the law practice used the full amount to pay two of its own invoices, one of which was disputed by Mr Ramsay.

179 The defendant has admitted that the law practice did not disburse trust moneys in accordance with Mr Ramsay's direction. The defendant's 5 March response to the inspectors states that the payment to itself was the result of 'oversight' but that, in any event, it understood that Mr Ramsay was agreeable to paying his account in part on the basis that his position was preserved on assessment. This is not consistent with a letter to the firm from Mr Ramsay dated 9 March 2006, in which he said that he found it unprofessional of the firm to redirect payments to invoices under dispute.

180 The 5 March response to the inspectors also states that when the defendant first became aware of the misunderstanding moneys were paid into trust. However, the Board points out that Mr Ramsay's trust account ledger shows no repayments until 23 and 24 September 2008, which is more than two years after Mr Ramsay had complained about the misdirection of his funds.

The manner in which deficiencies were restored by the law practice

181 In his affidavit sworn on 1 October 2009, the defendant responded to Mr Chun's affidavit and denied failure to account for trust moneys in all matters reviewed. In particular, the defendant said that the Chun affidavit misrepresented and exaggerated allegations, and omitted detail regarding the proactive identification and correction of errors by him, in order to falsely convey a sense of crisis necessary to support the current application.

182 The defendant denies there was a deficiency constituted by insufficient moneys in any one of the matters reviewed by the inspectors. It was the defendant's case that all the deficiencies identified had been restored by the law practice. In his affidavit sworn on 1 October 2009, the defendant summarised the position with respect to each file in which the inspectors had identified deficiencies as follows:

The sum of $13,600.10 was initially deposited into Mr Rann's trust account when the error became apparent and I had lodged this extra amount for purposes of caution. This was later distributed $6,114.60 to Mr Rann and $7,845.50 to Hollows as agreed by the current LIV supervisor Mr Dunne. The error was caused by the software problem.

All barristers have provided written advice that there were no outstanding accounts;

An underpayment to Mr Vesty inadvertently took place which was caused by the software problem and which was refunded to him on 3 February, 2009. This deficiency is admitted.

There was no deficiency. He was billed for work previously uncharged.

An underpayment to Mr Smith of $10,050.67 took place which was caused by the software problem. This was duly refunded to him. Further work has been done, including fees of the cost assessor and final settlement of party-party costs and is ongoing.

There was no deficiency. The client was billed for work previously uncharged in an amount of $220.28.

There was no deficiency. An accounting adjustment was put against previously written unpaid accounts of $19,320.41 which had previously been written off.

Junior counsel, Mr Mueller has not repaid barristers fees which were paid to him on the basis that the High Court would not consider the taxation of the bill without all of Mr Mueller's fees being paid in advance. Mr Mueller's back sheet provided a condition that counsel will accept the amount received on taxation for party-party costs. The taxation of such costs took considerable time later after settlement. Acting on the oral advice of the cost consultant the High Court proceedings were settled and Mr Mueller has refused to accept the reduction in counsel fees recommended by a cost consultant and has chosen not to repay the fees paid to him nor adjust his fee invoice accordingly. In my opinion the recovery of counsel fees would have been worse if proceeded and it would have been against the interests of the client if he had then to pay the extra costs associated with the disputed costing and be at risk of paying the defendant's legal costs.

183 This does not paint the full picture. In the matters of Craggs, Simmonds, Spaulding and Stafford, previous debt write-offs were reversed so as to completely offset the deficiencies. In the matter of Lewis, new invoices were raised to the same effect. In the matters of Pride and Fogarty, the deficiencies were offset by both the reversal of previous debt write-offs and the raising of new invoices. In the matter of Singline, the deficiency was offset against existing debts. In the matters of Rann and Smith the deficiencies were partly offset against new invoices raised and the remainder refunded to the client. Only in the matter of Vesty was the amount of the deficiency completely refunded to the client.

184 In June 2009, Mr Scott, in conjunction with the defendant, prepared individual letters to clients and a general letter to inform them of the errors and what steps had been taken to remedy the errors. A copy of the pro forma letter is exhibited to Mr Scott's affidavit. The relevant part of the letter reads:

This letter is to ensure you are kept fully informed of developments regarding your matter. Your file is finished and there is currently no additional money owing. However during a recent inspection of our trust records we discovered errors in some of the accounting procedures which have been used on our files. This has meant in some cases that items billed to you and later paid from your trust account moneys remained on your billed account without it being reduced in the appropriate way.

As these errors were found they have been corrected, using various methods such as; the writing back in of debtors, expenses and disbursements then issuing adjustment notes, credit and debit accounts where necessary.

185 This neatly summarises the steps that were taken by the law practice to remedy irregularities that had been identified: in most cases the law practice thought it sufficient to write back in amounts previously written off or to raise new invoices.

186 The defendant sought to put into evidence a report prepared by his accountant, Mr John Lombardo, described as an "Expert Evidence Report". Much of this report was ruled inadmissible, as Mr Lombardo told the Court that he was not an auditor, and that he was only generally familiar with trust account requirements in the Act and Regulations.

187 Mr Lombardo expressed the opinion that where clients' files had 'write-offs' well in excess of any alleged deficiency, then no deficiency should be recorded "from an accounting perspective". To similar effect, Mr Lombardo said:

From an accounting procedure perspective, the write back of outstanding amounts when errors were identified after amounts were written off when payment was not expected is perfectly OK.

188 Likewise, in his affidavit sworn on 17 August 2009, Mr Lombardo dealt with the files considered by the LIV inspectors. He concluded that there was no deficiency, or no "net deficiency", "current deficiency" or "current net deficiency" in the matters of Rann, Craggs, Vesty, Lewis, Smith, Pride, Fogarty, Simmonds and Stafford. He said that he was satisfied that appropriate accounting corrections had been made by the law practice to meet the accounting errors.

189 It may well be that, from an accounting point of view, there were or are no deficiencies in the practice's accounts where amounts paid by the law practice to itself in error can be offset by moneys owing to the law practice by the client for unbilled work or work that has been written off. As a matter of simple mathematics, so much is clear. That does not, however, address the problem that has been identified relating to the creation of deficiencies in the first place, nor does it mean that the deficiencies have been restored in compliance with trust accounting requirements. Although I found Mr Lombardo to be an honest and thoughtful witness who did his best to assist the Court in difficult circumstances, his evidence was of limited assistance, as he was only generally familiar with the special accounting requirements in the Act and the Regulations, and had a limited understanding of the way in which the law practice managed its files. Had the evidence that was ruled inadmissible been admitted into evidence, it would have made no difference to the conclusions that I have reached.

190 Three documents summarising the rectification measures undertaken by the law practice have been produced by the defendant. In relation to the 12 files inspected by the LIV, a summary document outlining the rectification measures was prepared as at 31 March 2009. An update of this information as at 30 September 2009 was also prepared, entitled "Review of client accounts as listed in LIV report (as @ 30/09/09)". Like the March version, the September review document is in the form of a table listing the name of the client, the alleged deficiency, a summary response, and the further accounting to the client. In summary, the September review undertaken by the law practice shows in the 11 client matters listed, that there are no remaining deficiencies. However, in only three matters has money actually been refunded to the client (in the matters of Smith, Rann and Vesty).

191 Mr Scott gave extensive evidence of the law practice's endeavours to rectify the irregularities identified by the inspectors. In his affidavit sworn on 17 August 2009, Mr Scott said that he spent approximately four months attempting to resolve all the accounting issues and assisting in the preparation of lengthy reports and replies to the LIV. He was satisfied that all payments due to the clients had been made, except in the matter of Rann (where, at the time of swearing his affidavit, approval of the supervisor to make certain payments from the trust account was required).

