R v Just [2003] VSC 274

Supreme Court of Victoria|2003-07-03|Before: OSBORN J

DEFALCATION OF TRUST ACCOUNT MONEYS AND FALSE ACCOUNTING - Sentence - Solicitor and partner in legal firm - Where offences were primarily committed to protect offender's father - First offence.

Peter Robert Just, you have pleaded guilty to one count of having a deficiency in a trust account, pursuant to s.42(1) of the Legal Profession Act (1958) and one count of false accounting, in breach of s.83(A)(1) of the (1958).

You are now 55 years old and for nearly 30 years carried on practice successfully as a solicitor based within this State. You were admitted to practice in 1970, having graduated in law from the University of Melbourne in 1968, and having completed articles with your father at the firm of Arthur, Phillips and Just in 1969. You became a partner in that firm in 1972 and thereafter carried on practice with your father, your elder brother, Norman, and in due course one Barclay. You held a full practising certificate from 1971 until the end of 1994.

Your father had commenced his involvement with the firm in 1945. He took over as senior partner during the 1950's and retained that position until 1986, when his sons took over. He then became a consultant.

It appears that thereafter he was involved in financial mismanagement and ultimately the firm was placed in receivership, by order of the Supreme Court on 22 December 1994, as a result of defalcation of trust moneys.

The circumstances giving rise to your offences arose on 23 September 1994 and can with the benefit of hindsight be seen as a prelude to the collapse of the firm.

The practice of the firm was a general solicitors practice. However, as part of that practice the firm managed contributory mortgage investments. This process was one whereby the firm would invest clients' moneys in registered mortgages through a contributory mortgage investment fund called Just Trust Mortgages.

The firm obtained a written authority from each client before any funds were advanced by way of mortgage loan. This authority authorised lending through the fund of up to two thirds of the value of any particular property. Money of a client that was not invested on security by way of mortgage was held in interest bearing accounts. This practice was sufficiently successful to mean that individual clients, including deceased estates, placed substantial sums of money with the firm for the purposes of investment.

When a client was billed for related work by the firm the usual procedure was to prepare a bill and a cheque requisition which was signed by the solicitor concerned. A cheque would then be raised from the trust account and signed by two authorised signatories before being paid into the office account. The client's trust ledger would be amended accordingly.

Between April and November 1994 a serious cash flow difficulty became apparent in the administration of the firm's business. There were inadequate funds to meet creditors and pressure was applied to the firm by creditors seeking payment, and in particular the Commonwealth Bank. As a result of these difficulties instructions were given to the accountant, Mr Davis, to prepare cheque requisition orders and to draw cheques without bills of cost being raised to justify the orders.

Between 7 July 1994 and 21 September 1994 ten transfers were effected from trust accounts to the office account of the firm without adjustment of the client's ledgers. As a result, the trust bank account balance was less than the total funds recorded in the trust ledgers.

During 1994 you spent the major part of your time involved with outside businesses, including particularly Just Australia China Holdings Ltd, Russia Holdings Ltd, and other companies that sought to emulate in different countries successful business transactions that had been carried out through Just Australia China Holdings Ltd in China.

You were aware that the firm of Arthur, Phillips and Just was under significant financial pressure but did not have a direct knowledge of difficulties with individual client files and the position that had been reached with respect to the overall financial position of the firm.

On or about 23 September 1994 you were requested by your brother, Norman, to attend an urgent meeting because of difficulties that had arisen with the firm's trust account. At the meeting you were told there was a deficiency in the trust account of approximately $80,000. Furthermore, you were told that there had been problems with the computer system which had failed and that there had been a need to resort to manual accounting. This is the first time that you had become aware of any possible deficiency in the trust account. You had not been involved in the preceding transactions which occurred from July onwards.

As you have acknowledged in your statement of 27 February 2003, it was your duty to report the trust account deficiency to the Law Institute when you became aware of it. However, you did not do so and instead agreed to a cover up plan. It was agreed that to redress the shortfall a series of clients would be billed with fees, enabling the trust account ledgers to balance with the funds actually in the trust account. As a result a charge of $4000 was separately levied by way of a management charge without justification upon some 16 clients of the firm. You also informed the other members of the firm present that a 5 per cent executors commission could be charged to an estate worth between $600,000 and $700,000. You assessed that 5 per cent commission on the lower figure was $30,000 and suggested that that could be billed to the estate.

In making this suggestion, you were acting upon your understanding of advice from your father, who had travelled overseas, leaving the file with you and telling you of the value of the file.

Thereafter, a total sum of $94,000 was raised against the clients discussed at the partners meeting. Each bill was raised without justification.

