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[2008] NSWSC 1170
Supreme Court of NSW
2013-05-16
Original judgment source is linked above.
INTRODUCTION 1The applicant was made bankrupt in August 2012 on his own petition. Before the bankruptcy he and 2 other solicitors sold their incorporated legal practice and for his shares each received shares in the purchaser company worth about $1 million and payments of more than $5.7 million. The Law Society, consequential on his bankruptcy, called on him to make submissions as to why he is a fit and proper person to hold a practising certificate. 2Upon receipt of submissions from the applicant and his legal representative the Council of the Law Society decided, because of some transactions disposing of part of the sale money he received and inadequate explanations in relation the sale money and some transactions involving sale money, that it was satisfied that he was not a fit and proper person to hold his 2012/2013 practising certificate. It suspended the certificate. 3The Applicant applied for review by this Tribunal of that decision. By consent his application was heard with the application of another of the 3 solicitors, Mr Barakat, and the evidence was evidence in both matters.
THE SHOW CAUSE EVENTS 4In section 4 of the Legal Profession Act 2004 ("the Act") "show cause event" is defined to include, in relation to a person: (a) his or her becoming bankrupt or being served with notice of a creditor's petition presented to the Court under section 43 of the Bankruptcy Act 1966 of the Commonwealth, or (b) his or her presentation (as a debtor) of a declaration to the Official Receiver under section 54A of the Bankruptcy Act 1966 of the Commonwealth of his or her intention to present a debtor's petition or his or her presentation (as a debtor) of such a petition under section 55 of that Act 5Section 67 of the Act provides: "(1) This section applies to a show cause event that happens in relation to a person (referred to in this Division as "the holder") who is the holder of a local practising certificate. (2) The holder must provide to the appropriate Council both of the following: (a) within 7 days after the happening of the event-written notice that the event happened, (b) within 28 days after the happening of the event-a written statement explaining why, despite the show cause event, the person considers himself or herself to be a fit and proper person to hold a local practising certificate. (3) A contravention of subsection (2) is professional misconduct. (4) If a written statement is provided after the 28 days mentioned in subsection (2) (b), the appropriate Council may accept the statement and take it into consideration. (5) A Council must, within 7 days after receiving a notice or statement from a local practitioner under this section, provide a copy of the notice or statement to the Commissioner. (6) A Council may cancel or suspend a local practising certificate if the holder: (a) is required by this section to provide notice or a written statement about a show cause event and has failed to provide the notice or statement in accordance with this section, or (b) has provided a written statement in accordance with this section but, in the opinion of the Council, the holder has failed to show in the statement that the holder is a fit and proper person to hold a practising certificate, or (c) has failed without reasonable excuse to comply with a requirement under Chapter 6 (Provisions relating to investigations) made in connection with an investigation of the show cause event concerned or has committed an offence under that Chapter in connection with any such investigation. (7) If a Council cancels or suspends a local practising certificate under subsection (6), the Council is not required to exercise its functions under section 68 in relation to the matter." 68 Investigation and consideration of show cause event (1) On becoming aware of the happening of a show cause event in relation to an applicable or holder, the appropriate Council must investigate and determine within the required period whether the applicant or holder is a fit and proper person to hold a local practising certificate. (2) The appropriate Council must within 28 days of becoming aware of the happening of the show cause event give notice in writing to the applicant or holder: a) If the Council has not received a statement under section 66 or 67 in relation to the show cause event, requiring the applicant or holder to provide the required statement, and b) Informing the applicant or holder that a determination in relation to the matter is required to be made under this Division, and c) Informing the applicant or holder the required period under this section in relation to the determination of the matter and that the applicant or holder will be notified of any extension of that period, and d) Informing the applicant or holder of the effect of the automatic suspension provisions in section 70 in the event of the matter not being determined by the Council or the Commissioner within the required period. (1) The appropriate Council must determine the matter by: a) Deciding that the applicant or holder is a fit and proper person to hold a local practising certificate, or b) Deciding that the applicant or holder is not a fit and proper person to hold a local practising certificate, or c) Deciding that the applicant or holder is a fit and proper person to hold a local practising certificate but that it is appropriate to impose conditions on the applicant's or holder's local practising certificate for a specified period. (2) In investigating and determining a matter under this section the appropriate Council: a) Is not limited to investigating and making its determination on the basis of just the show cause event concerned, and b) Must have regard to the fact and circumstances that surround, arise in connection with, relate to or give rise to the show cause event concerned. (3) For the purposes of this section, the "required period" within which the matter must be determined is the period of 3 months (or 4 months if the Commissioner decides in a particular case to extend the period) commencing on: a) The date on which the appropriate Council receives a written statement under section 66 or 67 in relation to the show cause event, or b) If the appropriate Council has not received a written statement as referred to in paragraph (a) when it gives a notice under subsection (2) to the applicant or holder, the date specified in the notice as the date of issue of the notice. (4) If the Commissioner extends a period under subsection (5), the Commissioner must give notice in writing to the applicant or holder concerned of the extension of the period. (5) The appropriate Council is not required to deal with a matter under this section if the matter has previously been the subject of investigation and determination under this section. (6) The appropriate Council must give the applicant or holder an information notice about a decision under subsection (3) (b) or (c). The commissioner must give that notice if the Commissioner makes the decision in the exercise of the functions of the Council under section 71 (Commissioner taking over determination of matter). 6The Council of the Law Society of NSW relied upon the show cause events notified by the Applicant (who held a local practising certificate) being service on him on 11 July 2012 of a Creditor's Petition by Mahmoud Zoulfikar returnable on 22 August 2012, and the filing of a Debtor's Petition by the Applicant on 9 August 2012 (that day resulting in his bankruptcy). 7The Applicant notified the Law Society of each of the show cause events and with the assistance of legal representation by Mr Williams also made submissions to the Law Society on the issue of whether he was a fit and proper person to hold a local practising certificate. 8In its notice to the Applicant notifying him of its decision, which is dated 22 November 2012, the Council of the Law Society informed him of its finding that his conduct: "(i) In undertaking the transactions at paragraph 4, notwithstanding the explanation summarised at paragraph R20.3 in respect of the superannuation contributions; (ii) In circumstances where no cogent explanation has been provided for the other transactions, including the payment of $1,205,000.00 to the Roulstone Family Trust in 2012, at a time when Mr Roulstone was consenting to Judgment in the numerous proceedings brought against the Keddies partnership, demonstrates a reckless disregard by him for his obligations which the Council is satisfied amounts to an intention to avoid them, and in the process failed to recognise his moral obligations (as was concluded in Meredith v Legal Profession Administration board of NSW [2008] NSW SC1170 at [27] - [28]), and that he is not a fit and proper person to hold a Local Practising Certificate." 9The transactions referred to in paragraph 4 of the Notice related to funds received from sale of his shares in the practice company and were described in the notice as follows: "The funds received from the sale by Mr Roulstone were deposited into the bank account of his wife and were voluntarily used as follows: a) To off-set a mortgage over an unidentified property; b) To repay personal loans and other unspecified creditors; c) Transfers were made to the Keddies partnership to pay the firm's unspecified legal costs and to fund unspecified client settlements; d) Voluntary contributions were made to the Roulstone Superannuation Fund to obtain CGT concessions available as a result of the sale of the Keddies partnership in the amount of $500,000.00 sometime in 2012; e) Contributions were made to unspecified family expenses."
