Plaintiff v Defendant

Supreme Court of Victoria|2011-09-14|Before: KYROU J

LEGAL PRACTITIONERS - Application to appoint a receiver to a law practice - Deficiencies in trust account - Practitioner unable to remedy deficiencies - Receiver appointed - Legal Profession Act 2004 (Vic) Part 3.3 and Chapter 5.

1 This is an application by the Legal Services Board ('Board') for the appointment of a receiver for the law practice of Ross Delahunty who practises under the name 'Legal Rite' ('Practice').

2 The underlying facts are not in dispute. The evidence in the proceeding solely comprised affidavits, without any cross-examination of the deponents. It is common ground that Mr Delahunty has appropriated funds from his trust account ('Trust Account') for the payment of legal costs and executor's commission either without appropriate authority or in breach of applicable statutory provisions.

3 While Mr Delahunty has not conceded that there is a deficiency in the Trust Account, he has acknowledged that, in the absence of fully informed consent by the persons affected or a court order, he is obliged to repay some amounts that were appropriated by him. He has also acknowledged that his current financial position does not enable him to repay any amount.

4 Mr Delahunty accepts that the Court has jurisdiction to appoint a receiver. However, he has urged the Court to refrain from appointing a receiver and, instead, to accept undertakings whereby he would cease to operate the Trust Account and would cooperate with the Board in protecting the interests of the persons affected, while continuing to conduct the Practice.

5 For the reasons that follow, I have concluded that Mr Delahunty's conduct necessitates the appointment of a receiver.

6 Part 3.3 of the Legal Profession Act 2004 ('LP Act') is headed 'Trust Money and Trust Accounts'. One of the purposes of Part 3.3 is 'to ensure that trust money is held by law practices ... in a way that protects the interests of persons for or on whose behalf money is held'.[1]

7 Section 3.3.2(1) of the LP Act defines 'trust money' as follows:

trust money, in relation to a law practice, means money entrusted to the law practice in the course of or in connection with the provision of legal services by the practice, and includes -

(a) money received by the practice on account of legal costs in advance of providing the services; and

...

(d) money received by the practice, that is the subject of a power, exercisable by the practice ... to deal with the money for or on behalf of another person.

8 Section 3.3.14 of the LP Act provides for the holding, disbursing and accounting of trust money as follows:

(1) A law practice ... must -

(a) hold trust money deposited in a general trust account of the practice ... exclusively for the person on whose behalf it is received; and

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

Penalty: 120 penalty units.

(2) Subsection (1) applies subject to an order of a court of competent jurisdiction or as authorised by law.

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

Penalty: 60 penalty units.

9 Section 3.3.20 of the LP Act provides for the payment of legal costs from funds held in trust as follows:

(1) A law practice may do any of the following, in relation to trust money held in a general trust account or controlled money account for a person -

...

(b) withdraw money for payment to the practice's account for legal costs owing to the practice if the relevant procedures or requirements prescribed by this Act and the regulations are complied with; ...

10 Section 3.3.21 of the LP Act provides for deficiencies in a trust account as follows:

(1) An Australian legal practitioner ... 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.

11 Section 3.3.25 of the LP Act deals with the keeping of trust records as follows:

(1) A law practice ... must keep in permanent form trust records in relation to trust money received by the practice ...

Penalty: 60 penalty units.

(2) The law practice ... must keep the trust records -

(a) in accordance with the regulations; and

(b) in a way that at all times discloses the true position in relation to trust money received for or on behalf of any person; and

(c) in a way that enables the trust records to be conveniently and properly investigated or externally examined; and

(d) for a period determined in accordance with the regulations.

Penalty: 60 penalty units.

12 Chapter 5 of the LP Act is headed 'External Intervention'. The purposes of Chapter 5 include:

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

(i) the interests of the general public; and

(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; ...[2]

13 Section 5.1.2 of the LP Act defines 'external intervener' as 'a supervisor, manager or receiver'. It defines 'regulated property' as follows:

regulated property, in relation to a law practice, means the following -

(a) trust money or trust property received, receivable or held by the practice;

(b) interest, dividends or other income or anything else derived from or acquired with money or property referred to in paragraph (a);

(c) documents or records of any description relating to anything referred to in paragraph (a) or (b);

(d) any computer hardware or software, or other device, in the custody or control of the practice ... by which any records referred to in paragraph (c) may be produced or reproduced in visible form.

14 Section 5.2.1 of the LP Act sets out the circumstances warranting external intervention. It relevantly provides:

External intervention may take place in relation to a law practice in any of the following circumstances -

...

(d) in any case - where the Board forms a belief on reasonable grounds that 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; ...

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

15 Section 5.2.2(2)(c) of the LP Act provides as follows:

The Board may determine -

...

(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.

16 Section 5.5.1(2) of the LP Act provides that the Supreme Court 'may, on the application of the Board, appoint a person as receiver for [a] law practice'. Section 5.5.1(5)(a) provides that the appointee must be 'an Australian legal practitioner who holds a practising certificate as a principal authorising the receipt of trust money ... and may (but need not) be an employee of the Board'.

17 The appointment of a receiver has the consequences set out in s 5.5.3 of the LP Act. Pursuant to s 5.5.3(1), a legal practitioner must not participate in the affairs of the practice until the appointment of the receiver is terminated. Pursuant to s 5.5.3(3), while the receiver's appointment subsists, persons that are notified of the receiver's appointment must not deal with any of the practice's trust money.

18 The role of the receiver is set out in s 5.5.4(1) of the LP Act as follows:

The role of a receiver for a law practice is -

(a) to be the receiver of regulated property of the practice; and

(b) to wind up and terminate the affairs of the practice.

19 Pursuant to s 5.5.4(2)(a) of the LP Act, the Court may, for the purpose of winding up the affairs of the practice and in the interests of the practice's clients, authorise the receiver to carry on the legal practice.

20 A receiver is empowered to take possession of the regulated property of the practice.[3] A receiver also has wide powers to require documents or information relating to the affairs of the practice and to apply to the Court for examinations of associates or former associates of the practice or of any other person about the regulated property of the practice.[4]

21 Significantly in this matter, a receiver has the power to recover regulated property of or under the control of a law practice that has been taken by, paid to or transferred to, a person in breach of trust, improperly or unlawfully.[5] That power applies to transactions before or after the appointment of the receiver. Such power is not conferred on the other possible external interveners, namely, a supervisor or a manager.