192 In a subsequent affidavit sworn on 1 October 2009, Mr Scott deposed to the fact that as a result of the intervention of the LIV and following the work of the inspectors, he met with Lindy Thewlis from Infinity Law in order to find a way to identify and rectify all errors in the firm's accounts. Initially, he examined the accounts which had already been identified as containing errors by the LIV inspectors and then he reviewed all the other Melbourne Voyager files. Ms Thewlis attended the law practice's office on a number of days during December 2008 to carry out some of this work and continued to assist him in identifying and rectifying the accounting errors over the next few months. Ms Thewlis and Mr Scott conducted what he described as a thorough investigation of all the firm's files. According to Mr Scott, all errors were identified and rectified.

193 Mr Scott explained how the review of client files was carried out by him and Ms Thewlis. Ms Thewlis was able to obtain a list of every account that contained a credit note. The credit note was the "finding factor". Mr Scott and Ms Thewlis then went through these accounts and did an adjustment note and took disbursements out of the client accounts, so that they no longer existed. They reviewed all the accounts one by one. They looked at each file and "credit noted off" the disbursements that were on the client's bills.[16]

194 Mr Scott said once an error was identified, he would then look to see whether there were 'write-offs' on the file, and if the write-off far outweighed the adjustment note, then he could write off the adjustment note against the previously written-off moneys owing to the firm. Most of the files had large write-offs. At the end of the process he compiled a summary document and sent it off to the LIV, hoping that that would resolve the LIV's issues with the law practice. This document is entitled "Review of client accounts (as @ 31/3/09)".

195 The Review of client accounts (as @ 31/3/09) deals with 80 client matters (including the 12 files examined by the inspectors), setting out a summary, any moneys paid back to clients and the numbers of adjustment notes and further invoices issued in each matter. It was described by Mr Scott as an 'index' to five folders of 'adjustment' documents that were brought to court by the defendant and tendered in part.

196 In summary, the Review of client accounts (as @ 31/3/09) records that moneys were paid back to three clients: Mr Smith was refunded $10,050.67, Mr Trudgett was refunded $47,963.76 and Mr Vesty was refunded $63,431.46. All the other files were dealt with by way of adjustment notes, by reversing write-offs and/or by issuing new invoices. Mr Scott explained the process as follows:

In each of the files we would look at the files. We would decide, yes, there are credit notes there and there are things on the bill that should have been - that shouldn't be on the bill, no longer should be on the bill, they should have been when the bill was done, but should have been taken off the bill since. So then we'd say, okay we need a credit note in that. We would then credit note that and take them out. At times, because we were - had a lot of files to get through and not really sufficient time to go through every particular item, we tend to be over-generous, we would take out all the disbursements that were on the original bill, even though some of them may in fact have been paid by office and be entitled to be there, but because it would take so long to go through and work out which ones those are we tended to - more Lindy than me, but I know she did it, she tended to say these are the disbursements and we'll take them all out, therefore they can't be wrong and try to do it as comprehensively and as plainly as we could. So we would take those items out of the original bill and subsequently we would then go about either putting back in the write-offs that earlier had been made, debts that the client already had with us, or other things that hadn't been billed for the client and on occasions we billed him for items that - there was no point in doing an end of matter bill for items unbilled at that time if he still owed us money, I would believe at that time he still owed us money. There was no point in doing another bill at that stage and saying, well you already owe us 50,000, we're going to write that off, but here's another bill for another 190 or something. We just wrote it off. So if we put back on the 50,000 and we found out there was an excess of that amount then we might re-bill some of the stuff that had been previous work, work that was done at the time, but hadn't actually been billed before the file was closed. So there was some new bills done for some of that new work, unbilled work.

197 Mr Scott was asked whether he was able to say whether all the errors in the files of the law practice were identified in the Review of client accounts (as @ 31/3/09). He said that he believed they were, and that he carried out the review in the expectation that the LIV would examine the review documents and agree with him. He believed the review was completely comprehensive. His intention had been to go right through the whole firm to make sure that its accounts were correct and rectify any errors that may have been there, and he believed that had been done.

198 In cross-examination, Mr Scott was taken to three sets of adjustment notes and invoices that had been prepared in the matters of Baltrop, Fullerton and Martin that were part of the five folders of adjustment documents brought to court by the defendant.

199 In the matter of Baltrop, the adjustment note reversed two disbursements, but did not reverse two others. Mr Scott explained that that was because those disbursements had been paid for by the law practice and were rightly on the bill. He agreed that the LIV inspectors could not know that simply from looking at the documents that had been provided. He also agreed that, although the invoices always had a trust statement attached to them, the adjustment notes did not, and no trust statement was generated as at the date of the adjustment note.

200 In relation to the matter of Martin, Mr Scott was taken to an adjustment note on a particular invoice. He was then asked whether he was able to say whether the law practice asserted that Mr Martin still owed it money. Mr Scott could not say if that was the case.

201 The Board submits that after 15 days of evidence, the Court is in no better position than Mr Scott or Mr Chun to determine whether the irregularities in the client files have been fully identified and whether deficiencies have in fact been restored. If he wished, the defendant could have put on proper and complete evidence concerning the other deficiencies and the measures that had been taken to restore them. However, he had chosen not to lead such evidence. In the light of the other serious irregularities identified in the Chun Report and the manner in which the law practice sought to deal with them, the Court should not be satisfied that the other files have been attended to satisfactorily.

202 The Board pointed out that the Review of client accounts (as @ 31/3/09) was current to that date only. No updated information has been provided by the defendant in relation to any further accounting which has occurred, save in the matter of Rann. By contrast, the review as at 30 September 2009 for the 12 client files that were examined by Mr Chun and Ms Kozovska shows more detailed and more recent information than the table provided to Mr Chun on 31 March 2009. Entries have changed in the matters of Rann, Lewis, Pride, Fogarty and Singline. On this basis, the Board submits that if the rectification measures have been updated since 31 March 2009 for more than 40% of the 12 files examined by the inspectors, it should be inferred that further rectification measures have been or should be undertaken for the remaining clients since the law practice completed its review in March 2009. In other words, the Review of client accounts (as @ 31/3/09) is most likely incomplete.

203 Furthermore, the Board pointed out that the review was conducted only in relation to disbursements paid from trust. This process would not identify other deficiencies, for instance those that occurred in the Smith and Simmonds matters, where the practice billed the full amount of a disbursement, but the creditor was paid a lesser amount from the office account. By reason of the way in which the reviews were undertaken by the law practice, deficiencies of this kind would not be identified.

204 Finally, the Board submitted that the process of restoring deficiencies by preparing adjustment notes may involve further breaches of the Act and Regulations. In most cases, deficiencies were restored by producing an adjustment note for the relevant invoice. When asked whether moneys were paid back into trust, Mr Scott said, "No, we did not put it back into the trust and take it out again, no." He confirmed that he simply 'netted off' an invoice against its corresponding adjustment note. In so doing, the law practice may have again avoided the operation of the Regulations with respect to the withdrawal of trust money and the obligation to provide notice to a client before appropriating trust moneys.[17]

205 I accept the submissions of the Board on this question. Although the efforts of Mr Scott and Ms Thewlis are commendable, I am not satisfied that all irregularities in the remaining files have been identified and satisfactorily rectified by the law practice. Moreover, there is a real prospect that some of the rectification measures taken by the law practice involve further breaches of the Act and the Regulations. I have concluded that the identification and rectification of irregularities in the Melbourne Voyager files requires further investigation in the interests of the many clients who are affected.

206 The manner in which the law practice rectified the errors in the matter of Rann is illustrative of the way in which the defendant set about dealing with the inspectors' findings and remedying the irregularities that had been identified.

207 Mr Rann's matter was completed around May 2007. The law practice received settlement proceeds and party/party costs totalling $287,735.14 on behalf of Mr Rann, comprising settlement proceeds of $162,735.14 that were deposited into the law practice's trust account on 21 May 2007, and party/party costs negotiated on behalf of Mr Rann in the amount of $125,000, that were deposited into the law practice's general office account on that day.