THE TRIBUNAL'S ROLE IN REVIEW OF THE DECISION 10Section 75 of the Legal Profession Act 2004 provides that this Tribunal may on the application of the Applicant review the decision to suspend his Practising Certificate. Subsection 75(3) provides: "(3) In proceedings on a review by the Tribunal of a decision under this Division in which the question of whether a person is a fit and proper person to hold a local practising certificate is at issue: (a) the onus of establishing that a person is a fit and proper person to hold a local practising certificate is on the person asserting that fact, and (b) it is to be presumed in the absence of evidence to the contrary that any statement of facts in the reasons of a Council or Commissioner for the decision concerned is a correct statement of the facts in the matter, and (c) a certificate of conviction of an offence (being a certificate referred to in section 178 (Convictions, acquittals and other judicial proceedings) of the Evidence Act 1995 ) is admissible in the proceedings and is evidence of the commission of the offence by the person to whom it relates, and (d) a document that appears to be a document issued for the purposes of or in connection with any application, proceedings or other matter arising under the Bankruptcy Act 1966 of the Commonwealth is admissible in the proceedings and is evidence of the matters stated in the document." 11It is important to note para 75(3)(a) which puts an onus on the Applicant in this review to prove he is a fit and proper person to hold a local practising certificate. There was no such provision in the previous legislation; the Legal Profession Act 1987. 12In submissions of 7 November 2012 to the law Society on behalf of the Applicant, Mr Williams made comparisons between the conduct of these proceedings and dicta in NSW Bar Association v Murphy [2002] NSW CA 138 and Doherty v The Law Society of NSW [2003] NSW SC 105, but without reference to the absence of a provision similar to para 75(3)(a) of the current Act in the 1987 Act that applied in those cases. 13In the section 67 statements of both Mr Roulstone and Mr Barakat, apparently prepared by Mr Williams, at para 21 there is a statement: "McClellan J made it clear at [14] in Murphy -v- Bar Association of NSW [2001] NSWSC p.1191, that provisions then in force concerning the bankruptcy of a practitioner properly understood meant that the act of bankruptcy raised the occasion of the practitioners fitness to practice but did not raise any adverse presumption or impose any onus on the practitioner." 14However, the submission did not refer to the provisions of para 75(3)(a) of the Legal Profession Act 2004, which clearly places an onus on this practitioner to prove fitness to practice. 15It is clear from Subsection 63(1) of the Administrative Decisions Tribunal Act 1997 that the Tribunal in its considerations is not required to consider only factual material that was before the Council of the Law Society. It can consider "any relevant factual material". Additional evidence can be and was relied upon by each of the parties.
COULD OVER-CHARGING BE FOUND BY THE TRIBUNAL TO BE A GROUND FOR FINDING APPLICANT IS NOT A "FIT AND PROPER PERSON" ? 16There was considerable evidence before the Tribunal of over-charging by the law practice conducted by the three solicitors. Some of that evidence was not before the Law Society when it made its decision and overcharging was not a basis for the Law Society decision. 17The Tribunal raised with Mr Lynch, Counsel for Mr Roulstone and Mr Barakat at the hearing, whether in exercising its powers under section 63 of the Administrative Decisions Tribunal Act 1997 it was open to the Tribunal to take into account over-charging in considering whether Mr Roulstone or Mr Barakat had satisfied the onus on the issue of whether he is a fit and proper person to hold a local practising certificate. Mr Lynch submitted that it was not open to the Tribunal to rely upon that aspect and that the Tribunal was limited to considering only the grounds that were relied upon by the Council. 18The Tribunal asked Mr Lynch to identify any authorities he relied upon to support that submission, but the next day he informed us that he had not been able to find any. 19The decision of the NSW Court of Appeal in Suzanne Frugtniet -v- Administrative Decisions Tribunal (Appeal Panel) & Anor.; Brian Frugtniet -v- Administrative Decisions Tribunal (Appeal Panel) & Anor [2005] NSW CA 257 (5 August 2005), supports the contrary view. That decision addressed the issue of whether the Administrative Decisions Tribunal, when reviewing a decision by the Commissioner for Fair Trading to permanently disqualify a person on the ground on unfitness from being involved in the direction, management or conduct of a business as a travel agent, was required to limit itself to consideration of only the grounds stated in the decision of the Commissioner for Fair Trading that was being reviewed by the Tribunal. The Court of Appeal held that it wasn't. 20Handley JA (with whom Ipp JA and McColl JA agreed) held (at [45]): "Section 22(2) permits a person who has been disqualified by the Commissioner to apply to the Tribunal for a review of the decision. Section 63(1) of the ADT Act obliges the Tribunal to decide: 'What the correct and preferable decision is having regard to the material then before it', and by para (a) this is to include: 'Any relevant factual material'. Such an enquiry cannot be confined within the particulars of the reason, ground or matter specified in the original Notice or Notices. The third alleged error of law has not been established." 21The Tribunal concludes that it was open to the Tribunal to consider the issue of over-charging in determining whether each of Mr Roulstone and Mr Barakat has satisfied the onus in relation to whether he is "fit and proper" to hold a Local Practising Certificate. But the Tribunal does not rely upon over-charging. That is because:
THE EVIDENCE 22The evidence comprises: (1) Application by Scott John Roulstone for Review filed 11/12/12; (2) Affidavit of Scott John Roulstone sworn 24/04/13; (3) Exhibit SJR-1 to the Affidavit of Scott John Roulstone sworn 24/04/13; (4) Council of the Law Society of NSW - Volume 1; (5) Section 58 bundle of Council of the Law Society of NSW - Volume 2; (6) Application of Tony Barakat for Review of Reviewable Decision filed 11/12/12; (7) Affidavit of Tony Barakat sworn 24/4/13; (8) Exhibit TB-1 to the Affidavit of Tony Barakat sworn 24/04/13 (101 pages); (9) Section 58 bundle of the Council of the Law Society of NSW re: Tony Barakat, Volume 1; (10) Debtor's Petition by Scott John Roulstone dated 06/08/12; (11) Affidavit of Hugh Joseph Marshall sworn 06/05/13; (12) Affidavit of Robert James Taylor sworn 15/05/13; (13) Affidavit of Warwick Newton Dolman affirmed 06/05/013; (14) Affidavit of Neil Peter Wickenden sworn 08/05/13; (15) Affidavit of Michelle Castle sworn 07/05/13; (16) Affidavit of Robert Royce Leitch sworn 13/05/13; (17) Exhibit A-1 - Chronology of Judgments and Settlements in respect of claims by clients submitted on behalf of the practitioners; (18) Oral evidence and cross-examination of Tony Barakat; (19) Oral evidence and cross-examination of Scott John Roulstone.