22 Regulation 3.3.34 of the Legal Profession Regulations 2005 ('LP Regulations') provides as follows:

3.3.34 Withdrawing trust money for legal costs - law practices

(1) This regulation prescribes, for the purposes of section 3.3.20(1)(b) of the Act, the procedure for the withdrawal of trust money held in a general trust account or controlled money account of a law practice for payment of legal costs owing to the practice by the person for whom the trust money was paid into the account.

(2) The trust money may be withdrawn in accordance with the procedure set out in either subregulation (3) or (4).

(3) The law practice may withdraw the trust money -

(a) if -

(i) the money is withdrawn in accordance with a costs agreement that complies with the legislation under which it is made and that authorises the withdrawal; or

(ii) the money is withdrawn in accordance with instructions that have been received by the practice and that authorise the withdrawal; or

(iii) the money is owed to the practice by way of reimbursement of money already paid by the practice on behalf of the person; and

(b) if, before effecting the withdrawal, the practice gives or sends to the person -

(i) a request for payment, referring to the proposed withdrawal; or

(ii) a written notice of withdrawal.

(4) The law practice may withdraw the trust money -

(a) if the practice has given the person a bill relating to the money; and

(b) if -

(i) the person has not objected to withdrawal of the money within 7 days after being given the bill; or

(ii) the person has objected within 7 days after being given the bill but has not applied for a review of the legal costs under the Act within 60 days after being given the bill; or

(iii) the money otherwise becomes legally payable.

(5) Instructions mentioned in subregulation (3)(a)(ii) -

(a) if given in writing, must be kept as a permanent record; or

(b) if not given in writing, must be confirmed in writing either before, or not later than 5 working days after, the law practice effects the withdrawal and a copy must be kept as a permanent record.

(6) For the purposes of subregulation (3)(a)(iii), money is taken to have been paid by the law practice on behalf of the person when the relevant account of the practice has been debited.

Principles relating to appointment of a receiver

23 The principles relating to the appointment of a receiver under the LP Act were considered by Emerton J in Legal Services Board v Forster.[6] The following statements of her Honour are relevant to the current proceeding:

[T]he [LP] 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.

...

The [LP] Act dispenses with closed technical categories such as defalcation or failure to account, but the overarching purpose of a receivership application ... is for the protection of clients, particularly in relation to trust money, and to facilitate the winding up of a practice in circumstances where its continued operation is impractical or otherwise undesirable.

In Law Institute of Victoria v Mastrosavvas 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.

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, 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, Beach J quoted from the Court of Appeal in National Australia Bank Ltd v Bond Brewing Holdings Ltd:

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.

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 [LP] 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.

...

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. ...[7]

24 For the purposes of this proceeding, I am content to proceed on the basis of the above principles, with one qualification. The LP Act sets out the circumstances that warrant the appointment of a receiver and the interests that are to be taken into account when considering such an appointment. Obviously, the Court will consider the statutory criteria for appointing a receiver and whether a less drastic remedy would be sufficient. However, once the Court determines that the appointment of a receiver is warranted and necessary in the circumstances of a particular case, it will make an order appointing a receiver without asking itself the additional question of whether the circumstances are 'pressing'. There is no basis in the language of the LP Act for limiting the Court's power to appoint a receiver to cases involving 'pressing circumstances'. I note that, while Emerton J quoted authorities decided under different legislation that suggested the existence of such a limitation, her Honour did not say that such a limitation applies under the LP Act.

Principles relating to payment of executor's commission

25 An executor, as a fiduciary, is not entitled to an executor's commission in the absence of:

(b) a court order made under s 65 of the Administration and Probate Act 1958 (_'_AP Act'); or

26 The circumstances in which a commission clause is inserted in the will are closely scrutinised by the Court to ensure that the lawyer that is nominated as an executor does not breach his or her fiduciary duty to the testator.[8]

27 Section 65 of the AP Act empowers the Court to allow, out of the assets of a deceased estate, 'such commission or percentage not exceeding Five per centum for [the executor's] pains and trouble as is just and reasonable'.

28 The circumstances of any agreement between the executor and the beneficiaries for the payment of executor's commission are closely scrutinised by the Court to ensure that the beneficiaries made a fully informed decision and that no unfairness or undue pressure were involved in the making of the agreement.

29 In Walker v D'Alessandro,[9] T Forrest J held that, in order for an agreement by the beneficiaries for the payment of executor's commission to be held to have been made on a fully informed basis, the executor must fully disclose to the beneficiaries any potential benefit or gain to be made by the executor from the receipt of such commission.[10] His Honour said that the factors that impact on the degree of disclosure that must be made to constitute 'full disclosure' include the relative sophistication of the beneficiaries, the need to explain the desirability of taking legal advice and the real possibility of a conflict of interest or indeed an actual conflict of interest.[11]

30 His Honour stated that an executor who is also solicitor for the estate, when seeking the beneficiaries' consent to charge executor's commission, should as a 'bare minimum' disclose the following:

(a) details of the work that has been done to justify the commission;

(b) if legal fees are also charged, particulars of the basis for those fees;

(d) that it is desirable that the beneficiaries seek independent legal advice on their position on the issue of consent to the payment of executor's commission. In some cases, the executor/solicitor should refrain from concluding any agreement with the beneficiaries until they have received independent legal advice.[12]

31 A lawyer who takes commission without a lawful basis for doing so can be guilty of professional misconduct.

The Practice and Mr Delahunty's personal circumstances

32 Mr Delahunty commenced practising as a solicitor in 1971. He began practising under the name 'Legal Rite' in 1998. Since then, he has conducted the Practice as a sole practitioner with the assistance of part-time support staff.

33 The Practice is a general practice, incorporating litigation, conveyancing, small business advice and estate work. Mr Delahunty acts as executor for a number of estates and also holds powers of attorney on behalf of various donors, some of whom are clients of the Practice.

34 Mr Delahunty is 64 years of age. The Practice is his only substantial asset and his main source of revenue is the income of the Practice.

35 In the financial year ending 30 June 2009, the Practice generated gross income of $168,372 and net income of $4,267. The depreciated value of the assets of the Practice was $4,157. In the financial year ending 30 June 2010, the gross income was $163,361, the net income was $6,671 and the depreciated value of the assets of the Practice was $50,537.