208 The law practice paid Mr Rann the settlement sum of $82,188.39.

209 The law practice's records show that its invoices issued from January 2003 onwards totalled $220,553.17. Payments totalling $217,406.17 were received by the law practice in respect of these invoices. An outstanding balance of $3,147.00 was written off.

210 However, the Chun Report concluded that rather than there being an outstanding balance of $3,147.00, there appeared to be a potential deficiency in money entrusted to the law practice in the amount of $11,002.70, comprising overpayment of an invoice and deficiencies created by the double payment of disbursements and GST overcharging.

211 On 18 December 2008, following the inspection, the law practice issued adjustment notes in favour of Mr Rann for the amounts of $1,650.00 and $2,856.00. The latter related to third party disbursements appropriated twice and the GST overcharge.

212 On 20 April 2009, the law practice deposited two office cheques totalling $12,653.10 into Mr Rann's trust account, purportedly in respect of the invoice overpayment and for third party disbursements and GST appropriated twice. Those funds remained in Mr Rann's trust account until July 2009, when the following events occurred.

213 Mr Rann gave evidence by affidavit and viva voce that while he was on holiday in Queensland with his wife in about July 2009, he received a telephone call from the defendant. The defendant told him that the defendant had been working with the LIV reviewing the accounts in his matter and that it had been discovered that there were some problems with the way the law practice's accounting package had calculated GST. As a result of the review, money was owed to Mr Rann and money was owed to the defendant. The defendant told Mr Rann that he would send Mr Rann an email in relation to these moneys.

214 Some short time later, whilst still in Queensland, he received a printed copy of an email dated 8 July 2009 from Mr Scott. Attached to the email was an authority to pay. Mr Rann said that he received the printed copy of the email and the authority because his daughter, who was collecting his mail in Western Australia, printed them off and sent them to him in Queensland by post.

215 The email from Mr Scott to Mr Rann confirmed that a conversation had taken place between Mr Rann and the defendant on the morning of 8 July and that the defendant had "explained the problems with the GST and payment from trust and office. As explained the Infinity Law accounting package did not correctly take over the GST of $1,236.37 and did not reduce your accounts by the disbursements paid from trust in the correct manner." Mr Scott's email then stated:

Your file is finished and there is currently additional moneys owing by you of $7,485.50 and moneys owing to you of $13,600.10. The difference being $6,114.60, these funds will be forwarded to you, subject to the consent of the Law Institute.

216 Mr Rann was asked to sign the authority to the LIV authorising the sum of $6,114.60 to be forwarded to him and the balance of $7,485.50 to be paid to the law practice's office account. In relation to the authority, the email read:

We enclose authority for your signature and request you fax the same to our office as a mater of urgency. We have forwarded your account to your home address and hope you're enjoying your holiday in Brisbane.

217 Mr Rann signed the authority, returned it to the law practice and subsequently received his payment.

218 Mr Rann said that he did not understand the explanation in Mr Scott's email as to why there were moneys owing to him and to the law practice, but he did understand that there was apparently a net amount of some $6,000 owing to him and some $7,000 owing to the law practice. At the time he signed the authority, he had not seen or been provided with any detail about the law practice's account for the amount of $7,485.50. He had no written material other than the email from Mr Scott, and no information other than the information provided in the phone call from the defendant.

219 Mr Rann said that he received an invoice for the amount of $7,485.50 ("the 2009 invoice") when he returned home to Western Australia on 26 August 2009. He did not read the invoice because he had already signed the authority to pay. His matter had settled in April 2007. He was not happy with the settlement amount that he received because it was only about $80,000 and he had paid approximately $40,000 to the law practice during the course of the matter. He felt that he had been "ripped off" throughout the process and he did not want anything further to do with the law practice or the defendant. He was just happy to sign the authority so that he would not have to deal with the defendant again. When the defendant called him in Queensland in July 2009, he thought he was going to be asked for more money and he was relieved when he was told that he would be getting money instead.

220 Some time later, on 24 September 2009, Mr Rann received an email from the defendant. The email read:

Dear Vic,

Please forward me a fresh email along the lines of: At [sic]

At my settlement conference I can recall Mr Forster explained to me that there would be two cheques received for settlement and that the smaller of the 2 cheques would be costs and I directed him to put this cheque into his office account directly against my outstanding accounts.

221 Mr Rann said he had no idea why the defendant wanted him to send such an email. He said that no such conversation took place at the settlement conference. As a result, he did not send the email that the defendant had requested.

222 This sequence of events raises two particular issues: first, Mr Rann was asked to sign the authority to take funds out of his trust account to pay an invoice when he had not seen the invoice in question, and the defendant knew, or should have known, this to be the case; secondly, Mr Rann was asked to attest to a conversation that he says did not occur and apparently related to the deposit of settlement moneys directly into the law practice's office account.

223 In addition, the manner in which the 2009 invoice was raised gives rise to serious questions concerning the defendant's billing practices. In the case of Rann, and other Melbourne Voyager matters where there was an agreement to charge according to scale, the law practice does not appear to have billed in accordance with its fee agreements.[18]

The authority to pay and explanations given to Mr Rann

224 The defendant said that the gist of the conversation he had with Mr Rann in July 2009 was that there was a problem with accounting he needed to explain, and that there had been problems with integrating an old software package that had caused a problem with GST. The defendant said he then explained that the law practice had a problem with double counting of accounts. Following this conversation, he sent Mr Rann an email, and the email included a detailed letter and an authority to pay.

225 The defendant agreed that when he spoke to Mr Rann in July he knew that Mr Rann was on holiday in Queensland. He also knew that the email comprising the letter of explanation and the authority was emailed to Mr Rann's home email address in Western Australia.

226 The 2009 invoice itself was not emailed to Mr Rann with the explanation and the authority. It was apparently sent separately to Mr Rann's home address by post. Although the defendant's final submissions assert that "[t]he firm had assumed that the account would be attached to the email and that in any event it would be forwarded to him",[19] the defendant's evidence was to the effect that he did not think that Infinity Law would not allow invoices to be attached to emails. In any event, the email makes it clear that the account was forwarded to Mr Rann separately.

227 The defendant responded to Mr Rann's affidavit in his affidavit of 5 November 2009. He said he explained "the problems caused by the Infinity Law accounting package of paying disbursements from trust and the accounting system not reducing the office account", and he also explained the GST problem as being a conversion problem. He said he followed this up with a detailed email to Mr Rann, because he accepted that at the time of the telephone conversation, Mr Rann may have had difficulty taking it all in. He said that unbeknown to him, Mr Rann did not read the email and asked his daughter to send the authority to pay him without forwarding the documents provided.

228 When it was put to the defendant that the letter of explanation asked Mr Rann to sign an authority to transfer funds to pay an invoice when Mr Rann had not yet seen the invoice or a trust statement, the defendant gave an answer which, in its lack of directness and clarity, was typical of many of the answers that he gave to questions in cross-examination:

Well, as I said, Dr Hanscombe, in terms of reading the detail, the detail of this letter, quite frankly I wouldn't have - I mean at the end of the day what I do is that I'm trying to run a practice and I'm trying to obviously do the right things. You have to delegate and I would have read that - I would have - I mean Mr Scott's a competent man. At the end of the day - if - if at the end of the day you're trying to suggest to me that I knew at that date that I'd sent a written authority to my client that at the time he received that written authority that he didn't have the actual physical account ... Well I'm saying to you very clearly that the thought wouldn't even have crossed my mind. What would have occurred is I would have said to Mr Scott, Peter, look after this, I've spoken to - the effect of my conversation with Mr Scott would have been this: Look, we've got to get everything - we've got to get everything correct to make sure Mr Rann agrees that he signs the thing straight away.