WHAT WAS THE CONTEXT IN WHICH THE RELEVANT TRANSACTIONS OCCURRED? 23In 1985 Mr Roulstone was admitted as a solicitor. He worked in a practice in Nowra until July 1988 when he commenced employment with "Keddies & Associates". In 1992 he became a partner in the practice. The practice came to specialise in personal injury litigation in the early 2000's and from the beginning of 2005 the firm ceased work for defendants in insurance litigation and continued specialising in personal injury law but represented plaintiffs only. 24There were other partners, but from July 2001 the partnership comprised Russell Keddie, Tony Barakat and Scott Roulstone until the practice was incorporated as "Keddies Insurance Law Specialists Pty Limited" in January 2007. The same 3 solicitors were then "Joint Managing Directors" of the company. Those 3 solicitors each held one third of the issued shares in the company and were the only directors and shareholders of the company. 25A former client of the practice, Mr Tariq, made complaints against the 3 solicitors and their employed solicitor, Mr Scroope, to the Legal Services Commissioner in 2009 that he, his wife and his daughter had been overcharged. The Legal Services Commissioner was not satisfied that the evidence required any action by him. Mr Tariq then caused his complaints and an allegation that the law practice had systematically overcharged clients, to be widely publicised, particularly in the Sydney Morning Herald. 26In May 2009 the Legal Services Commissioner commenced disciplinary proceedings in this Tribunal against the 3 solicitors and Mr Scroope, alleging that the law practice had grossly over-charged a number of clients, including a Mrs Meng. Mrs Meng's allegations of overcharging by the law practice also received extensive publicity. The proceedings, as against Mr Roulstone and Mr Barakat, were subsequently withdrawn by the Commissioner with leave of the Tribunal. But at a hearing later, Mr Keddies was found guilty of gross overcharging and adverse findings (but not of overcharging) were made against Mr Scroope. 27There were a total of about 80 complaints by clients to the Legal Services Commissioner raising allegations of overcharging by the law practice. 28From about May 2010 clients of the practice commenced civil proceedings in the District Court against the 3 solicitors claiming damages for alleged over-charging. By 29 October 2010, 30 clients had commenced such proceedings in the District Court. On the evidence the Tribunal is comfortably satisfied that the 3 solicitors knew at 29 October 2010 of all these proceedings and also knew that there would be others. 29By 29 October the Applicant and his 2 former partners knew that they had succeeded on the hearing of only one claim, and they had consented to verdicts in favour of 3 clients totalling $50,000 and orders to pay the costs of the 3 clients. 30Many of the client proceedings were commenced by the same solicitor on the clients' behalf. Sometime before November 2010 the 3 solicitors launched proceedings in the Equity Division of the Supreme Court against the solicitor seeking to restrain him from conducting such client proceedings because of how he came to obtain the details of former clients of the solicitors. The solicitor applicants have not provided evidence as to the outcome of those proceedings, but it appears they were unsuccessful because the solicitor continued to act for clients making claims and in an affidavit he swore in the District Court on 4 April 2012, Mr Barakat listed the solicitor as a creditor for a sum of $95,000 "claimed subject to assessment of costs". It appears the 3 solicitors were ordered to pay the costs of the defendant solicitor in the Equity Division. 31By 29 October 2010 the 3 shareholder/solicitors were negotiating to sell their shares in the practice company to Slater & Gordon Limited. The Share Sale Agreement is dated 29 October 2010, but both Mr Roulstone and Mr Barakat have given sworn evidence that the agreement was reached on 11 January 2011, so the Tribunal accepts that as the correct date. 32By 11 January 2011 claims of overcharging had been raised by 38 clients. District Court proceedings had been commenced by 36, one had applied for costs assessment, and one had sent a letter of demand. The 3 practitioners had not settled any more claims since 29 October 2010. They apparently were waiting for the sale agreement. 33On 11 January 2011 the 3 solicitors entered into a contract with Slater & Gordon Limited to sell their shares in the practice company for a total of $33,400,000.00, subject to adjustments to be made on completion of the sale. There had been extensive negotiations leading up to the signing of the agreement. Each of the shareholders was entitled to one third of the consideration. In addition, the agreement provided that about $1,000,000 of the consideration payable to each of them was to be satisfied by allocation of 50,100 ordinary shares in Slater & Gordon Limited. The balance of the consideration payable to each of the sellers was payable by instalments. 34The 3 solicitors gave warranties and guarantees to the purchaser company in respect of any debt of the practice to a client and also in respect of other such debts arising from the dealings of the law practice with clients before completion of the sale. Under the agreement, Slater & Gordon Limited had the right to deduct any such debts from the payment of the consideration for the shares. 35Once the shareholders in the practice company had entered into the contract to sell their shares on 11 January 2011, Mr Roulstone knew that there would be a capital gain on the sale of his interest in the practice and that that he would have a very substantial tax liability for the 2010/2011 tax year. 36On 11 January 2011 the Applicant received a sum of $1,833,397.00 from Slater and Gordon Ltd as the first instalment of the consideration for his shares. He deposited it into a bank account no. 167313834 in the name of his wife. There was another bank account no. 189038458 in the name of his wife. The Statement of 7 September 2012 provided by Mr Roulstone to the Law Society under section 67 of the Legal Profession Act 2004 did not disclose the sale of the law practice shares or the receipt of any of the sale money. 37He did not disclose in his affidavit or SJR 3 the bank where his wife's accounts were located. He did not provide any bank statements or other evidence from a bank or other corroboration. However the evidence in his Trustee's report is that the 2 accounts were mortgage offset accounts for 2 mortgages over his family's home at Woollahra which was owned by his wife. In his evidence the Applicant said that "all the families (sic) combined funds went into these accounts until the funds were dispersed (sic) in the payment of debts. Scott's personal business debts were paid from these accounts." 38The same day the Applicant paid $366,363.19 of those funds to the Roulstone Family Trust in reduction of his debt to the Trust. It is noted that in his Statement of Affairs of 6 August 2012 in support of his Debtor's Petition and in his submissions to the Law Society Mr Roulstone appears to have not disclosed this payment. 39The evidence of Mr Roulstone and Mr Barakat is that the 3 solicitors had a joint account 1036 5387 with the Commonwealth Bank which from January 2011 till June 2012 they used to pay "business debts", mainly client claims. In Annexure SJR3 to his affidavit Mr Roulstone alleged that he paid $1,300,000 into the Commonwealth Bank account "from Scott's personal earnings from Slater and Gordon" towards paying "business debts", which he said were mainly client claims for overcharging. But his payments to that account that he identified in SJR 3 totalled significantly less than $1,300,000. The evidence is that each time he made a contribution to that account the other 2 solicitors made a contribution in the same amount. Mr Barakat adopted Mr Roulstone's evidence in SJR 3 and did not identify any additional payment. For purposes of this part of the reasons the Tribunal has included only the identified payments. 40It was not until 19 April 2011 that the 3 solicitors first paid money from the sale of their shares to that Commonwealth Bank account. By then there were 3 consent judgments from July 2010 against them for a total of $50,000.00 plus costs and 49 current District Court proceedings against them for overcharging. Each paid $200,000 into the account. 41From Exhibit A1 it can be seen that of the 3 claims the subject of consent orders or deed of settlement in 2010, the largest was for only $30,000 plus costs. Then there were no claims the subject of consent orders or settlement deed from 28 July 2010 till 28 April 2011. Then 2 claims by the same person were subject of consent judgments together amounting to $90,000. None of the claims the subject of consent orders or settlement deed before 2012 were for more than $80,000. 42Apart from the claim by Mr Bazdarov, there were 12 claims for more than $100,000 raised in 2010 that when quantified totalled $2,548,064 plus costs. They were each the subject of consent orders, but the earliest such consent orders did not occur till April 2012 and none of those claims were paid. The client Mr Bazdarov also obtained a verdict for $160,010.61 plus costs on 24 June 2011. None of that was paid. 43Mr Bazdorov had alleged overcharging by Mr Roulstone, Mr Keddie and Mr Barakat in relation to a common law injury claim. It proceeded to a defended hearing in the District Court on 17 January 2011. The decision of Ashford DCJ was given on 24 June 2011. The decision included findings that:
WHAT DID MR ROULSTONE AND MR BARAKAT RECEIVE FOR THE SALE OF THEIR SHARES IN KEDDIES? 131Mr Roulstone and Mr Barakat each received shares in Slater & Gordon Limited worth about $1 million. Those shares were subject to restrictions as to when they could be sold. Under the sale agreement none of the shares could be disposed of before 30 June 2012; 33% could then be disposed of after 30 June 2012. Another 33% could only be disposed of after 1 July 2013, and the final 34% could be disposed of only after 1 June 2014. In addition, the shareholder was required by the agreement to retain at least 20% of the shares while ever the shareholder remained as an employee of Slater & Gordon Limited. 132Mr Roulstone on the evidence received payments totalling at least $5,075,851.33. His evidence of the amounts he received contained in Exhibit SJR 3 to his affidavit is incomplete. The amounts he lists total $4,471,730.33. He omits the receipt of $500,000.00 on 21 September 2011 and the payment of $154,121.00. Those and the $4,471,730.33 account for $5,025,851.33. The Tribunal is comfortably satisfied Mr Roulstone and Mr Barakat each received payments to a total of $5,025,851.33 plus shares in Slater and Gordon worth about $1 million.