36 The Board commenced this proceeding on 21 June 2011. On 11 July 2011, Mr Delahunty gave an undertaking to the Court not to dispose of any trust money without the Board's prior written consent and to instruct his bank to provide the Board's nominee with online viewing access to bank statements and transactions in respect of the Trust Account.

37 On 6 July 2011, the Law Institute of Victoria ('LIV') informed Mr Delahunty that it did not intend to renew his practising certificate. On 8 July 2011, Mr Delahunty commenced a proceeding in the Victorian Civil and Administrative Tribunal ('VCAT') seeking a review of the LIV's decision. By virtue of s 2.4.5(3) of the LP Act, Mr Delahunty's practising certificate is deemed to continue until Mr Delahunty has exhausted his rights of review in relation to the LIV's decision.

Investigations into the conduct of the Practice

38 On 20 September 2010, a delegate of the Board appointed Aruna Colombathantri and Ronald Pata as inspectors ('Inspectors') to conduct an investigation of the trust accounts of, and the records relating to trust money received by, the Practice. The Inspectors reviewed 12 files and trust account ledger printouts and prepared a detailed report dated 21 April 2011 ('Inspectors' Report').

39 The Inspectors' Report identified numerous alleged breaches of the trust account provisions of the LP Act and the LP Regulations. The Inspectors concluded that there were deficiencies totalling $268,334.70 in the Trust Account. They also concluded that Mr Delahunty had not kept records in accordance with the LP Regulations. According to the Inspectors, Mr Delahunty's records were not kept such as to be conveniently investigated or to provide a full or proper accounting to clients.[13] They recommended that the Board consider the appointment of an external intervener for the Practice.

40 On 6 May 2011, a copy of the Inspectors' Report was provided to Mr Delahunty. In subsequent correspondence with the Board, Mr Delahunty disputed some of the findings in the Inspectors' Report.

41 For the purposes of this proceeding, the parties have focused on four files that are the subject of the Inspectors' Report, namely, the files relating to the Estate of Neal Smith ('Smith Estate'), the Estate of Barry Ladd ('Ladd Estate'), Marjorie Cook and Josephine McCorquodale. The key facts relating to those four files are, in large part, not in dispute.

42 Since the appointment of the Inspectors, Mr Delahunty has progressively reduced the balance in the Trust Account by transferring funds to the persons entitled to them. As at 31 August 2011, the balance in the Trust Account was $49,778.63, $32,836.68 of which is held on behalf of Ms Cook, $5,925 of which is held on behalf of the Smith Estate and $74.68 of which is held on behalf of the Ladd Estate.

43 Mr Delahunty acted for Neal Smith in the preparation of his will. Neal Smith died on 22 August 2003. Mr Delahunty and Ronald Smith are joint executors of the Smith Estate which was valued at approximately $806,790. The residuary beneficiaries are four charities.

44 The will contains a clause entitling Mr Delahunty to charge legal fees but does not authorise the payment of executors' commission. At no time did Mr Delahunty or Ronald Smith apply to the Court under s 65 of the AP Act for authority to make such a payment.

45 From funds of the Smith Estate held in the Trust Account, Mr Delahunty paid executors' commission totalling $43,376, which was calculated at five per cent of the value of the Smith Estate. Of this amount, $21,688 was paid to Ronald Smith on 14 April 2005. Mr Delahunty took his half share of the commission as costs throughout the period of his handling of the Smith Estate.

46 Between 2 December 1999 and 28 March 2001, Mr Delahunty withdrew amounts totalling $49,670 from the funds held on trust for the Smith Estate. The amounts were generally in round figures such as $1,800, $1,200, $2,500 and $1,500. The purpose of the payments was described as 'L.R. - Costs'. No costs agreement is in place and at no time was a bill of costs rendered.

47 On 18 March 2004, Mr Delahunty used trust funds belonging to the Smith Estate to transfer the amount of $292.50 to the account of another client called Jewson. On 19 March 2004, Mr Delahunty used trust funds belonging to the Smith Estate to make a payment of $2,000 to a firm called Wollerman Shacklock. These payments had no connection to the Smith Estate.

48 On 5 November 2010, one of the Inspectors, Mr Colombathantri, wrote to Mr Delahunty and requested that he explain the payment of $2,000 to Wollerman Shacklock and the transfer of $292.50 to the Jewson account. In his letter dated 6 December 2010 in reply, Mr Delahunty stated, 'On advice, I don't believe that I am required to provide information outside a six year limitation period'.

49 The Inspectors' Report concluded that the amount of $73,650.50 constitutes a deficiency in the Trust Account for the purposes of s 3.3.21 of the LP Act. That amount comprises the amount of $21,688 paid to Ronald Smith, the amount of $49,670 appropriated by Mr Delahunty as costs, the amount of $2,000 paid to Wollerman Shacklock and the amount of $292.50 transferred to the Jewson account.

50 Mr Delahunty has not disputed the abovementioned payments. His position, as set out in his affidavit of 13 July 2011, may be summarised as follows:

(a) Part of Mr Delahunty's file for the Smith Estate has been lost.

(b) No paper or electronic copies of bills can be found and Mr Delahunty cannot say if bills were ever rendered.

(c) On 9 February 2005, Mr Delahunty wrote to Ronald Smith stating that he had charged commission of five per cent of the value of the Smith Estate and legal fees calculated at 2.5 per cent of the value of the Smith Estate.

(d) On 29 March 2005, copies of an administration statement as at 30 June 2004 were sent to the residuary beneficiaries. The statement contained a lump sum item, 'Executors' commission and legal costs', in the amount of $65,210.

(e) The residuary beneficiaries signed an acknowledgment at the end of the administration statement which authorised 'the distribution of legacies in accordance with [the statement]'.

(f) The signing of the administration statement by the residuary beneficiaries constituted consent to the payment of the executors' commission and the legal costs.

Conclusion on Trust Account deficiency relating to the Smith Estate

51 In the light of the principles set out at [25] to [31] above, Mr Delahunty's suggestion that the signing of the administration statement by the residuary beneficiaries constituted consent to the payment of executor's commission to Ronald Smith and legal costs to himself, lacks credibility and must be rejected.