229 I take the defendant's evidence to be that it didn't even cross his mind that he was asking Mr Rann to sign an authority to pay in circumstances where Mr Rann had not seen the account to which the payments related.

230 In his oral evidence, the defendant agreed that as Mr Rann had signed the authority on the same day he received the email, he would not have seen the account to which the authority to pay related. However, the defendant then said:

I do recall when I spoke to him about the account I explained the account to him. I recall saying to him, look in there, these are some of the items. I explained to him the account in quite a bit of detail, so he understood what was happening fully.

231 No evidence to this effect was given in the defendant's affidavit in response to the affidavit of Mr Rann. Nonetheless, I accept that the defendant may have said something to Mr Rann by way of explanation for the 2009 invoice. However, I do not accept that the defendant spoke to Mr Rann in 'quite a bit of detail' about the invoice or that he made reference to individual items. If that were the case, it is likely that Mr Rann would have remembered the invoice being discussed with him.

232 The defendant's evidence was that he in fact had two conversations with Mr Rann. The first was for about 45 minutes, the second was for an hour and a half. The second conversation was after the defendant had received a copy of Mr Rann's affidavit. He said he had the second conversation for the purposes of fulfilling his responsibilities as his solicitor to make sure that Mr Rann fully understood what had occurred, because Mr Rann had said in his affidavit that he did not understand.

233 In my view, ringing Mr Rann to discuss the contents of his affidavit well after the authority to pay had been signed hardly constitutes an explanation supporting the request for the authority to pay.

234 The evidence points to the defendant having been careless in seeking from Mr Rann an authority to pay 'as a matter of urgency' when he did not know whether Mr Rann had seen the invoice to which the payments related and should have known there was a strong chance that Mr Rann had not seen the invoice. His actions revealed a disregard for Mr Rann's interests. The moneys in question had been sitting in the trust account since April, presumably without the knowledge of Mr Rann. Three months later, Mr Rann was suddenly requested to authorise the law practice to pay itself further moneys in respect of an invoice that he had not seen. The defendant was not acting in Mr Rann's best interests in pursuing this course, notwithstanding that Mr Rann ultimately received an unexpected payment of $6,000. Signing the authority deprived him of a further $7,000 that was held on trust for him.

235 Moreover, although much was made of the fact that the supervisor of trust moneys for the law practice, Mr Dunn, had approved the payments, Mr Dunn gave evidence that he would not have done so had he known that Mr Rann had not seen an account when he signed the authority to pay.

Authority to deposit settlement funds directly in the office account

236 On 24 September 2009, the defendant asked Mr Rann to send him an email confirming a conversation that had allegedly occurred at the settlement conference regarding the payment to the law practice of moneys obtained for party/party costs from the Commonwealth. The defendant provided Mr Rann with a form of words. Mr Rann ignored the request, as he had no recollection of the conversation.

237 The Chun Report identified the payment of the party/party costs of $125,000 directly into the law practice's office account as being a potential breach of s 3.3.13(1) of the Act (which requires trust money to be paid into the trust account in the absence of a written direction to the contrary). The letter from the inspectors to the defendant dated 3 February 2009 had previously identified this as a potential breach.

238 In his 5 March response to the inspectors, the defendant said the following about the payment of the $125,000 directly into the firm's office account:

We apologize for this error. It has been an operator error and the deposit should have been made to the trust account. Given the large number of transactions this error was overlooked.

239 In his affidavit sworn on 1 October 2009, the defendant changed his position. He stated that he had in fact received a signed written direction from Mr Rann dated 6 October 2000 in the form of paragraph 3 of his Fee Costs Agreement with the law practice, which provided:

You authorise us to agree on party/party costs with the Defendant as we consider appropriate, and to credit this amount towards Solicitor/client costs without further notice.

240 Likewise, paragraph 4 of the 2000 Fee Costs Agreement provided:

You authorise us to immediately deduct any unpaid Solicitor/client costs from any money we recover in your case.

241 The defendant also relied upon a document entitled "Instructions to Settle" signed by Mr Rann on 19 April 2007 (the date of settlement). The Instructions included the following terms:

The Defendant [the Commonwealth] will pay the sum of $125,000.00 to my solicitors as specified party/party costs in this proceeding;

The terms of settlement specify that the Defendant will pay the sum of $125,000 as specified party/party costs and that the party/party costs are payable by the Defendant. I understand the difference between party/party costs and solicitor/client costs.

242 Further, the defendant deposed to having explained to Mr Rann at the settlement conference that the part payment of his outstanding account would be made directly from moneys received from the Commonwealth. He said that Mr Rann accepted that this would be the case. The defendant said that Mr Rann asked whether he would get his money straight away from the first cheque. The defendant said, "No, Vic, you won't because people have got to be paid and you're going to have to wait."

243 The difficulty with the matters raised by the defendant is that the 2000 Fee Costs Agreement was replaced in 2002 with a fee agreement which contained no such terms. Moreover, the relevant terms of the Instructions to Settle do not in my view constitute an authority given by Mr Rann to the law practice to take the party/party costs and pay them directly into the office account. Finally, the conversation at the settlement conference is disputed.

244 None of this is of any consequence, however, as the defendant exhibited to his affidavit sworn on 18 August 2009 a copy of an authority to transfer trust moneys signed by Mr Rann and dated 31 March 2007 in the following terms:

I VICTOR NORRIS RANN of 42A Vahland Avenue, Rivertown, Western Australia, hereby authorise and direct you to transfer any moneys in trust to pay my outstanding costs and/or disbursements.

245 There may be an issue as to whether this authority applies prospectively or whether it only applies to moneys in trust at the date of the authority. It is certainly arguable, however, that the law practice was authorised to take the $125,000 that the Commonwealth paid for party/party costs and put that money directly into its office account. The question then arises as to why the defendant thought it necessary to send an email to Mr Rann requesting a return email in the form provided.

246 This conduct by the defendant suggests that in September 2009, the defendant believed that the only authority that he had to pay the funds into his office account derived from things that were said at Mr Rann's settlement conference. In the light of this, the defendant sent Mr Rann - out of the blue and entirely without explanation - a request to do something that Mr Rann did not understand, and which served the sole purposes of the defendant.

247 Mr Rann was asked whether he recalled his solicitor at the settlement conference explaining in detail about costs and disbursements incurred in the matter. He said that he did not. He said the conference was really quite short. Importantly, it was not put to Mr Rann by the defendant that the conversation in question did in fact occur and that Mr Rann did direct the defendant to put the cheque for party/party costs into his office account directly against outstanding accounts. I have to conclude that no such direction was given at the settlement conference.

248 It follows that the defendant's request to Mr Rann to send him an email with the statement set out in the defendant's email involved, in effect, the defendant asking Mr Rann to say something that was not true.

249 In seeking to 'shore up' his entitlement to be paid directly the party/party costs obtained from the Commonwealth, the defendant seems to have paid scant regard to the interests of Mr Rann. This causes me concern about the way in which rectification of the irregularities was carried out by the law practice.

250 The covering letter and the 2009 invoice that Mr Rann received when he returned to Western Australia in August 2009 was dated 8 July 2009. The letter explained that the 2009 invoice was for work which was required to complete Mr Rann's settlement, including amending his statement of claim, payment of cheques, consultations regarding pay-backs, Blade [sic] Dawson and finalisation of the terms of settlement and resolving disputes with barristers. The invoice itemisation ran over one page for work done on Mr Rann's file from 19 April 2007 until 7 June 2007. It included a large item (77 units or $3,465) for "allocation of WIP from Melbourne Voyager general files between January 2005 to April 2007".

251 Mr Rann was taken to the 2009 invoice in re-examination. He said that it was not explained to him at the settlement conference that he would incur another $7,000 in legal costs after settlement. He understood that settlement would be the end of it. He said he had no idea what the 77 units of WIP from the general file between January 2005 and April 2007 was about.