HOW MUCH WAS DEPOSITED BY THE 3 SOLICITORS INTO THE COMMONWEALTH BANK CLIENT CLAIMS ACCOUNT AFTER 10 JANUARY 2011? 133According to the evidence of Mr Roulstone adopted by Mr Barakat, the amounts identified as deposited were as follows: Refund of Goods & Services Taxes approx. $ 500,000.00 Contributions of Mr Roulstone $1,054,121.00 Contributions of Mr Barakat $1,054,121.00 Contributions of Mr Keddies $1,054,121.00 Total $3,662,363.00 134However, if it were correct that each contributed a total of $1,300,000.00 to the account, as Mr Roulstone alleged in SJR 3, then taking into account the $500,000.00 in GST refunds, the total the 3 practitioners deposited to that account was $4,400,000.00.
WHAT AMOUNTS DID THE THREE SOLICITORS PAY TO THE CLIENTS? 135According to Exhibit A1, a Schedule tendered on behalf of the Applicants, 2 claims were paid by Slater and Gordon in October 2012 (a total of $52,056). Fifty two claims were not paid by the 3 solicitors. The 23 unpaid claims that had been settled and quantified by consent orders or settlement deed totaled $4,159,839 plus costs and interest. 136There were 27 matters where there had been no agreement as to the amount which should be refunded to the client. Exhibit A1 does not disclose the amounts claimed by those clients, nor does the other evidence. If they averaged the average of more than $180,000.00 which is the average of the unpaid settled claims, they would total about another $4,160,000.00. 137The total amount of the 52 claims paid by the solicitors was $2,002,932.00. Three of those were settled in 2010 but the evidence doesn't show that any were paid before 11 January 2011. The evidence does not identify the dates of payment of any of the claims paid. The most the 3 solicitors could have paid the clients after 10 January 2011 is $2,002,932.00, the total of payments to clients. 138About $3,662,363 was deposited to the Commonwealth Bank Account for client claims. At most $2,002,932.00 was paid to the clients. There is no evidence explaining what happened in relation to at least $1,659,431.00. 139If Mr Roulstone's claim that each paid $1,300,000.00 to the account were true, then $4,400,000.00 was deposited to the account but a maximum of only $2,002,932.00 was paid to clients and the whereabouts of the balance of at least $2,397,068.00 has not been explained.
WHAT DOES MR ROULSTONE SAY HE DID WITH HIS $5,075,851.33? 140The evidence of Mr Roulstone is that he used the funds from sale of his Keddies shares as follows: Total Received $5,075,851.33 Payments for: Roulstone Family Trust debt $ 366,363.19 Roulstone Family Trust debt $1,250,000.00 $1,616,363.19 The Roulstone Superannuation Fund $ 500,000.00 Verekers Lawyers $ 333,333.33 To pay Applicant's bank loan $ 500,000.00 Private School fees debt $ 160,000.00 Commonwealth Bank Account for Client claims $1,042,121.00 $4,151,817.52 Balance $ 924,033.81 Funds used for "Taxation payments, accounting fees, Legal fees, rent, living expenses, credit cards, school fees etc business expenses related to future employment prospects" (no other detail) $ 507,034.00 Balance (unexplained) $ 416,999.81
WHAT DOES MR BARAKAT SAY HE DID WITH HIS $5,075,851.33? 141The evidence of Mr Barakat is that he used the funds from sale of his Keddies shares as follows: Total Received $5,075,851.33 Payments: Payment to Family Trust $1,615,000.00 Barakat Superannuation Fund $ 475,000.00 Verekers Lawyers $ 333,333.33 To reduce joint debt secured by Mortgage on wife's property at Circular Quay $ 244,039.90 Commonwealth Bank Account for Client claims $1,042,121.00 School and university fees for children $ 12,696.00 Tax paid $ 113,000.00 Amounts spent on setting up law practice and website $ 133,000.00 Accountant's fees $ 25,000.00 Paid to Anthony Ghalloub and John Sukar$ 350,000.00 Balance in NAB account $ 500,000.00 Middleton Lawyers - costs $ 6,000.00 $4,856,494.23 Balance unaccounted for $ 219,357.10
WHAT WERE THE DETAILS OF THE PAYMENTS TO GHALLOUB AND SUKAR ? 142Mr Barakat made no reference to this in his affidavit. In a document in the secition 58 bundle supplied by the Law Society there is a reference to this payment and it is described as "Disclosed in question 31". That appears to be a reference to his answer to question 31 in his Statement of Affairs of 2 August 2012. The question is "do you have any debts owed to you?". The list of debts he has disclosed in the answer includes a debt of $200,000.00 owing to him by Mr Ghalloub from "2009/2011"and $250,000.00 owing to him by Mr Sukar from July 2011. Apparently he made loans of a total of $350,000.00 to these people from the money from the sale of his Keddies shares. 143Mr Barakat has not provided any details of these loans, such as what relationship each borrower has to him, the purpose of the loan, any documentation, what security was provided and when the debt is repayable. In the report of his Trustee in Bankruptcy of 3 August 2012 the Trustee reported that the 2 borrowers are relatives of Mr Barakat, the amounts owing by them (total $450,000) have not been paid, the Trustee has made a demand on each for payment, there has been no response and solicitors have been instructed to recover the debts. 144Clearly Mr Barakat has not provided reasonable information in relation to the disposal of $350,000.00 of those funds from the sale of his shares. He has not accounted for those funds.
WHAT HAPPENED TO THE $1 MILLION PAID TO VEREKERS LAWYERS IN ABOUT AUGUST 2011? 145In exhibit SJR3 to his affidavit Mr Roulstone says the payment of his $333,333.33 was "paid into Verekers account to pay bills of the partnership" and in a note below that he said "Monies paid into Verekers accounts was used to pay Keddies debts". Mr Barakat in his affidavit adopts that evidence. 146There is evidence that Verekers Lawyers acted for the 3 solicitors in some of the proceedings and also provided insolvency advice to all 3 (sometimes together) by an insolvency expert, Mr Green at Verekers Lawyers. The solicitors also obtained insolvency advice from another insolvency expert, Ms Sally Nash. Verekers had also performed legal work for the 3 solicitors in relation to some client claims. The $1 million could also have wholly or partly been on account for the ongoing legal costs of the 3 solicitors in relation to the client claims. It is possible that Verekers Lawyers also acted for the solicitors in the proceedings in the Equity Division of the Supreme Court against the solicitor who acted for many of the clients. 147Mr Roulstone and Mr Barakat do not say, and the other evidence does not disclose, that any of the funds paid to Verekers Lawyers was used to pay client claims, except that in his document "Disbursement of Monies From Sale of Keddies - Total $5.19 million" he states that the amount of $333,333.33 he paid to Verekers was "for Payment of Legal fees and claims". But none of the client claims paid has been identified as being paid from those funds. 148There is no evidence as to what debts of the law practice, if any, were paid from the $1,000,000.00. The evidence does not provide any accounting for the $1 million paid to Verekers Lawyers.