52 The payment of $2,000 to Wollerman Shacklock and the transfer of $292.50 to the Jewson account did not comply with s 3.3.14 of the LP Act.[14]

53 The appropriations of trust funds set out at [46] above did not comply with s 3.3.20(1)(a) of the LP Act or reg 3.3.34 of the LP [15]gulations.15

54 As Mr Delahunty has been unable to demonstrate that he rendered accounts to the Smith Estate in relation to his legal costs, or that he obtained the fully informed consent of the residuary beneficiaries to the payment of any legal costs to himself or executor's commission to Ronald Smith, there is currently a deficiency of $73,650.50 in the Trust Account relating to the Smith Estate.

55 Mr Delahunty acted for Barry Ladd from about 1980. Barry Ladd died on 25 August 2007.

56 Mr Delahunty and Barry Ladd's accountant, Ian Wallis, are joint executors of the Ladd Estate, which was valued in excess of $7 million. In his will, Barry Ladd left significant real and personal property to his daughter, Samantha Ladd, and his residuary estate to his domestic partner, Lalaine Bailey.

57 The principal asset of the Ladd Estate comprised shares in Perth Freightlines Pty Ltd and PFL Properties Pty Ltd. The business that was conducted by those companies was sold in August 2008 but the proceeds cannot be distributed until the conclusion of certain litigation later this year. Mr Delahunty does not act in the litigation. Another asset of the Ladd Estate was a deposit of $95,272 in an account with the ANZ Bank.

58 The will contains a clause entitling Mr Delahunty and Mr Wallis to charge professional fees but does not authorise the payment of executors' commission. At no time did Mr Delahunty or Mr Wallis apply to the Court under s 65 of the AP Act for authority to make such a payment.

59 Between 9 November 2007 and 5 March 2009, Mr Delahunty deducted the amount of $96,094.97 from funds of the Ladd Estate held in the Trust Account. The amounts were generally in round figures such as $2,500, $58,000, $3,000, $10,000 and $1,000. The purpose of the payments was described as 'L.R. - Costs'. A costs agreement does not exist and Mr Delahunty did not render any bills of costs. The amount of $30,000 was restored to the Trust Account on 23 July 2008, leaving the net amount of $66,094.97 deducted from the trust funds.

60 Between 19 September 2008 and 3 February 2009, Mr Delahunty made further payments totalling $17,965.04 from funds of the Ladd Estate held in the Trust Account. The payments were as follows:

(a) on 19 September 2008, an amount of $10,000 was paid in respect of GST;

(b) on 27 October 2008, an amount of $2,443.54 was paid to G Feltham;

(d) on 19 December 2008, an amount of $1,000 was paid to Farrow;

(e) on 2 January 2009, an amount of $3,500 was paid to J McCaffrey; and

(f) on 3 February 2009, an amount of $149 was paid to Ian Falconer.

61 The payments to which reference is made at [60] above did not relate to the Ladd Estate.

62 Mr Delahunty has not disputed the payments to which reference is made at [59] and [60] above.

63 In response to the Inspectors' questions about the payment of commission and costs, in his letter dated 1 November 2010 to the Inspectors, Mr Delahunty stated:

Ian [Wallis] and I have been speaking with Samantha Ladd about the estate commission which we are to receive some time in the future when the estate is finalised. The question of executors commission has been a long standing discussion dating back to prior to the drawing of Barry's Will and discussions in relation to executors commission were made with Barry and Samantha together at that time. The current position is that Samantha will negotiate with each of us when the estate was finalized as it was envisaged that there could be further complications and/or litigation and that it was not appropriate to set a percentage commission until all work had been completed. It has been an agreement between Samantha and myself that the bank account proceeds which is the only cash asset realized to date could be retained by me on account of my eventual commission and I have treated those monies accordingly.

64 Mr Delahunty further clarified his position in his affidavit of 13 July 2011 as follows:

(a) Sometime prior to the will being finalised, Barry Ladd told Mr Delahunty that if he and Mr Wallis wanted to charge executors' commission they would have to deal with Ms Ladd on that matter. As a result, Mr Delahunty removed a clause for the charging of executors' commission from the final version of the will.

(b) At a meeting with the beneficiaries on 5 September 2007, as a result of a query from Ms Ladd about what would be drawn from the Ladd Estate by way of costs or commissions, Mr Delahunty told Ms Ladd that he could charge legal costs and a commission, but that the legal costs would be offset against his entitlement to charge a commission. Ms Ladd said that she did not want Mr Delahunty to charge both legal costs and commission. Ms Ladd agreed to him charging an executor's commission provided that he did not also charge legal costs.

(c) On 1 November 2007, Ms Ladd's solicitors wrote to Mr Delahunty. Relevantly, the letter stated that, upon the transfer of certain shares to Ms Ladd, she 'will pay executors commission to the executors'.

(d) Mr Delahunty wrote to Mr Wallis on 16 May 2008 enclosing an authority to close the ANZ Bank account and to forward a bank cheque for the balance to the Practice. The letter noted that 'we do need some funds available to meet the expenses of the Estate'. Mr Wallis agreed that Mr Delahunty could obtain those funds and draw on them from time to time for advances on his commission and any expenses of the Ladd Estate.

(e) On 25 January 2011, Ms Ladd wrote to Mr Delahunty and Mr Wallis. The letter relevantly stated:

There was @ $100,000 in my late father's personal bank account when he passed away. I was advised by Ross Delahunty mid last year these funds are no longer in the account and have been used for various costs? ...

Can a statement please be provided of the disbursements of the monies in this trust account to date?
Executor's commission has not been advised and I am hoping to negotiate a figure with the executors in relation to this rather than a percentage. I have spoken to Ian Wallis on the 20th January 2011 who advised he would be happy to receive approx $25000.
Ross is it possible to negotiate a figure with you now as this is going to affect what I receive on the outcome of this litigation.
Can you both advise what further costs will be coming out of my entitlement shall a distribution be made? ...

(f) Mr Delahunty responded by letter dated 4 February 2011. The letter relevantly stated:

I will need to look at the trust card, but from memory there was some $95,000.00 received from the bank account realized by Ian and myself. The proceeds of that account were transferred into my trust account.