252 It was not surprising that Mr Rann was confused about why he had received a further invoice two years after his matter had settled.

253 On 19 April 2007, the date of settlement, Mr Rann had been given an interim account (Tax Invoice 3918) from the law practice for fees of $155,919.00, office expenses of $1,993 and disbursements of $2,597. Invoice 3918 was described as being to professional costs "from commencement of action including part share of media and general costs and including the following:" and contained entries from 4 February 2005 to 19 April 2007. Although the invoice 3918 was itemised, no value (or time) was specified for any item of work. As a result, it was not possible to tell how much had been charged for any item or, indeed, on what basis fees had been charged.

254 A second interim account dated 19 April 2007 (Tax Invoice No. 3919) was also prepared for Mr Rann. It was for two sets of counsels' fees totalling $10,743.40.

255 On 21 June 2007, a further interim account was prepared (Tax Invoice No. 3937) for professional fees of $18,973.62 and office expenses of $249.84. The invoice itemisation was headed, "To our further professional costs from the commencement of your file including the time entries below:". The entries were from 8 February 2005 to 16 April 2007.

256 There were no further invoices in 2007 or 2008. In December 2008, the debtor transactions report for Rann showed a zero WIP balance.

257 Mr Rann's file contained a hand-written file note dated 16 April 2007 which related to the preparation of WIP calculations for invoice 3918, which is the major bill in Mr Rann's matter. The file note shows that the WIP calculations were divided into pre- and post- 2005 WIP. The starting point is the "current WIP balance", which is given as $59,195. I take this to have been derived from the 'matter time transaction reports' produced by Infinity Law. The file note records that in the period January 2005 to 16 April 2007 when the $59,195 of fees was generated, three folders were filled. By simple mathematics, the author of the file note calculated the average WIP per folder to be $19,732. In the period 6 October 2000 to 16 December 2004, two folders were filled. On that basis, the pre-2005 WIP was calculated to be $39,464. Adding the pre-2005 WIP to the post-2005 WIP, total WIP to 16 April 2007 was calculated to be $98,659. With the 25% uplift and 10% GST, the total WIP on the file was $135,657.00.[20]

258 Plainly, having regard to the unorthodox method of calculating fees revealed in the 16 April file note, invoice 3918 was not prepared in accordance with the fee agreements between Mr Rann and the law practice. This is dealt with in more detail below.[21]

259 The defendant was cross-examined about the 2009 invoice, and in particular, the 77 units of WIP from the 'general' file that appeared in the 2009 invoice. He was asked why, after Mr Rann's matter had been completed, these units were allocated to Mr Rann's file. He said:

All that would have happened is that we would have gone to the ledger, and we would have billed work that hadn't been billed to Mr Rann, so that work hasn't previously been billed. ... We are entitled to charge for work that we've done.

260 Counsel for the Board pointed out to the defendant that invoice 3918 had a narrative stating that it was for professional costs from the commencement of the action, "including part share of media and general costs". The defendant did not agree that invoice 3918 was when the law practice would have invoiced whatever WIP was on the 'general' file. He explained that the narrative was just general language that his practice manager or whoever provided it would have used. He said:

But the narration - the narration - the narration doesn't actively reflect - what the narration - the purpose of a narration like that would be to your client just to give some idea of what you're doing and the - and the - and what - what we've done in the narration and - and you'll find other invoices that will just add to our professional costs - costs from such and such a date to such and such a date. ... So the actual - the actual narration doesn't necessarily - the narration doesn't necessarily reflect the material that's in the bill.

261 It was put to the defendant that when invoices were prepared in 2007, the law practice could not have known that over two years later, in July 2009, it would need to render a further invoice. If the law practice didn't include amounts for general and media files in the 2007 invoices, it was unlikely that those amounts would be invoiced at all. The defendant said:

No I know, but it's not - it's not - that bill doesn't - what's happened with that bill is that we've missed out and we haven't put in the bill for work that should have been put in that bill, and the reason why that wouldn't have - wouldn't have occurred - would have occurred, is that when the bill was printed and given to me the operator probably - we weren't in a regular practise at that stage of picking up all this work done on these additional files, and so we've just missed out in picking up those figures, and that's - that's the reason for the - for the differences in the account.

262 The defendant was asked whether in 2007 he intended to invoice Mr Rann for general and media costs. He said:

No, it's - I suppose what - what the situation at the time is that when we did this invoice we wouldn't - no-one's probably tapped themselves on the head and said, look, in relation to Mr Rann we - we should pick up the work that's been done on these other files, so that what happened as the process of doing accounts in the Melbourne Voyager files went on our - our - we probably got more sophisticated. So towards - we were getting towards the end of the process of the Melbourne Voyager cases we would start probably picking it up more regularly, but at this stage this is - this is, you know, probably fairly early in the stage.

263 These answers are not consistent with the cost estimate prepared by the law practice in the Rann matter on 18 April 2007, which refers to the addition of "part share of media and Vic General file in Sundries $12,000". It seems that someone had tapped themselves on the head and thought to look at allocations from the media and general files after all, at least for the purposes of the costs estimate. Furthermore, it appears that someone had tapped themselves on the head and thought to allocate from the media and general files in other matters. In the matter of Ramsay, Mr Ramsay was informed by the defendant on 25 June 2007 that he would be receiving an account that would include his share of "media, general and Nsw [sic] file" from January 2005 onwards.

264 The defendant's explanation of the WIP entry in the 2009 invoice was unsatisfactory. I do not accept his explanation, so far as it can be said that an explanation has been given, of how WIP from the general file came to be entered on the 2009 invoice. This calls into question the legitimacy of the 2009 invoice as a whole, and the other invoices that were raised in response to deficiencies identified in the Chun Report.

265 Mr Scott was also asked about the 77 unit WIP entry in the 2009 invoice and was unable to explain who decided it should be entered or why it should be entered in 2009 invoice. When asked whether the defendant had the final word about how much was to be included on account of professional costs from commencement of action including part due of media and general costs, Mr Scott said, "Well Mr Forster's the only one who has been involved in these cases since their beginning and has knowledge of what actions transpired in that period of time that was estimated. So he was the only person who could know whether that figure had to be adjusted up, down or whatever the figure should be."

266 Having considered the evidence of the defendant and Mr Scott on this issue, and in relation to the raising of the 2009 invoice generally, I am not satisfied that the 2009 invoice properly reflected what was owing to the law practice for work that had been carried out on behalf of Mr Rann. The circumstances in which the 2009 invoice was raised require further investigation.

267 The Chun Report also identified problems with invoice 3937 dated 21 June 2007. A charge of $18,973.62 (ex GST) was made for professional fees. The records of the law practice do not support that charge. The matter time transaction report discloses that the time allocated to invoice 3937 was $3,067, which amounts to $3,833.75 inclusive of the 25% uplift. When asked about this, the defendant said that the balance of $15,139.87 must comprise pre-2005 WIP. In his 5 March response to the inspectors the defendant pointed out that the narrative to invoice 3937 specifically states: "To our further professional costs from the commencement of your file including the time entries below". According to the defendant it was clear that this invoice included WIP from prior to 2005 - there was therefore no evidence of overcharging.

268 The narrative on the invoice 3937 is as the defendant says. There are then a number of time entries, commencing on 8 February 2005 and concluding on 16 April 2007. The matter time transaction report also contains those entries and gives them a total value of $3,067. Importantly, at the top of the matter time transactions report, the WIP balance is given as $0.00. Moreover, invoice 3937 was issued on 21 June 2007, only two months after invoice 3918, which was described as being for professional costs "from commencement of action". Why both invoices purportedly contained fees from the commencement of the action was not explained.