LAW SOCIETY PARA 4(a): MR ROULSTONE'S VOLUNTARY PAYMENTS TO HIS WIFE'S MORTGAGE OFFSET ACCOUNTS 149The payments were of $1,833,397.00 on 11 January 2011 and $1,000,000.00 on 21 December 2011. The evidence is that the bank accounts were offset accounts in that the deposit balances generated interest reductions against 2 mortgages of his wife's to the relevant bank over real estate of his wife. His wife received a benefit by way of reduced interest charges on the mortgage loans. The evidence does not quantify that benefit. The Law Society made reference in its reasons to "a mortgage over an unidentified property". The Trustee's report SJR 6 to Mr Roulstone's affidavit identifies that the property the subject of the mortgages was the Roulstone family home at Woollahra owned by Mrs Roulstone. Mr Roulston did not directly provide the Tribunal any evidence identifying the bank or the loans, and has not provided any corroborative evidence of any of that. He has not disclosed the extent of the offset benefits his wife has had. 150At March 2013 the Trustee in Bankruptcy calculated that Mr Roulstone's net contribution (deposits less payments out) to the offset account(s) in his wife's name stood at $877,635.00. The Roulstone family home at Woollahra owned by Mrs Roulstone was sold by a contract entered into in December 2011 and not completed till December 2012.
BARAKAT: LAW SOCIETY PARA 6(a): VOLUNTARY PAYMENT OF HIS SHARE OF SALE PROCEEDS FROM SALE OF ROSEVILLE CHASE TO REDUCE JOINT MORTGAGE DEBT SECURED OVER WIFE'S PROPERTY AT MACQUARIE STREET, CIRCULAR QUAY 151It appears from the evidence there was no mortgage debt owing on the Roseville Chase property when it was sold. The net amount received from the settlement and deposited into a National Australia Bank account was, according to the solicitor's settlement figures, $1,980,494.74. On the evidence it appears that Mr Barakat was entitled to at least one half of those funds ($990,247.37). He authorised his funds to be paid in reduction of the joint mortgage debt secured on his wife's unit at Circular Quay. That increased his wife's equity in the property while reducing the funds available for unsecured creditors (including the Tax Office and the client creditors) in the likely bankruptcy.
BARAKAT: LAW SOCIETY PARA 6(b), (c) and (d): MOTOR VEHICLES 152In his report to creditors of 3 August 2012, the Trustee in Bankruptcy recorded that the Mercedes Benz motor vehicle and the Subaru Outback vehicle had been delivered to his control by Mr Barakat and had been sold at auction. The Trustee considered that the recovery of the BMW vehicle was not commercially viable given the likely costs of recovery and sale. 153In his Affidavit, Mr Barakat gave evidence: "The three vehicles were transferred, two to my children and one to my wife who had the use and benefit of the motor vehicles. In each case the vehicle had been purchased from funds belonging to my wife and myself from our joint account. The vehicles were registered in my name so as to contain the insurance premiums which would otherwise be payable because of the age of my children or because it was a former work vehicle. There was no commercial consideration involved in the transfer of the vehicles at all."
LAW SOCIETY PARA 4(b) MR ROULSTONE'S PAYMENTS "TO REPAY PERSONAL LOANS AND OTHER UNSPECIFIED CREDITORS" AND PARA 4(e) "CONTRIBUTIONS WERE MADE TO UNSPECIFIED FAMILY EXPENSES" 154Mr Roulstone says he paid $500,000 to "repay loan from bank for Scott Roulstone". The evidence is that the loan was secured over real estate, but it was not his real estate. The mortgage therefore was not his. The bank was not identified by Mr Roulstone. He did not identify the nature or purpose of the loan, and did not put the mortgage or any bank records of the mortgage, the loan or the payment into evidence. The payment of the debt benefited the owner by releasing the title from the $500,000.00 liability. In the absence of evidence to the contrary the Tribunal is comfortably satisfied that Mr Roulstone's wife is the owner of the property and she received the benefit of the payment of the debt secured against her property. 155Mr Roulstone alleges that on 22 December 2011 he paid $160,000.00 from the proceeds of sale of his shares to discharge a debt for school fees. He did not identify the school. He produced no record or other evidence of the debt or the payment. 156There was no evidence as to whether the debt was a joint debt of him and his wife or a debt of Mr Roulstone alone. His evidence of the debt and the payment was not corroborated. He made no reference to this alleged debt or the alleged payment in his Section 67 Statement to the Law Society or in subsequent submissions after the Law Society raised its concerns as to what money he received from the sale of the shares and what he did with those funds. The Law Society in its reasons referred to his explanation that part of the funds from sale of his shares were used for what the Law Society described as "to repay personal loans and other unspecified creditors". 157In his Debtor's Petition he completed on 6 August 2012, where he was required to disclose "a total amount of more than $1,000 over and above your normal repayments" paid in the last 12 months "as a result of pressure for payment" he did not disclose any payment of $500,000.00 to a bank, nor any payment of $160,000.00 for school fees or any other amount for any purpose. 158In SJR 3 Mr Roulstone states as to $507,034.00 of the funds he received from sale of his shares (after 10 January 2011) that it was used for "taxation payments, accounting fees, legal fees, rent, living expenses, credit cards, school fees etc, business expenses related to future employment prospects". He provided no other detail and no corroboration. 159Mr Roulstone alleged he used $1,616,363.19 of the sale money to make payments to reduce his debt to the Roulstone Family Trust. In SJR 3 Mr Roulstone says that the payment of the $366,363.19 to the trust on 11 January 2011 was "partial repayment of Scott Roulstone debt" to the Trust and the payment of $1,250,000.00 (referred to as "$1,155,000.00") to the trust on 1 May 2012 was "partial repayment of debt - Scott Roulstone". 160The Law Society at para 5 of its reasons stated that Mr Roulstone had informed it that as at 30 June 2011 he owed the Trust $1,721,146.00 and in May 2012 he paid the Trust $1,205,000.00 (sic), but "no further explanation has been proffered" as to why the payment was made in May 2012. In the body of his affidavit in the Tribunal Mr Roulstone did not offer any further explanation. 161There is no disclosure of the first payment in his Statement of Affairs and Bankruptcy Petition, in SJR 4, or his Trustee's Report to Creditors. 162The Trustee in Bankruptcy reported that as at 30 June 2010 the law practice owed the Trust $2,927,887. He reported that at the same date the Trust owed Mr Roulstone $1,828,201. He further reported that as part of the sale of the law practice, Mr Roulstone assumed responsibility for the amount owed by the law practice to the Trust. As at 30 June 2010 the net effect would have been to leave a net debt owing by Mr Roulstone to the Trust of $1,099,686.00. But Mr Roulstone's evidence is that in January 2011 he paid the Trust $366,363.19 to reduce the debt. The Trustee in Bankruptcy, however, states that according to the financial statements of the Trust, as at 30 June 2011 the debt of Mr Roulstone owing to the Trust was $1,221,146.00. 163Mr Roulstone provided no evidence to explain how that came about and no evidence to establish that receipt of the alleged first payment is recorded in the financial records of the Trust. 164The Trustee report of 15 March 2013 states that the payment of 1 May 2012 (in fact $1,250,000.00) is shown in the bank statement for the Trust. He says that the records show a payment shortly after by the Trust of $100,000.00 to Mr Roulstone. At the time of the report, and at the time of the hearing in the Tribunal in May, 9 months after the payment of $1,250,000.00 to the Trust, the Trust and Mr Roulstone had not paid any part of the $1,250,000.00 to the Trustee in Bankruptcy. The Trustee reported that there were "good prospects of recovering" the $1,250,000.00 from the Trust under Section 122 of the Bankruptcy Act 1966 as a preference payment. 165In cross examination Mr Roulstone testified that the three solicitors were advised that the funds from the sale "had to be parked somewhere" and were advised that if they paid their income tax assessments, the payments could be set aside as a preference. He conceded that other than "parking" funds in his wife's accounts and payments to the family trust, he made other payments with some of the proceeds of the sale of his shares. He conceded that the debt owing to the Roulstone's Family Trust "wasn't pressing". There was no penalty interest payable. The debt had been owed for "a couple of years". 166There were, of course, other alternatives available, such as collecting the available funds in an interest bearing account till the bankruptcy or a composition occurred, or paying the tax debt and avoiding the high rate of interest. 167It was put to Mr Roulstone that he "made a conscious decision not to pay tax". He said that he did it on the advice of his solicitor and he "dissuaded me from paying tax. He said it would be a preference to others. He said as to paying off mortgages etc. "in my own mind, I would have paid the tax and not paid the trust".