Thereafter, it appears that the business of the firm collapsed financially. You declined to apply for a practising certificate after the end of that year and have since actively co-operated in the investigation of the matter and in the making of statements.

You have agreed to give evidence with respect to charges brought against your partners, to which they have pleaded not guilty.

The following aspects of the facts of the case may be said to lessen your moral culpability and make your conduct more explicable.

First, you were not primarily involved with the business of the firm on a day to day basis. Your main business was with companies involved in international trading ventures. I accept that the underlying deficiency in funds, which it was sought to redress on 23 September 1994, was not the result of your actions, but rather was a consequence of mis-management by your father, which was not in turn adequately controlled by those members of the firm more directly involved with its day to day activities.

Second, you made no direct profit from the transactions with which you are charged or the dealings giving rise to them.

Third, you were suddenly confronted with a deficiency in the firm's trust account and with the need to somehow address it.

Fourth, you were confronted with the need to resolve the situation, if the reputation of the firm and of your father in particular was to be protected.

Fifth, Mr Davis, the firm accountant at the time, says in the statement tendered to me, "When informed of the detail of the deficiency in the trust account, Peter was an honest man caught in the agony of the enormity and immediacy of the problem in hand. His sole concern was to save his father, since it was clear that Peter had nothing to do with the causes for the deficiency. He was thus placed in the situation of having to make an immediate decision to report the matter or to go along with an effort to patch it up, until his father returned and dealt with it. Needless to say, reporting the matter would have had immediate consequences for his father and brother, who were responsible for the situation in which Peter found himself. Peter had not been involved in the transfers of funds from the trust account to the office account, which had caused the defalcations." Save for the suggestion you acted honestly, I accept this characterisation.

I also accept Dr Walton's conclusion that your reaction to the situation which confronted you, was one made consistently with longstanding psychological patterns in your behaviour, developed with respect to conflict between your father and your brother. I accept that you reacted by trying to achieve a peaceful solution, which would minimise conflict and stress between your father and brother.

I also accept that your acquiescence in the attempted cover up and associated transactions, which were agreed to on 23 September 1994 occurred at a time when you were very heavily engaged in business responsibilities outside the administration of the practice, in which you were a partner. It thus occurred at a time when you had little in reserve with which to make a careful and considered judgment.

The following further matters can also be said to count in your favour. Although your actions involved significant breaches of trust and total billings in a sum which must be regarded as substantial, the individual amounts of money involved were not very large by the standards of the commercial world in which you worked.

Mr Dong states that Just Australia China Holdings Ltd, the company with which you were primarily concerned, had a turnover of more than $15,000,000 and made a profit of more than $2,000,000 in the 1993/94 financial year. It was involved in investment, manufacturing and the trading of commodities between Australia and China. It had approximately 120 employees and maintained offices and staff in Melbourne, Sydney, Hong Kong and Shanghai.

Other companies with which you were involved were also seeking to open up markets in Russia and Indonesia during the period immediately prior to your offences.

All of the transactions in which you were involved were substantial and involved many millions of dollars. There is no suggestion that you were ever other than honest and competent with respect to any of these dealings.

You have accepted full responsibility for your actions. You have cooperated with the police and made full statements to them. You have indicated you are willing to give evidence at the trial of your co-accused. You have pleaded guilty to the two counts with which you have been charged before me. You have expressed genuine remorse, and I accept Dr Walton's characterisation of you as profoundly and appropriately remorseful.

Very substantial delay, for which you do not bear responsibility, has occurred since the events in issue. You have now had the consequences of your actions hanging over you for nearly nine years. As a result you achieved no sense of psychological closure with respect to the events giving rise to the charges before me, and Dr Walton states that you suffer from ongoing anxiety and depression.

You have suffered very substantial penalties for your actions. You have lost your practising certificate and have little or no expectation of recovering it. You personally have paid some $376,000 to creditors of the firm, including staff with entitlements. You have sacrificed such assets as you had in seeking to meet obligations of the firm. As a result of this process you were unable to keep meeting personal obligations and were made bankrupt on the petition of the Commonwealth Bank in August 2002. You will not be discharged until August 2005.

You have suffered public, professional and personal disgrace.

You have suffered the disintegration of family relationships in your father's last years. You believe that the stress involved with these events contributed directly to the death of your father from stroke in 1996, and as is often the case when family relationships break down questions of blame and of responsibility are not ready vehicles for the resolution of regret and other emotions.

I also have regard to the evidence of your good character, elaborated in the statements tendered to the court, and in the impressive evidence of Mr McBain, your current employer.