The funds have been used both for estate purposes and a contribution towards legal expenses and/or commission as there were no other readily available funds for such purpose. I will shortly provide you with a full explanation of the disbursement of the funds received. ...

...

As stated to you at the outset when your father was making his Will, it was your father's statement to me that we as the executors negotiate commission based on what had to be done by us as executors to finalise the estate. Your father was not prepared to provide an amount or a percentage that would be paid to Ian and myself. As executors, the upward limit of our entitlement would be 5% of the value of the estate ie 2.5% each. If Ian chooses to accept $25,000.00, that is his decision and not a joint decision.

I am in a position to charge either legal fees and/or commission. If I choose to accept commission then the upward limit of my commission would be 2.5% of the value of the estate. If I was to choose to charge you legal fees, then I would have to cost out the file and depending on the quantum, I would then assess whether I should also claim commission in addition to legal costs. As stated to you at the outset it was my intention to charge you commission only and not charge legal costs in addition.

If you were to make me an offer, I would certainly consider that. However, that may not be in your best interests or mine at the present time given the current situations in Perth and Melbourne and the uncertainty of the final pot of money that will be available for distribution to the estate.

(g) On 11 February 2011, Mr Delahunty wrote to Ms Ladd again and said that the commission claimable by him would be a maximum of 2.5 per cent of the total value of the Ladd Estate.

(h) The only asset of the Ladd Estate that was readily realisable was the deposit of $95,272 in the ANZ Bank account. Accordingly, there would be a cash flow problem for Mr Delahunty to continue administering the Ladd Estate as executor unless the proceeds of the ANZ Bank account could be appropriated by him as an advance on his executor's commission and to meet ongoing expenses.

(i) Based on Mr Delahunty's conversations with Mr Wallis, Mr Delahunty believed that he was entitled to withdraw funds to meet advances on his executor's commission and that any such deductions would be adjusted when the executors' commissions were finally determined upon finalisation of the Ladd Estate.

(j) The moneys appropriated by Mr Delahunty were not legal costs but were advances on his executor's commission.

65 On 22 August 2011, after the commencement of this proceeding on 21 June 2011, Mr Delahunty wrote to Ms Ladd and Ms Bailey in the following terms:

I am writing to confirm that I have acted as one of the two executors with Ian Wallis in relation to the [Ladd Estate].

A recent audit by the Law Institute of Victoria (LIV) alleges that I have failed to obtain directions from each of you before I distributed monies from my trust account. As the solicitor for the estate, I would seek the executors consent to make such deduction. As solicitor and executor, it is stated I should also obtain your consent as the beneficiaries.

Enclosed is an administration statement to 30 January 2011 that I have previously on forwarded to Samantha following a request from her to do so.

The LIV application seeking to appoint a receiver is scheduled before the Supreme Court of Victoria on 5 September 2011.

In order to ensure all available evidence is put before the Supreme Court on 5 September, I ask that you confirm the following for me in writing (which I intend producing to the Supreme Court on 5 September 2011).

What is your understanding as beneficiaries under the estate of the arrangement in place for me to obtain remuneration acting as executor and solicitor of the estate?
Which or both of you will be responsible for payment of the fees negotiated?
That you are aware of the monies held in accordance with the attached administration statement to 30 January 2011 have been disbursed.
That the administration of the estate is completed to date except for:-

Completion of legal proceedings involving the sale of Perth Freight Lines Pty Ltd business where monies are held by the receiver of that company and distribution to Samantha as shareholder/beneficiary. 2. The transfer of 1½ shares in PFL Properties Pty Ltd from the executors to Samantha after 5 years in accordance with the Will.

The transfer of the property at Unit 9/57 King George Street, Victoria Park WA to Lalaine.

Payment of fees and/or commission which will be subject to negotiation with both of you.

Your response in writing to the abovementioned matters would greatly assist the Court in dealing with the LIV application for appointment of a receiver and/or with the Supreme Court deciding on remuneration due to me.

If either or both of you feel you need to obtain independent legal advice, please do not hesitate to obtain same before replying.

I await your response.

66 Attached to Mr Delahunty's letter was an administration statement as at 30 January 2011 for the Ladd Estate. The following entries appear under the heading 'Payments':

On account of legal costs/commission

on sale of business ($3.5M x 2.5%) $87,500.00

(based on estate contribution to costs)

Legal Rite photocopying - estimate $200.00

Postage estimate $100.00

Further appropriation of costs/commission $4,500.00

67 Mr Delahunty has not received any response to his letter from either Ms Ladd or Ms Bailey. He has, however, communicated with Ms Ladd's accountant and has canvassed various options with the accountant.

Conclusion on Trust Account deficiency relating to the Ladd Estate

68 The payments to which reference is made at [60] above did not comply with s 3.3.14 o[16]the LP Act16 because there is no evidence of client directions in respect of the transactions. As such, the payments resulted in a deficiency of $17,965.04 in the Trust Account.

69 In the absence of authority in the will or a Court order under s 65 of the AP Act, the only lawful basis upon which Mr Delahunty could pay to himself executor's commission was with the fully informed consent of all the beneficiaries. Mr Delahunty has not deposed that Ms Bailey has agreed to the payment of executor's commission. Accordingly, the payment of the executor's commission was unauthorised.

70 The evidence on the question of whether Mr Wallis and Ms Ladd agreed to the payment of executor's commission - let alone, in Ms Ladd's case, that her alleged agreement was made on a fully informed basis - is not persuasive. However, even if Mr Wallis (as the co-executor) and Ms Ladd (as one of the two principal beneficiaries) had validly agreed to the payment of executor's commission, their agreement would not suffice to authorise the payment of such commission.

71 As Mr Delahunty has been unable to demonstrate that he rendered accounts to the Ladd Estate in relation to his legal costs, or that he obtained the fully informed consent of both of the principal beneficiaries to the payment of executor's commission, there is currently an unrestored deficiency of $66,094.97 in the Trust Account relating to the Ladd Estate.[17]

72 The total deficiency in the Trust Account in relation to the Ladd Estate is $84,060.01, comprising the amount of $17,965.04 to which reference is made at [68] above and the amount of $66,094.97 to which reference is made at [71] above.

Mr Delahunty's dealings with the Cook Power of Attorney

73 Mr Delahunty has acted for Ms Cook since 1985. In the late 1990s, Ms Cook's physical health deteriorated due to old age. On 5 January 2001, Ms Cook executed a joint enduring power of attorney in favour of Mr Delahunty and Ms Cook's doctor, Peter Drake ('Cook Power of Attorney').