269 The defendant reacted heatedly when cross-examined about this matter. He said the suggestion that only $3,195 was billable was completely false. "Why would you put on the start of the invoice, 'To our professional costs, the commencement of your file'? If you'd like to tell me the date when the file commenced, perhaps then you'll be able to put a fair question." He then said, "If you want me to go through line by line and tell you exactly what happened in all the Rann accounts - I think we've already done this a number of times - but if we did you'd have to go through each one, you can't just go and pluck one piece of paper out there like that and try and come up with some proposition which is completely false, with all due respect. It's false what you're seeking to do, it's obvious."

270 In fact, so far as I can see nobody has ever tried to explain exactly what happened in the Rann accounts, in detail or otherwise. This is one of the difficulties that I confront in considering this receivership application. Explanations which have been given for a number of matters are piecemeal, and in some instances, wholly unsatisfactory.

271 The circumstances in which invoice 3937 was raised require further investigation.

272 Moreover, the amounts billed to Mr Rann on account of professional costs do not reflect the costs agreements between him and the law practice that were tendered by the defendant. This is a difficulty that is common to many of the files considered in the course of this hearing, and I deal with this issue next.

273 In the matter of Rann, costs disclosures by the law practice were contained in fee agreements made in 2000 and 2002. The 2000 fee agreement provides for services to be provided on the Supreme Court cost scale plus 25% (representing an uplift for the risk inherent in no win/no fee litigation). The 2002 fee agreement is a conditional fee retainer agreement providing for fees to be charged on an hourly rate plus 25% uplift.

274 In his 5 March response to the inspectors, the defendant said:

Criticism of Hollows Lawyers approach to costing work on the file of Rann demonstrates an unfair, selective and simplistic approach. There has been no query by the client of the account. In a substantial number of files Hollows Lawyers has reduced WIP. Changes in our costing method were implemented in 2005 with the introduction of Infinity Law time billing. Costing experts have been engaged by the firm in a number of files. The terms of the fee retainer have been complied with and the client did not dispute the account and there is no evidence of overcharging.

The legal system would grind to a halt if a costing firm prepared all the legal bills in an itemised form and settlements would be delayed significantly which would not be in the client's interests. The difference between the two legal systems (New South Wales and Victorian law) costing approach added complexity to accounting processes.

275 It seems, therefore, that the law practice charged on a different basis depending on whether the work was performed before or after 2005. For professional services provided prior to 1 January 2005, the client files were manually reviewed and costed. For work performed from 1 January 2005 onwards, time keeping records were maintained using Infinity Law software. Infinity Law generates a 'matter time transaction report' itemising entries by staff, hourly charge rate, units worked and a description of the work performed.

276 Plainly, this is not consistent with the law practice charging according to scale up until 2002, and charging on an hourly basis thereafter. It is likely that the same inconsistency arises in a number of other files. Fee agreements and costs disclosures in the matters of Craggs, Pride, Fogarty, Simmonds, Smith, Singline, Spaulding, Vesty and Ramsay were tendered by the defendant. In Craggs, Fogarty, Simmonds and Singline, the only fee agreements provide for scale costing; in Pride, Smith and Spaulding (as in Rann), scale costing was replaced with time costing in 2002 or 2003; in Vesty and Ramsay, only time costing was ever agreed.

277 Given the approach to charging revealed in Rann, it is unlikely that these arrangements were honoured by the law practice unless an itemised bill in taxable form was requested. Moreover, because it appears from the invoices tendered[22] that the firm's invoices set out items of work but did not give a value for any individual item, it would not have been possible for the clients to work out the basis upon which they were actually being charged.

278 The defendant agreed that he had not charged in accordance with the fee agreements, "technically, I suppose". When asked about this, he said:

My answer is that I charged ... in accordance with my requirements under the Act and I complied with my requirements as a solicitor in terms of charging, and the Act provides that if a solicitor - if a client is not happy with the way a solicitor provides a bill to a client the client would then request the bill in the itemised form.

279 Likewise, in his final submissions the defendant said that "billing otherwise than in accordance with his professional obligations did not take place. A client is entitled to request a detailed itemised account in taxable form in the Victorian jurisdiction and bill for assessment in the New South Wales jurisdiction. Accounts prepared by Mr Forster were informative and fair and reasonable."[23]

280 In his oral evidence, the defendant described bills in the Melbourne Voyager litigation as "really a bit of fiction", because it was unlikely that anything like the relevant amount would be recovered from the defendant to be available to pay invoices. However, the defendant also said that one of the reasons he had acquired the Infinity Law software was because he was concerned that in running files for clients in cases that had been going for years it was difficult to work out how much the client was up for if he or she walked into the practice and asked. It could take a consultant two months to go through the files and provide a detailed account. With client bills, the defendant liked to be as accurate as possible. One of the difficulties with using the Supreme Court scale was that he couldn't be accurate. He said:

Now what's - if you look at my files it's an evolutionary process. With the conduct of this litigation that goes on for - for 15 years, we're not static. All I thought to do throughout the conduct of the litigation was to keep the client fully informed, and be as informative as possible, and what I really - one of my main objectives of this whole process was this - with this costing process is that I was faced with the situation that I have to try and justify all my work to get what I could out of the defendants for recovery of costs. Now my view is that part of trying to achieve my objective for my client, which was to get as much possible payment of fees out of the defendant, was to introduce a system within my practice that if Joe Bloggs, the solicitor working on the file, if he's got a system where he's got to punch his time in you keep a record of the work he's done. So when we send this file off to our cost consultant in the matter of Gretton for example, what I would do, I would say to Mr Gretton exactly as you strictly interpret, 'Here is the fee costs agreement that I've made with Mr Gretton, please' - which is the initial one which says scale - 'prepare an account in accordance with the detailed itemised scale, prepare a detailed itemised bill.' It's 50 pages for that, once the cost consultant's gone through and noted every single photocopy, every description, every single photocopy - they've got a list - there'll be a bill that'll probably be 150 to 200 - 250 pages long.

281 The defendant asserted that for a bill for $400,000 worth of professional costs, providing a bill in accordance with scale was going to cost $40,000.

282 I accept that providing a bill in accordance with the Supreme Court scale is time consuming and expensive. It is not uncommon for law firms to charge on the basis of an estimate and to have a consultant prepare a bill of costs according to scale only if asked to do so. However, departures from the costing method agreed should have been explained to the clients. There was no evidence before the Court that clients who entered into a fee agreement for scale costing were told that they had been billed on a different basis, at least from 2005 onwards. Likewise, there was no evidence there had been disclosure that some costs were charged simply on the basis of the number of folders in his file.

283 The defendant was required to produce to the Court all costs disclosures in the matter of Rann and chose to tender them. I have read those documents, although I was not taken to them in the course of the hearing. None of them explain to Mr Rann that he was not or would not be charged according to scale for work carried out in the period governed by the 2000 Fee Costs Agreement. Nor was the idiosyncratic method of costing the pre-2005 files described in the handwritten file note of 16 April 2007[24] explained to him.

284 In relation to the latter, the defendant's 5 March response to the inspectors further confuses the basis upon which Mr Rann was charged by saying the following:

... This is an initial calculation in preparing a WIP estimate. Other factors being supreme court scale and time based costing including care skill and complexity, number of subpoenas, pleading documents, correspondence, number of discoverable documents and others are taken into [sic] when determining the account. The selective attention to one file when numerous files demonstrate substantial reductions in estimates is questionable.

285 It is quite unclear on what basis Mr Rann was charged.

286 The defendant tendered an affidavit by a cost consultant, Maria Stockley, who was engaged by the law practice in October 2009 to prepare an account in taxable form in the matter of Norrish. Ms Stockley makes general comments about the complexity of the litigation, the good order of the law practice's files and the fact that in assessing the value of work on a file, there is a range of reasonable costs and the range can vary widely between costs experts. She makes specific reference to a Mahlab costing calculations which she says has omitted a number of important costing considerations and to a complaint of overcharging on the file, with which she disagrees. No other evidence was given in relation to the Norrish matter. There is nothing in the Stockley affidavit which alleviates my concerns in relation to the costing issues discussed above.