It is apparent from your hitherto unblemished record and your personal achievements that prior to the events in issue you were of good character. It is also apparent from the evidence of Mr McBain that you have shown both considerable application and ongoing trustworthiness in the work you have done for him over recent years.

In addition, it appears that you are a good and affectionate father and have now settled into a stable de facto relationship.

As against the above matters the charges to which you have pleaded are serious ones. The maximum penalties in respect of these offences at the relevant times are as follows; pursuant to s.42 of the Legal Profession Practice Act, the penalty for deficiency in a trust account is a maximum of seven years' imprisonment. The penalty for false accounting under the Crimes Act carries with it a maximum of seven and a half years' imprisonment.

In the matter of R v. Howse Flatman J stated:

"The community is entitled to expect high standards of integrity and responsibility from the legal profession. It is perhaps well expressed in Cole, an unreported decision of 10 May 1974. Defalcations by persons in a position of trust have to be regarded by the courts as much more serious than other types of defalcations. In this regard the solicitor stands in a particular position. He is an officer of this court. He is held out as a fit and proper person to practice his profession, to receive his client's money and to be the recipient of their justified financial trust and confidence. It is not possible for the courts to regard lightly the defaulting solicitor whose actions tend to undermine the security of ordinary people and the fabric of a profession on which and on whose integrity the public are to such an extent dependent. This is particularly the type of case in which the court is entitled to express on behalf of the community its disapproval of a particular type of breach of trust involved".

Likewise, in the matter of Serong, Eames J stated:

"There are many factors which I have discussed which would justify a lenient approach being adopted in sentencing you. I do not consider that factors of personal deterrence are relevant because I do not consider that there is any risk that you will again commit any offence. At the same time breaches of trust by solicitors involving substantial sums of money are matters which the appellant courts have repeatedly said prima facie justify a sentence of imprisonment. Notwithstanding the fact which is common in all such instances, that the offender has no prior convictions and invariably has an exemplary previous reputation, see the unreported decisions of the Court of Criminal Appeal in R v. Moffatt 4 December 1992; R v. Gough 11 June 1993; and R v. Bieske 18 March 1994. In all of those cases Their Honours accepted that special considerations might apply to mitigate that result. The question is whether this is such a case."

In the present case, although I accept the proposal to wrongfully charge clients did not originate from you, nevertheless, it is clear that you not only assented to the proposal to charge certain clients a flat fee of $4000 each, you also put forward the proposal that the administrators of a deceased estate be charged a substantial fee.

It was put on your behalf that you believed as a result of statements by your father that the firm was entitled to make a charge equivalent to that made on the estate. Nevertheless, it is clear that you did not discharge your responsibility to ascertain the legitimacy and appropriateness of the charge.

Further, as I have stated, it was your duty to report the deficiency rather than attempt to cover it up.

Mr Richter put to me that this is a case in which the court should exercise its discretion under s.8 of the Sentencing Act and decline to record a conviction. I have ultimately formed the view that this course is not appropriate; first, having regard to the breach of trust involved in your actions and your direct personal responsibility with respect to part of the arrangements entered into; second, having regard to the fact that although you were taken by surprise and your reaction to the circumstances confronting you was to an extent understandable, your reaction was nevertheless the decision of an experienced and competent solicitor who could not be said to be suffering from a psychiatric or any other condition which impaired his judgment; and third, the overriding need for the court to express condemnation of your conduct and give due weight to the principle of general deterrence.

It follows that although I am satisfied that issues of specific deterrence, rehabilitation and community protection are of no real significance in your case, the overriding considerations of proportionality, general deterrence and denunciation of the offences require the imposition of a custodial sentence. Nevertheless, having regard to all the circumstances of the offences, including the financial loss you have suffered and the destruction of your way of life, your post defence conduct, your remorse, your pleas of guilty, the very extensive delay which has occurred since the date of the relevant offences and the impressive steps that you have taken to put your life back on the rails, I am satisfied that this is an appropriate case in which to suspend in their entirety the terms of imprisonment which I propose to impose.

Peter Robert Just, I sentence you on Count 1 to be imprisoned for a period of 12 months. On Count 2 you are also sentenced to be imprisoned for a period of 12 months. I direct that six months of the sentence imposed on Count 2 be served cumulatively upon the sentence imposed on Count 1, making a total effective sentence of 18 months. I order that the entirety of that sentence be suspended for a period of 18 months.

I am required by the Sentencing Act to explain to you that if you commit another offence punishable by imprisonment during the operational period of the sentence you may be liable to actual imprisonment for the whole of the sentence imposed but suspended.

At a glance

Court

Decision date

Before

Source

Judgment (52 paragraphs)

Parties