74 The Cook Power of Attorney does not contain a clause authorising the charging of any fees for acting as attorney.

75 Ms Cook was placed in an aged care facility in 2001. Mr Delahunty sold her home in late 2002 and placed the proceeds of sale in the Trust Account.

76 Ms Cook's condition deteriorated and she was subsequently placed in a nursing home.

77 Ms Cook is currently comatose. She does not have any family. Mr Delahunty pays her accounts on her behalf.

78 Between 21 January 2003 and 9 April 2010, Mr Delahunty withdrew amounts totalling $102,960 from the proceeds of the sale of Ms Cook's home that were held in the Trust Account. The withdrawals were generally in round figures such as $1,650, $1,600, $500 and $2,000. The purpose of the withdrawals was described as 'L.R. - Costs'. However, no bills of costs were rendered.

79 The Inspectors asked Mr Delahunty to explain the withdrawals from the Trust Account in the absence of any bills of costs. In his letter dated 1 November 2010 to the Inspectors, Mr Delahunty stated that, as Ms Cook did not recognise anyone, he did not see 'any point in providing accounts to her'. He added that the 'monies taken from [Ms Cook's] account represent costs and expenses and/or commission that I have taken from time to time in respect of work undertaken over the last 20 years'. He did not say that the payments were not for legal costs.

80 In his affidavit of 13 July 2011, Mr Delahunty said that, apart from acting in the sale of her home, he had not performed any legal work for Ms Cook. When Ms Cook's physical health deteriorated in the late 1990s, she decided to appoint him and Dr Drake as her attorneys under power to look after her affairs rather than have her affairs managed by State Trustees. At the time that the power of attorney was executed, Ms Cook told Mr Delahunty that she wanted him to be compensated for the work that he had done and the friendship that he had offered to her since 1985 and for the work that he would carry out as her attorney. He had provided assistance as a 'carer and administrator' and the amounts deducted were to meet his costs of administering Ms Cook's affairs and not for legal costs.

81 Mr Delahunty's files do not contain any documents evidencing the provision of any services for which amounts totalling $102,960 were charged.

Conclusion on Trust Account deficiency relating to the Cook Power of Attorney

82 The question of whether the withdrawals of amounts totalling $102,960 from funds belonging to Ms Cook in the Trust Account constitute deficiencies depends on whether those amounts were appropriated in the capacity of a legal practitioner for the payment of legal costs, or in the capacity of an attorney providing non-legal services and meeting the costs of administering Ms Cook's affairs.

83 In my opinion, the best evidence of the purpose of the withdrawals of the funds is Mr Delahunty's contemporaneous records. Where those records conflict with Mr Delahunty's current version of events, I prefer the contemporaneous records. The records indicate that the purpose of the withdrawals was 'costs'. As the term 'costs' is used by solicitors to refer to their legal costs, I infer that this was the intended meaning of the expression.

84 Accordingly, I find that the amounts totalling $102,960 were withdrawn for the payment of legal costs for the purported provision of legal services by the Practice. As no bills of costs were rendered, there is a deficiency in the Trust Account in the amount of $102,960 in relation to Ms Cook.

Mr Delahunty's dealings with the McCorquodale Power of Attorney

85 Mr Delahunty acted for Ms McCorquodale for some years prior to 2005.

86 On 15 September 2005, when Ms McCorquodale was 90 years of age, she executed a power of attorney in favour of Mr Delahunty ('McCorquodale Power of Attorney').

87 Ms McCorquodale was blind and required care. She died in August 2011.

88 The McCorquodale Power of Attorney was accompanied by a supplementary document which authorised Mr Delahunty to charge for his work in acting as Ms McCorquodale's attorney in accordance with the Practitioner Remuneration Order. The McCorquodale Power of Attorney and the supplementary document were drafted by independent solicitors acting for Ms McCorquodale.

89 Mr Delahunty did not have any money belonging to Ms McCorquodale in the Trust Account. However, as her attorney, he had access to funds in Ms McCorquodale's bank accounts with the Westpac Bank. Between 21 December 2007 and 24 September 2010, Mr Delahunty withdrew from those accounts amounts totalling $12,400. The withdrawals were generally in round figures such as $2,100, $2,000, $1,500 and $500. The narration was simply 'Legal Rite'. However, no bills of costs were rendered.

90 The Inspectors asked Mr Delahunty to explain the withdrawals in the absence of any bills of costs. In his letter dated 1 November 2010 to the Inspectors, Mr Delahunty stated that, 'As with Mrs Cook, there is not much point in preparing bills of costs and rendering same to [Ms McCorquodale] as she is blind'.

91 In his affidavit of 13 July 2011, Mr Delahunty said that the withdrawals totalling $12,400 were for his expenses in administering Ms McCorquodale's affairs as her attorney and for reimbursement of expenses, and that they did not relate to the provision of legal services. He said that he regularly discussed with Ms McCorquodale the amounts that he withdrew from her bank accounts, including any amounts to be retained by him, and that she authorised him verbally to withdraw those amounts.

92 Mr Delahunty has not provided any details of the services he has provided or any expenses that he has incurred for which he has obtained reimbursement from Ms McCorquodale's funds.

Conclusion relating to the McCorquodale Power of Attorney

93 There are three significant differences between the withdrawals of funds in the Cook matter and the withdrawals in the McCorquodale matter. The first difference is that Ms McCorquodale's funds were not held in the Trust Account. The second difference is that the purpose of the withdrawals from Ms McCorquodale's bank accounts was not described as 'L.R. - Costs' but as 'Legal Rite'. The third difference is that the supplementary document accompanying the McCorquodale Power of Attorney authorised Mr Delahunty to charge fees for his work in acting as Ms McCorquodale's attorney.

94 In these circumstances, I am not satisfied that the withdrawals from Ms McCorquodale's bank accounts were for the purported provision of legal services by the Practice. The more likely explanation is that the withdrawals were made in Mr Delahunty's capacity as an attorney. Accordingly, the amount of $12,400 does not represent a deficiency in the Trust Account.