ROULSTONE LAW SOCIETY PARA 4(c): "TRANSFERS..... TO THE KEDDIES PARTNERSHIP TO PAY THE FIRM'S UNSPECIFIED LEGAL COSTS AND TO FUND UNSPECIFIED CLIENT SETTLEMENTS" 168The only evidence of funds that on the evidence may have been used for legal costs of the Keddie's law practice is of the balance of the $3,662,363.00 deposited to the Commonwealth Bank account and the $1,000,000.00 paid to Verekers. If all the money to pay client claims came from the Commonwealth Bank account the remainder of those funds would have been $1,659,431.00. That gives a total of $2,659,431.00 which would have been available after payment of client claims. The applicants have not provided evidence of what legal costs, if any, were paid from the funds in the Commonwealth Bank or from the $1 million paid to Verekers. They have not provided any accounting for the balance of the funds in the Commonwealth Bank account or for the $1 million paid to Verekers.
ROULSTONE: PAYMENTS TO FAMILY TRUST. 169Mr Roulstone alleged he used $1,616,363.19 of the sale money to make payments to reduce his debt to the Roulstone Family Trust. In SJR 3 Mr Roulstone says that the payment of the $366,363.19 to the trust on 11 January 2011 was "partial repayment of Scott Roulstone debt" to the Trust and the payment of $1,250,000.00 (referred to as "$1,155,000.00") to the trust on 1 May 2012 was "partial repayment of debt - Scott Roulstone". 170The Law Society at para 5 of its reasons stated that Mr Roulstone had informed it that as at 30 June 2011 he owed the Trust $1,721,146.00 and in May 2012 he paid the Trust $1,205,000.00 (sic), but "no further explanation has been proffered" as to why the payment was made in May 2012. In the body of his affidavit in the Tribunal Mr Roulstone did not offer any further explanation. 171There is no disclosure of the first payment in his Statement of Affairs and Bankruptcy Petition, in SJR 4, or his Trustee's Report to Creditors. 172The Trustee in Bankruptcy reported that as at 30 June 2010 the law practice owed the Trust $2,927,887. He reported that at the same date the Trust owed Mr Roulstone $1,828,201. He further reported that as part of the sale of the law practice, Mr Roulstone assumed responsibility for the amount owed by the law practice to the Trust. As at 30 June 2010 the net effect would have been to leave a net debt owing by Mr Roulstone to the Trust of $1,099,686.00. But Mr Roulstone's evidence is that in January 2011 he paid the Trust $366,363.19 to reduce the debt. The Trustee in Bankruptcy, however, states that according to the financial statements of the Trust, as at 30 June 2011 the debt of Mr Roulstone owing to the Trust was $1,221,146.00. 173Mr Roulstone provided no evidence to explain how that came about and no evidence to establish that receipt of the alleged first payment is recorded in the financial records of the Trust. 174The Trustee report of 15 March 2013 states that the payment of 1 May 2012 (in fact $1,250,000.00) is shown in the bank statement for the Trust. He says that the records show a payment shortly after by the Trust of $100,000.00 to Mr Roulstone. At the time of the report, and at the time of the hearing in the Tribunal in May, 9 months after the payment of $1,250,000.00 to the Trust, the Trust and Mr Roulstone had not paid any part of the $1,250,000.00 to the Trustee in Bankruptcy. The Trustee reported that there were "good prospects of recovering" the $1,250,000.00 from the Trust under Section 122 of the Bankruptcy Act 1966 as a preference payment. 175In cross examination Mr Roulstone testified that the three solicitors were advised that the funds from the sale "had to be parked somewhere" and were advised that if they paid their income tax assessments, the payments could be set aside as a preference. He conceded that other than "parking" funds in his wife's accounts and payments to the family trust, he made other payments with some of the proceeds of the sale of his shares. He conceded that the debt owing to the Roulstone Family Trust "wasn't pressing". There was no penalty interest payable. The debt had been owed for "a couple of years". 176There were, of course, other alternatives available, such as collecting the available funds in an interest bearing account till the bankruptcy or a composition occurred, or paying the tax debt and avoiding the high rate of interest. 177It was put to Mr Roulstone that he "made a conscious decision not to pay tax". He said that he did it on the advice of his solicitor and he "dissuaded me from paying tax. He said it would be a preference to others. He said as to paying off mortgages etc. "in my own mind, I would have paid the tax and not paid the trust".
BARAKAT: LAW SOCIETY PARA 6(e): PAYMENT OF $1,615,000.00 IN MAY 2012 TO VANAIR PTY LTD AS TRUSTEE FOR HIS FAMILY TRUST 178Mr Barakat's evidence is that his payment of $1,615,000.00 to the Family Trust was made after advice from the insolvency expert, Mr Green regarding the proposed payment, and that the meetings that he had with Mr Green occurred: "When it became apparent that I was likely to go bankrupt". The expert insolvency advice he had before he undertook this payment was that in the likely event of him becoming bankrupt, it would be considered a preference and liable to be recovered by his Trustee in Bankruptcy. 179Mr Barakat did not place in evidence any records or other corroboration of his loan account with the Trust. In his Statement of Affairs of 2 August 2012 he did not allege there was any debt then owing to the Trust. After he filed his Debtors Petition on 2 August, he did not voluntarily arrange for the payment of the $1,615,000.00 to his Trustee in Bankruptcy. The Trustee obtained a freezing order from the Federal Court on 10 August 2012 in respect of funds paid to the family trust by Mr Barakat. 180 It was not until proceedings in the Federal Court by the Trustee in Bankruptcy that on 20 September 2012 he consented to orders declaring the original payment a preference and void against the Trustee, and ordering that the trustee Vanair Pty Ltd to pay the funds to the Trustee in Bankruptcy. The Trustee in Bankruptcy received the amount of $1,615,000 from the Trust on 24 September 2012. There is no evidence that any interest was paid to the Trustee in Bankruptcy in respect of use of the sum of $1,615,000.00 for about 4 months.
LAW SOCIETY PARA 4(d) "CONTRIBUTIONS..... TO THE ROULSTONE SUPERANNUATION FUND TO OBTAIN CGT CONCESSIONS AVAILABLE AS A RESULT OF THE SALE OF THE KEDDIES PARTNERSHIP IN THE AMOUNT OF $500,000 SOME TIME IN 2012" 181The sale of the shares in the legal practice occurred in the 2010/2011 tax year and the capital gain fell to be included in Mr Roulstone's tax return for that year. The evidence from his accountants is that in order to be able to claim the "retirement" tax concession, the $500,000.00 had to be paid to the superannuation fund before he lodged his 2010/2011 income tax return. 182The payment was made on 23 May 2012. Mr Roulstone did not refer to the payment in his section 67 Statement to the Law Society. He referred to the payment as "compulsory" in SJR 3, but it was not. That payment may have reduced the tax payable to the Australian Taxation Office, but regardless of the amount of his tax liability, it reduced the liquid funds available to the unsecured creditors by $500,000.00 and increased the superannuation account of Mr Roulstone by the same amount. 183As at the report of Mr Roulstone's Trustee in Bankruptcy in March 2013, nearly 10 months after the payment, no part of those funds had been recovered from the Roulstone Superannuation Fund, but the Trustees' opinion was that the contributions of $526,849.00 during 2011/2012 tax year were "prima facie void pursuant to section 128B of the Bankruptcy Act" as superannuation contributions made to defeat creditors. He proposed that if the creditors did not accept the composition proposed by the bankrupt, proceedings should be taken against the Superannuation fund for recovery of the $526,849.00. He said the prospects of recovery were "good". It is noted that the value of the bankrupt's interest in the fund at that time was $2,525.295.00. 184At the time of the hearing, about 12 months after the payment to the superannuation fund, there was no evidence of any part of the $500.000 or any interest thereon having been paid to the Trustee in Bankruptcy. Mr Roulstone in cross examination conceded that the trustee had said that there are prospects of recovering that amount from the superannuation fund, and that it had been indicated by his solicitors to the trustee that he would vigorously oppose any attempted recovery of the $500,000 from the Roulstone Superannuation Fund.