287 In my view, the basis upon which fees were charged to clients, and the firm's compliance with fee agreements and other costs disclosures, requires further investigation. As rectification of the irregularities identified in the Chun Report was carried out largely through the writing back of fees previously written off and/or by the raising of new invoices, the costing practices of the law practice are relevant to whether the irregularities have been satisfactorily rectified. It may be one thing to leave clients to assert their rights to require the preparation of an itemised invoice in taxable form in the ordinary course. However, they are unlikely to do so in the special circumstances here prevailing where written off or unbilled costs are being used to 'net off' amounts owing to them by the law practice well after the finalisation of their matters.

288 The Court has been asked to appoint a receiver to the defendant's law practice on the basis of the matters raised in the Chun Report and on the basis of the manner in which the defendant proceeded to rectify the errors that were identified in the Chun Report.

289 Section 5.5.1(2) of the Legal Profession Act 2004 provides that:

(2) The Supreme Court may, on the application of the Board, appoint a person as receiver for the law practice.

290 Under the Legal Practice Act 1996, the Court first had to be satisfied that the Legal Practice Board or accredited professional association making the application to appoint a receiver had reasonable grounds for doing so, based on specific criteria listed in s 249(1). That is no longer the case. The Act dispenses with closed technical categories such as defalcation or failure to account, but the overarching purpose of a receivership application is very much the same as it was previously - it is for the protection of clients, particularly in relation to trust money,[25] and to facilitate the winding up of a practice in circumstances where its continued operation is impractical or otherwise undesirable.[26]

291 In Law Institute of Victoria v Mastrosavvas[27] Nicholson J emphasised the importance of protecting the public in considering a receivership application:

... each case must be looked at separately and no doubt the over-riding consideration which the court should have regard to is the protection of those persons who are dealing or have dealt with the solicitor either as clients or otherwise. Mr. Ashley submitted that the powers conferred by this and subsequent sections were draconian powers which ought to be exercised sparingly. Draconian the power may be but it does not, I think, follow that it should be exercised sparingly in the manner characterised by Mr. Ashley. In my opinion the public is entitled to protection from those members of the legal profession who abuse their trust and misappropriate moneys and that this group of sections is designed to provide that protection. The fact that the legislature authorises action under this section when the court is satisfied that the Council had reasonable grounds for forming the opinion that there may have been a defalcation does not suggest that this power should be exercised sparingly. The object of these provisions would appear to me to ensure, so far as possible, that the stable door is shut before and not after the horse has bolted.

292 The cases do not ignore the significant impact that appointing a receiver will have on a law practice. Gobbo J, in Law Institute of Victoria v Tregent[28], said that appointing a receiver is "a drastic step which should only be taken under pressing circumstances, and that it can have quite serious and even grievous consequences for a firm of solicitors." In Law Institute of Victoria v Lloyd,[29] Beach J quoted from the Court of Appeal in National Australia Bank Ltd v Bond Brewing Holdings Ltd:[30]

The remedy of appointing a receiver is drastic, and that step should only be taken under pressing circumstances.

Whilst the Court was there dealing with the appointment of a receiver of the assets and undertakings of a number of companies, the statement of the Court can have no less application or force when considering the appointment of a receiver of a solicitor's practice. Such a step can be devastating so far as the solicitor is concerned. I have little doubt but that in some instances the appointment of a receiver of a solicitor's practice has the effect of destroying that practice altogether.

294 The consequences that the appointment of a receiver may have for the solicitor and the practice is a substantial and important factor to take into consideration. It cannot, however, detract from the primary imperative to ensure that the firm's clients, and the public generally, are properly protected. This principle is also reflected in the general purposes of Chapter 5 of the Act, which are set out in s 5.5.1(a). In weighing the interests of the law practice against the protection of clients, the protection of clients is paramount.

295 Having carefully considered the Chun Report and heard extensive evidence in relation to the 12 files that were examined by the inspectors, I am satisfied that the law practice has -

(a) committed serious irregularities in relation to trust money. The double payment of disbursements in particular created deficiencies in the firm's trust account of significant proportions;

(b) failed properly to account in a timely manner to clients for trust money received by the practice on their behalf ; and

(c) contravened the Act and Regulations, in particular, s 3.3.31 of the Act.

296 I am also satisfied that in the matter of Ramsay, the law practice failed to make a payment of trust money as directed in contravention of s 3.3.14(1)(b) of the Act.

297 Moreover, there is cause for concern arising from the manner in which trust account deficiencies have been identified and restored by the law practice.

298 Although the major problems identified in the Chun Report - the double payment and double billing of disbursements - were most likely inadvertent, they occurred because the law practice did not pay sufficiently close attention to its trust accounting obligations when settlement monies started to flow in from the Commonwealth. I do not accept that these problems were caused by a defect in the accounting software used by the law practice, as submitted by the defendant.

299 There was evidence before the court that prior to settlement, clients were given detailed estimates of costs and disbursements up to the proposed date of settlement, which enabled them to understand what proportion of the settlement funds they would receive after costs and disbursements had been deducted. There was also evidence that an invoice of costs and disbursements to that date was given to clients. This was usually the major invoice for the matter and, in most cases, it contained an account of professional fees over a number of years. The sums involved were significant, so alerting the client to the fact that he would lose a large proportion of the settlement sum in solicitor/client costs was a prudent, albeit unexceptional, measure.

300 It appears, however, that once settlement took place and settlement moneys were paid by the Commonwealth, the defendant may have been unduly hasty in taking his professional fees. I have come to the conclusion that the defendant was careless in dealing with settlement moneys, and that many of the problems that arose could and should have been avoided by careful trust account management as required by the Act and Regulations. The problems experienced were inextricably bound up with the failure by the law practice to prepare and furnish final trust statements as required.

301 I accept that the Melbourne Voyager litigation was long and difficult. The defendant undertook the 'long haul' on behalf of his clients and in so doing, took a significant financial risk himself. The defendant said that he received little or no income during the period of the Melbourne Voyager cases and that he had to mortgage his house to keep the practice afloat. Plainly, neither the defendant nor his clients anticipated that it would take so long to bring most of the matters to a conclusion. Furthermore, it seems that in many if not most matters, the settlements were smaller than the defendant had hoped, and he foresaw that such settlement moneys as were forthcoming could be eaten up in costs. In these circumstances, I accept that in dealing with the settlement moneys, the defendant was juggling competing demands and found himself in a difficult position, where his own interests conflicted to some extent with those of his clients.

302 However, in the course of the hearing, the defendant displayed a strong sense of entitlement to the fees and other moneys that he had taken, notwithstanding the admitted errors, all of which benefited the law practice. He referred repeatedly to the large amounts of fees that had been written off; the clear implication was that it was of little consequence that he had taken moneys to which he was not entitled - much, much more was owed to him in any event.

303 This attitude explains the manner in which the defendant responded to the findings of the inspectors, and to remedying the irregularities that were identified. While the defendant was anxious to sort out the problems as quickly as possible, in so doing he cast around for someone else to blame for what he ultimately regarded as a technical default. In my view, he failed to concern himself sufficiently with how the problems had arisen and how they needed to be remedied in compliance with trust accounting requirements.

304 I find that the defendant has not given a satisfactory explanation of how the double payment of disbursements occurred. Moreover, the defendant did not properly turn his mind to the requirement to send out final trust account statements, which reflects a poor appreciation of his obligations and the importance of that requirement. His explanations for not passing on the benefit of creditor discounts, for the double billing of disbursements and for failing to pay trust moneys as directed were unsatisfactory. Furthermore, his treatment of Mr Rann displayed disregard for his obligation to give a proper accounting and, more generally, to the interests of Mr Rann as his client. This gives cause for concern about the rectification measures undertaken by the law practice, which principally involved raising new invoices and reversing previous write-offs to offset amounts that the law practice had appropriated in error.