95 For the purpose of this proceeding, it is not necessary for me to decide whether the withdrawals totalling $12,400 that Mr Delahunty made in his capacity as Ms McCorquodale's attorney were proper.

96 In addition to the amount of $73,650.50 relating to the Smith Estate, the amount of $84,060.01 relating to the Ladd Estate, and the amount of $102,960 relating to the Cook Power of Attorney which I have held constitute deficiencies in the Trust Account,[18] the Inspectors allege that there is a deficiency of $582.39 relating to a client named 'Gotch' and a deficiency of $3,500 relating to Dr Drake. For the purposes of this proceeding, I will disregard the two smaller amounts and treat the deficiency as totalling $260,670.51.

97 Mr Daryl Williams SC, who appeared with Mr Timothy Bourke for Mr Delahunty, conceded that the Board had complied with ss 5.2.1(d) and 5.2.2(2)(c) of the LP Act. He also conceded that the evidence that had been adduced on behalf of the Board enlivened the Court's jurisdiction to appoint a receiver for the Practice. These concessions were properly made.

98 Mr Williams informed the Court that Mr Delahunty is not currently able to restore any deficiency in the Trust Account.

99 Mr Williams submitted that, in the circumstances of this case, it was neither in the interests of the public nor in the interests of Ms Cook, the Smith Estate and the Ladd Estate (collectively 'persons affected') that the drastic step of appointing a receiver be taken. Instead, Mr Williams urged the Court to accept the following undertakings that Mr Delahunty offered for the purpose of continuing to operate the Practice:

(a) Mr Delahunty will close the Trust Account, as soon as practically possible, under the supervision of, and with assistance of, the Board;

(b) once the Trust Account is closed, Mr Delahunty will not operate a trust account again as part of any legal practice that he conducts;

(c) Mr Delahunty will co-operate with the Board and provide the Board unfettered access to all files relevant to the Trust Account as the Board may require from time to time; and

(d) Mr Delahunty will assist and allow the Board to:

(ii) assist clients to bring actions against him; or

100 Mr Williams submitted that the appointment of a receiver would be contrary to the interests of the persons affected because it would destroy Mr Delahunty's main capital asset and his income stream[19] and prevent him from repaying any moneys due to the persons affected. He contended that, given Mr Delahunty's age, it would be difficult for him to start a new practice, become a partner of a law firm or obtain employment as a solicitor in a law firm.

101 Mr Williams submitted that, with the Board's assistance, full disclosure could be made to the persons affected and those persons would be in a position to make informed decisions about what amounts Mr Delahunty could retain as executor's commission or for the payment of legal fees. He contended that the persons affected either had, or would be able to have, access to independent legal advice to protect their interests. He noted that Ms Bailey and Ms Ladd were legally represented; that the recent death of Ms McCorquodale would ensure that the executors of her estate would take steps to protect the interests of the estate; that the beneficiaries of the Smith Estate were sophisticated charities; and that Mr Delahunty would apply to the VCAT for permission to resign as Ms Cook's attorney under power[20] so that Dr Drake could look after her affairs independently of Mr Delahunty.

102 Mr Williams submitted that the appointment of a receiver in Mr Delahunty's circumstances was unnecessary, would be 'overkill' and would add significant costs which would ultimately be borne by Mr Delahunty. According to Mr Williams, allowing Mr Delahunty to continue the Practice subject to the undertakings that Mr Delahunty has offered to the Court, would facilitate a negotiated outcome of the claims against him by the persons affected, under the supervision of the Board, and would enable him to repay any agreed amount from the ongoing income of the Practice.

103 Mr Williams emphasised that the current proceeding was not a disciplinary proceeding and its purpose was not to punish Mr Delahunty for any misconduct he may have committed. According to Mr Williams, the Court's decision whether to appoint a receiver must be based on what is in the public interest and in the interests of the persons affected. He contended that the proposal set out at [99] above was in the public interest and in the interests of the persons affected. He added that the fact that, coincidentally, the proposal is also more beneficial to Mr Delahunty than the appointment of a receiver should not deter the Court from adopting the proposal.

104 Mr Timothy Scotter, who appeared for the Board, submitted that, given Mr Delahunty's serious breaches of the LP Act and the LP Regulations, and his 'flagrant' breaches of his fiduciary duties, the appointment of a receiver was necessary in the public interest and in the interests of the persons affected. He submitted that it was extraordinary that Mr Delahunty was ignorant of his basic obligations as a fiduciary and of the trust accounting requirements of the LP Act and the LP Regulations. He contended that the Court could not have any confidence in Mr Delahunty's ability to comply with his legal obligations if he were allowed to continue to conduct the Practice.

105 Mr Scotter emphasised that, notwithstanding that Mr Delahunty has been aware since October 2010 of the allegations of Trust Account irregularities against him, he has taken no effective steps to rectify the position. Mr Scotter described Mr Delahunty's attempts to obtain informed consent to his receipt of executor's commission from the beneficiaries of the Smith Estate and the Ladd Estate as 'woeful'. He contended that the Court could have no confidence in Mr Delahunty's ability to deal properly with the persons affected to assist them in enforcing any claims that they had against him. The fact that Mr Delahunty has sought the Board's assistance, so it was said, supports the view that he is unable to properly deal with the issues on his own.

106 Mr Scotter submitted that there is a serious deficiency in the Trust Account which, on Mr Delahunty's own admission, he is unable to rectify. In those circumstances, Mr Scotter contended, the appointment of a receiver was imperative.

107 At [54] above, I concluded that there is a deficiency of $73,650.50 in relation to the Smith Estate. In my opinion, the fact that Mr Delahunty suggested that the signing of the administration statement by the residuary beneficiaries constituted consent to the payment of executor's commission, indicates that Mr Delahunty is ignorant about his most basic obligations as a fiduciary.

108 At [72] above, I concluded that there is a deficiency of $84,060.01 in relation to the Ladd Estate. Mr Delahunty did not have any legal authority to charge an executor's commission. In my opinion, the communications set out at [64] and [65] above indicate that, at all relevant times, the question of whether he would be authorised by the beneficiaries to take executor's commission remained unresolved. Notwithstanding this, Mr Delahunty paid himself 'interim commission'.