BARAKAT: LAW SOCIETY PARA 5: PAYMENT OF $475,000.00 TO THE BARAKAT SUPERANNUATION FUND 185The total contributions made to the Barakat Superannuation fund in respect of Mr Barakat for the 2010/2011 tax year was $475,000.00 which Mr Barakat says was $25,000.00 paid on 27 June 2011 and $450,000.00 paid on 22 May 2012 and both payments were made from the proceeds of sale of his Keddies shares. 186Mr Barakat's evidence is that after "It became apparent that I was likely to go bankrupt", he had two meetings with the insolvency expert, Mr Green of Verekers Lawyers at which he received advice regarding the proposed payment of another $450,000.00 to his superannuation fund. His evidence is that he also obtained advice about proposed payment from his accountants, H.L.B. Mann Judd regarding the proposed payment to the superannuation fund. Those were the same accountants that were the accountants for Mr Roulstone and gave him similar advice, except that it appears Mr Barakat was entitled to claim the retirement benefit for only $475,000.00 contributed to superannuation from the proceeds of sale of his interest in Keddies. 187The payment was made on 23 May 2012. Mr Barakat did not refer to the payments or to any amount received from the sale of his interest in Keddies or the sale price in his section 67 Statement to the Law Society. The corresponding payment by Mr Roulstone is referred to as "compulsory" in SJR 3, and Mr Barakat adopted that evidence, but it was not. That payment may have reduced the tax payable to the Australian Taxation Office, but regardless of the amount of his tax liability, it reduced the liquid funds available to the unsecured creditors by $475,000.00 and increased the superannuation account of Mr Barakat by the same amount. 188As at the report of Mr Barakat's Trustee in Bankruptcy in November 2012, about 7 months after the larger payment, no part of the payment of $475,000.00 had been received from the Barakat Superannuation Fund, but the Trustee expressed the opinion that: "We would have good prospects of recovering the payment of $450,000.00 as voidable under section 128B of the Act. To date our solicitors have issued a demand on the superannuation fund, however, we understand the Bankrupt intends to defend our claim on the basis the payment was not out of character." 189There was a second Trustee in Bankruptcy subsequently appointed to replace the first, and that Trustee reported on 12 February 2013. While Mr Barakat had by then proposed a revised composition proposal, which included payment of $450,000.00 from his superannuation fund to the Trustee for the benefit of the creditors, the money still remained in the Barakat Superannuation Fund more than 9 months after the payment to the fund. It is noted that in his Debtors Petition of 2 August 2012, Mr Barakat stated that his superannuation entitlements in the Barakat Superannuation Fund were then worth $2.94 million.
MR BARAKAT'S PAYMENT OF $244,039.90 TO DISCHARGE THE MORTGAGE ON HIS WIFE'S PROPERTY 190Mr Barakat made this voluntary payment from the money from sale of his Keddies shares at a time when he knew he was insolvent and he knew he had a taxation debt and unpaid client judgments against him for overcharging.
INADEQUATE ACCOUNTING BY MR ROULSTONE 191Both solicitors have not accounted for a significant part of the funds they received from the sale of their Keddies shares. 192Mr Roulstone has not provided any accounting for about $416,999.81 of the funds he received from the sale of his shares and the explanation he has given for more than $507,034.00 is cursory, without any detail and uncorroborated. It is inadequate, particularly in the context of the other large amounts involved and the inadequacies already discussed. 193The evidence to support the alleged debt of $160,000.00 for school fees is and alleged payment is, in all the circumstances, inadequate and in the context of the other inadequacies, not persuasive. 194Mr Roulstone did not provide evidence as to his income from paid work and other sources since 10 January 2011 and what was done with it, in the absence of any evidence that any of it was used to pay client judgments or other creditors. 195For reasons set out in this judgment, the inadequacies for Mr Roulstone are in relation to the following amounts: funds received not acknowledged $ 604,121.00 funds deposited to Commonwealth Bank account for client claims but unaccounted for $1,659,431.00 amount paid to Verekers unaccounted for $1,000,000.00 sale monies -inadequate details of how spent $ 507,034.00 alleged payment of alleged school fees debt $ 160,000.00 Funds received, but no explanation of how dissipated $ 416,999.81 Inadequate accounting in relation to his loan account transactions with Roulstone Family Trust $ Not known inadequate accounting - income since January 2011 $ not known
INADEQUATE ACCOUNTING BY MR BARAKAT 196Mr Barakat has not provided: · any adequate explanation in relation to "loans" of $350,000 of the sale proceeds to relatives; · any adequate evidence of the transaction history of his loan account with the Vanair Trust; · any details of an alleged payment from the funds from Slater and Gordon of tax of $113,000.00. (Mr Barakat did not allege that he paid any part of his 2010/2011 assessment. The figure he stated for his tax debt in his statement of affairs in August less than 2 months after the assessment is $2,392,307 and suggests there had been no payment in respect of that assessment. There is no evidence of him being assessed for his 2011/2012 tax before he became bankrupt 2 months after his 2010/2011 assessment. It is most unlikely. His evidence in his affidavit that "since I began paid employment I have always paid my tax ... and have paid all outstanding tax except for this last tax bill" suggests that if he paid tax it was not for 2009/2010 or earlier years.) · any details or corroborative evidence for his alleged payments for Middleton Lawyers, his accountants, and school and university fees; and · adequate evidence as to his income from paid work and other sources since 10 January 2011 and what was done with it, in the absence of any evidence that any of it was used to pay client judgments or any part of his 2010/2011 income tax assessment. 197Taking the inadequacies together the amounts involved for Mr Barakat are as follows: Funds received but no explanation of how dissipated $ 219.357.10 Account for client claims - $1,659,431.00 Loans to relatives -insufficient evidence $ 350,000.00 Amount paid to Verekers unaccounted for $1,000,000.00 Inadequate accounting - income since January 2011 $ not known Inadequate evidence for alleged payments of $ 156,696.00 198Those amounts listed in the preceding two paragraphs are very significant given that the total paid by the 3 solicitors to client creditors was only $2,002,932.00. Mr Roulstone's tax assessment was for only $1,260,000.00 and Mr Barakat's tax assessment of 15 June 2012 in respect of 2010/2011 was only $2,350,000.00.