305 The review of client files carried out by Mr Scott was helpful, but insufficient to satisfy me that all irregularities in the Melbourne Voyager files have been identified and properly rectified. The fact that the accounting software used by the law practice has been updated and that new management practices have been introduced does not alleviate concerns arising from past practices.

306 In these circumstances, it is necessary for the records of the law practice relating to its Melbourne Voyager files to be independently examined. If further irregularities are identified and/or further rectification is required, this must be undertaken as quickly, efficiently and transparently as possible. It must also be done in a way that engenders confidence in both clients (and former clients) and the public that the requirements of the Act and the Regulations have been met.

307 The appointment of a receiver to a law practice is a drastic measure. Although the appointment of a receiver need not be for the purpose of winding up the practice, winding up is contemplated in the description of the role and the powers of a receiver in Part 5.5 of the Act. Once notice of the appointment has been served on the practice, it is an offence under s 5.5.3(1) for a partner to participate in the affairs of the practice. The receiver or another nominated legal practitioner may carry on the legal practice by order of the Court, but only "[f]or the purpose of winding up the affairs of the law practice and in the interests of the practice's clients".[31] The person authorised to carry on the practice has all the powers of, and is taken to have been appointed as, a manager. This means that the defendant will be unable to carry out his practice during the term of the receivership.

308 After careful consideration, however, I have formed the view that a receiver is best equipped to carry out the task that I have described. In reluctantly reaching this conclusion, I have considered the other options available, including the appointment of a manager to the practice or leaving it to the LIV inspectors to complete the job that they began in late 2008. Neither of these options fits the bill. The inspectors have limited powers and are concerned with monitoring compliance with Part 3.3 of the Act and Regulations only. A manager has the principal task of carrying the practice forward. He or she does not have the powers of a receiver to 'look back', unravel arrangements and repay moneys that have been taken in breach of trust, improperly or unlawfully.

309 In this context, I note that the appointment of a supervisor of trust moneys to the practice has proved to be less than satisfactory. The supervisor permitted moneys to be paid to the law practice that were held on behalf of Mr Rann, because he was not told that Mr Rann had not seen the invoice to which the payment related. Moreover, when the supervisor sought evidence to satisfy himself that another payment ought to be authorised, he was told by the defendant that he was exceeding his authority, that he did not have the skills necessary for the job and that he was a 'moron'. The defendant has a strong personality, definite views about the causes of the problems that he now experiences and a sense of grievance (in my view, unjustified) towards the LIV and the Board as a result of finding himself in this position. Unless the person charged with carrying out the examination and rectification task is endowed with strong powers, he or she may be hindered in carrying out the important responsibility with which he or she is charged.

310 In my view, it is necessary for the person responsible for carrying out the examination and rectification task that I have described to have the powers of a receiver. The task of the receiver will be to examine the Melbourne Voyager files held by the law practice to ensure that all irregularities in relation to trust money, trust property or the affairs of the practice have been fully identified and rectified and, in particular, that all trust deficiencies have been properly restored. Depending on what is found, the task may involve recovering moneys or property taken in breach of trust, improperly or unlawfully. Ultimately, it may be necessary to wind up the law practice, but this is a matter for further investigation.

311 Accordingly, a receiver will be appointed on condition that he or she does not, without further order from the Court, move to wind up the practice. I am also minded to limit the term of the appointment, because the law practice would be financially ruined by a lengthy receivership, which would amount to a de facto winding up.

312 I will hear the parties on the form of the instrument of appointment and the conditions that should be imposed.

[1] The defendant referred to Foley v Padley [1984] HCA 50; (1984) 154 CLR 349, 353 in which Gibbs CJ restated the position of Latham CJ in R v Connell; ex parte Hetton Bellbird Collieries Ltd [1944] HCA 42; (1944) 69 CLR 407, 430-432 to the effect that where the existence of a particular opinion is made a condition of the exercise of power, legislation conferring the power is treated as referring to an opinion which is such that it can be formed by a reasonable man who correctly understands the meaning of the law under which he acts. If it is shown that the opinion formed is not an opinion of this character, then the necessary opinion does not exist.

[2] With the exception of the matter of Rann, where final figures had not been provided by the inspectors.

[3] I refer to the matters in [61] of the defendant's final submissions.

[4] [2007] NSWSC 1096.

[5] Discussed in detail below and referred to as 'the Chun Report'.

[6] Morton v Copeland [1855] EngR 539; (1855) 139 ER 861, 869.

[7] Pursuant to s 3.3.28(1) of the Act, investigations may be carried out for the purpose of -

(a) monitoring compliance by a law practice with Part 3.3 of the Act and Part 3.3 of the Regulations; or

(b) determining whether or not the law practice has contravened Part 3.3 of the Act or Part 3.3 of the Regulations.

[8] At [137]-[171].

[9] At [181]-[272].

[10] The Chun Report suggests that the write-up (being the reversal of the write-off) may have been applied to mask an overpayment on Invoice No. 3918 received by the law practice. It is therefore somewhat surprising that the evidence on behalf of the defendant on this point was so confused.

[11] The same text appeared in another document exhibited to the defendant's affidavit sworn on 5 November 2009.

[12] Exhibited to the defendant's affidavit sworn on 5 November 2009.

[13] The document in question exhibited to the defendant's affidavit had a handwritten notation, "executive council". There was evidence before the Court that the document produced on subpoena by the LIV did not have the notation.

[14] In respect of shortcomings relating to reconciliation of cash book balances with trust ledger accounts, reporting relating to the trust account transfer journal, the detail in trust account statements (for example, the trust account statement does not disclose name, address and description of matter) and in relation to the register of controlled money, including the fact that the report does not appear to be presented in an easy to read manner and does not disclose the address of a person on whose behalf the controlled money account is held.

[16] In the course of his evidence on this topic, Mr Scott said that in December 2008, he did not know about credit notes and did not know how to do a credit note. It was not until January 2009 that Ms Thewlis actually showed him how to do a credit note.

[17] Legal Profession Regulations 2005 (Vic) reg 3.3.34.

[18] See below, [273]-[287].

[20] This does not accord with the cost estimate given to Mr Rann for his settlement conference three days later of WIP valued at $175,000.00. It is also significantly less than the fees specified in invoice 3918 of $155,919.00.

[21] At [273]-[287].

[22] With the notable exception of the 2009 invoice.

[24] Referred to above at [257].

[25] See, for example, Legal Practice Act 1996 (Vic) s 249(1)(a) (defalcation), (c)(ii) (contravention of rules governing trust money and trust accounts).

[26] See, for example, Legal Practice Act 1996 (Vic) s 249(1)(b) (unable or unfit to practice), (c)(i) (death of practitioner or director), (iii)-(v) (practitioner suspended or prohibited from practice), (vi)-(vii) (insolvency).

[27] Unreported, Supreme Court of Victoria, Nicholson J, 12 September 1995 ('Mastrosavvas'), quoted with approval in Law Institute of Victoria v Britt (Unreported, Supreme Court of Victoria, Beach J, 5 December 1994) and Law Institute of Victoria v Tregent (Unreported, Supreme Court of Victoria, Gobbo J, 11 August 1992).

[28] Unreported, Supreme Court of Victoria, Gobbo J, 11 August 1992 ('Tregent').

[29] Unreported, Supreme Court of Victoria, Beach J, 1 March 1991.

[30] [1991] VicRp 31; [1991] 1 VR 386.

[31] Legal Profession Act 2004 (Vic) s 5.5.4(2).