109 At [84] above, I concluded that the amount of $102,960 that was withdrawn from Ms Cook's funds in the Trust Account constitutes a deficiency in the Trust Account. Even if the amount of $102,960 does not constitute a deficiency, the withdrawals totalling $102,960 represent egregious breaches of fiduciary duty by Mr Delahunty. He took advantage of Ms Cook's vulnerability and helped himself to her money without maintaining any records in relation to the payments and without considering himself accountable for the payments.

110 For Mr Delahunty to say that there was no point accounting to Ms Cook for the withdrawals he had made because of her comatose state suggests an appalling indifference to Ms Cook's interests. At the very least, Mr Delahunty should have retained accurate and comprehensive records for the services he allegedly provided to Ms Cook, provided those records to Dr Drake and sought Dr Drake's authority for the withdrawals.

111 Mr Delahunty's conduct in relation to the persons affected has involved a breach of s 3.3.21 of the LP Act and various other provisions of the LP Act and the LP Regulations.[21] It is an understatement to say that his conduct constituted serious breaches of trust. He withdrew at will from the funds held on trust for Ms Cook, the Smith Estate and the Ladd Estate without seeking the prior consent of those entitled to those funds and without at any time providing a full and frank explanation for his actions.

112 There are two possible explanations for Mr Delahunty's actions. The first explanation is that he was ignorant of his legal obligations. The second explanation is that he acted dishonestly. As the Board has not sought to establish dishonesty for the purposes of this case, I find that Mr Delahunty's actions are explicable by his ignorance of his legal obligations. Such ignorance in a lawyer who has practised on his own account for 40 years is most disturbing.

113 In making the above findings against Mr Delahunty, I have taken into account the importance of the evidence relating to those findings and the gravity of the matters alleged against Mr Delahunty, as required by s 142(2) of the Evidence Act 2008.

114 Mr Delahunty was on notice from 9 December 2010 that the Inspectors were alleging that there was a significant deficiency in the Trust Account and that he was required to restore the deficiency within seven days. Instead of remedying the deficiency, Mr Delahunty basically ignored the substance of the Inspectors' allegations against him. Even if it is assumed that, prior to the receipt of the Inspectors' Report on 6 May 2011, Mr Delahunty did not have sufficient particulars of the alleged deficiency to enable him to take effective remedial action, since 6 May 2011, he cannot have been under any misapprehension of the allegations against him.

115 Mr Delahunty's conduct since 6 May 2011 indicates that, notwithstanding the detailed allegations that were made against him, he failed to grasp the seriousness of his conduct and the steps that he needed to take as a matter of urgency to rectify the position. His letter dated 22 August 2011 to Ms Ladd and Ms Bailey,[22] which was written with a view to obtaining their fully informed consent to his retention of executor's commission, was not only inadequate, it was also potentially misleading.

116 Either Mr Delahunty did not understand the nature of the information that he had to communicate to Ms Ladd and Ms Bailey to enable them to make a fully informed decision or, worse still, he deliberately withheld information from them. Once again, I will assume, in Mr Delahunty's favour, that he did not have a sufficient understanding rather than that he acted deliberately. That lack of understanding, however, is a matter for serious concern.

117 Mr Delahunty's actions since 6 May 2011 do not inspire any confidence that, left to his own devices, he would be capable of satisfactorily communicating with the persons affected about their potential rights against him in relation to funds that he has appropriated without lawful authority.

118 It is not an answer to these difficulties for Mr Delahunty to say that he can satisfactorily deal with the persons affected with the assistance of the Board. Having reviewed Mr Delahunty's conduct, the Board has decided that a receiver should be appointed for the Practice. The LP Act does not expressly empower the Board to assist practitioners in the manner suggested by Mr Delahunty. Even if it is assumed that the Board has incidental power to provide such assistance, the Board is simply not prepared to provide that assistance as an alternative to the appointment of a receiver in Mr Delahunty's case.

119 More fundamentally, the simple fact is that Mr Delahunty has created a serious deficiency in the Trust Account and is currently unable to remedy that deficiency. He is, in effect, asking the Court to enable him to continue conducting the Practice while that deficiency remains, so that he can generate income to enable him to remedy the deficiency over time. In my opinion, that is something that the Court cannot countenance. This is particularly so in this case because, based on the net income of the Practice in the financial years 2009 and 2010,[23] it is likely that Mr Delahunty's disposable income for the rest of his working life will not be sufficient to remedy the deficiency.

120 As Mr Williams has submitted, in deciding whether to appoint a receiver, the Court's primary consideration is the public interest and the interests of the persons affected. The interests of Mr Delahunty must also be taken into account, but not in preference to the public interest and the interests of the persons affected. In circumstances where Mr Delahunty is effectively insolvent - in the sense that he is not currently able to repay amounts owing to the persons affected - and has an insufficient understanding of his obligations to the persons affected - including what information he must provide to them to enable them to make a fully informed decision about any financial settlement with him - it cannot be in the public interest or in the interests of the persons affected, to permit Mr Delahunty to continue to conduct the Practice.

121 In all the circumstances, the appointment of a receiver for the Practice is warranted under s 5.2.1(d)(i), (ii), (vi) and (e) of the LP Act. The 'other proper cause' for the purposes of s 5.2.1(e) is Mr Delahunty's inability to remedy the deficiency in the Trust Account. In these circumstances, it is necessary to appoint a receiver in order to protect the interests of clients - especially Ms Cook - in relation to trust money.

122 I have considered the possibility of appointing a receiver over the regulated property of the persons affected rather than over all the regulated property of the Practice. However, in the light of the large number of serious Trust Account irregularities to which reference is made in the Inspectors' Report and the significant deficiency in the Trust Account, I have concluded that it is essential that the receiver take control of all the regulated property of the Practice. That control will enable the receiver to thoroughly investigate the affairs of the Practice and Mr Delahunty's dealings with the Trust Account and to consider the most effective way of restoring the deficiency in the Trust Account and protecting the interests of the persons affected.

123 The receiver will be able to make full disclosure to the persons affected in relation to their rights against Mr Delahunty. Under s 5.5.14(3) of the LP Act, the receiver can bring proceedings in the name of the persons affected against Mr Delahunty to recover the deficiencies in the Trust Account.[24] A supervisor or manager appointed by the Board would not have this power and therefore, in the circumstances of this case, the appointment of a receiver is required.

At a glance

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Judgment (224 paragraphs)

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Legislation Cited (24)