RELEVANT CASE LAW 199It has been well recognised in New South Wales since at least the decision of the court of appeal in New South Wales Bar Association - v - Hamman [1999] NSWCA 404 that failure of the lawyer to fulfil the civic duty to pay tax, even though in the particular circumstances it may not involve any offence, constitutes unsatisfactory professional conduct or professional misconduct. (See also NSW Bar Association - V - Somosi [2001] NSWCA 285; NSW Bar Association - V - Cummins [2001] NSWCA 284.) 200In New South Wales Bar Association - V - Murphy [2002] NSWCA 138 the Court of Appeal held that the test to be applied when determining fitness to hold a practicing certificate in the context of an act of bankruptcy, is not whether the indebtedness which led to the bankruptcy was brought about by or associated with dishonest conduct by the applicant for or holder of the certificate, but whether the circumstances in which the act of bankruptcy was committed are such as to persuade a Council that, at the time of its determination, such person is not a fit and proper person to hold a practicing certificate". 201In that decision Giles JA (with whom Ipp AJA agreed) said: "[107] .... The fact of commission of an act of bankruptcy, an indictable offence or a tax offence is not what matters. The Council, and the Court, must look to the circumstances in which the act of bankruptcy, indictable offence or tax offence was committed." 202As to the words "fit and proper" Spigelman CJ in NSW Bar Association - V - Cummins (2001) 52 NSWLR 279 at 284 endorsed what was said by Kitt OJ in Ziens - V - Prothonotary of the Supreme Court of NSW (1957) 97 CLR 279 at 298: " .... They should be understood as a reminder that a barrister is more than his client's confidant adviser and advocate, and must therefore possess more than honesty, learning and forensic ability. ....... If a barrister is found to be, for any reason, an unsuitable person to share in the enjoyment of those privileges and in the effective discharge of those responsibilities,he is not a fit and proper person to remain at the Bar." 203In the Murphy decision of the court of appeal, Giles JA (with whom Ipp AJA agreed) held at [113]: "...... Fitness to hold a practising certificate is to be assessed having in mind the high standards required of legal practitioners in the practice of their profession. The standards are required because the relationship between the legal practitioner and client, between legal practitioners, and between legal practitioners and court is one of trust in the performance of professional functions, and because there must be confidence in the public and in those engaged in the administration of justice that legal practitioners will properly perform those functions." 204In Wardell - v - New South Wales Bar Association [2002] NSWSC 548 the Supreme Court was reviewing a decision of the Bar Council canceling the practising certificate of a barrister following his bankruptcy, which occurred as a result of his debtor's petition. The Bar Council had resolved that Wardell was not a fit and proper person to hold a practicing certificate. 205Cripps AJ said in his judgement at [36] "...it is not only legal competence and the trust of the professional associates that determines fitness and propriety to hold a practising certificate. If that were all there were to it, Mr Wardell would have to succeed in this appeal. In my opinion, however, the test also extends to embrace aspects of character derived from conduct." 206Cripps AJ stated that Wardell had committed no crime and had filed affidavits "representing the views of senior counsel and Judges of the court before whom he regularly practised as to his competence and the trust others repose in him." But His Honour also said at [43]: "I am not dealing with the consequence of an unexpected or untoward event resulting in an indebtedness that cannot be met. What I am dealing with is the conduct of a person who is able to pay his debts, but who elected instead to spend money, over a long period of time, on what has been described as 'discretionary lifestyle pursuits'. In one sense, therefore, it does not seem to be of great moment whether the money was spent on holidays in Barbados and/or Hawaii etc or whether it was spent on pursuits within Australia, such as gambling. As it seems to me, it does not matter so much how the money was spent, once it is established that it was spent in pursuit of discretionary objectives. Thus, the circumstances that Mr Wardell decided to gamble thousands of dollars on poker machines over a long period of time is not much different in consequence than spending a similar amount of money on annual overseas holidays. Mr Wardell's expenditure had the consequence, known to him, that the money spent ceased to be available to be used to meet his indebtedness to the ATO. Whether that was the result of expenditure on trips to Hawaii and Barbados, luxury cars or gambling. 207Cripps AJ concluded at [45] that Mr Wardell "has shown such a reckless disregard for his obligations as to amount to an intention to avoid them." 208Meredith - v - Legal Profession Admission Board of NSW [2008] NSWSC 1170 is a decision of McClellan CJ at CL. The plaintiff had been practising as a solicitor and was struck off for misappropriations. His application to the Legal Profession Admission Board to be readmitted was refused. The reasons given included (at [2]): "The admitted misappropriations were committed over an extended period which spanned the five year period from 1993 until 1998. The offences resulted in severe losses to clients and were prolonged, deliberate and quite antithetical to the position of trust that you held as a solicitor of the supreme court of NSW"; "The context and duration of the past misappropriation is destructive of present satisfaction of your good character and therefore your suitability for the readmission". 209The plaintiff appealed that decision to the Supreme Court. The evidence disclosed that in relation to the misappropriated funds, which the Fidelity Fund had paid out, the Fidelity Fund was still owed a sum of $231,771.37. In his reasons the judge said at [27]: "It is apparent that until I raised the matter the plaintiff did not recognise an obligation to repay these monies. Although he rightly had concluded that his legal liability was confined to his bankruptcy, he entirely failed to recognise his moral obligations." 210The plaintiff had been earning about $115,000 per annum. His outgoings had included repayments of a mortgage on the family home and repayment of monies owing to his brother in law and daughter. McClellan CJ at CL said at [28]: "By choosing to advance the interest of his family, maintain the mortgage on the family home and make repayment of his wife's debt rather than meet his obligation to the Fund, the plaintiff has demonstrated a serious misunderstanding of the attributes required of a person who seeks to be readmitted to the legal profession." 211His Honour also said at [29-30]: "When this matter was pointed out to the plaintiff's solicitor and an opportunity granted for reflection he provided the court with an offer which contemplated his readmission on condition that he entered into binding arrangements to repay the Fidelity Fund over time. Although this offer indicates that the plaintiff now has some appreciation of the conduct expected of him it suffers from the problems identified by Kirby P in Dawson - V - Law Society of NSW (Court of Appeal, 17 November 1989 and 21 December 1989, unreported) in relation to conditional readmissions. The fact that the offer was only made in response to my raising of the issue confirms that the plaintiff has not yet come to a proper appreciation of the conduct required of him if he is to be readmitted as a legal practitioner. I am satisfied that he is not a fit and proper person to be readmitted to the legal profession".
ADDITIONAL EVIDENCE IN THE APPLICANT'S CASE 212The applicant married with three children. He completed a Bachelor of Arts (Psych) at the University of Wollongong in 1982, graduated as a Bachelor of Laws from the University of Sydney in 1985 and was admitted that year as a solicitor of the Supreme Court of New South Wales. He worked as a volunteer law student from 1982 to 1985 at the Redfern Legal Centre. He practiced from 1985 to 1998 in Nowra doing litigation work. He joined Keddies and Associates in 1998 in the litigation department and from 1992 to 2011 he was a partner. He also worked as a part time volunteer in that period at the Inner-city legal centre. 213In 1996 he graduated with a Master of Laws degree from the University of Sydney and also became an accredited specialist in personal injury law. From 1998 to 2004 Mr Roulstone was the managing partner for the firm's defendants' practice in CTP and public liability. He was a joint Managing Director of Keddies from 2007 to 2011. 214Mr Roulstone gave voluntary service for the Law Society of New South Wales. From 1998 to 2008 he was a member of the Professional Conduct Committee and was a member of the Council of the Society from 2006 to 2009. He was Junior Vice President in 2007. At various times he chaired the Litigation Law and Practice Committee and the Injury Compensation Committee. He was also Deputy Chair of the Medico-Legal Liaison Committee. 215He is a former Trustee of the Public Purpose Fund and has been a member of the Supreme Court Rules and Practice Committee and a member of the Academic Board, Faculty of Law (University of Technology Sydney) and a Law Society Board member of the Public Interest Law Clearing House. 216Mr Roulstone in 2008 graduated as a Master of Laws (Dispute Resolution) from the University of Technology Sydney. 217Affidavits testifying as to Mr Roulstone's good character were in evidence from a forensic accountant Warwick Newton Dolman and Michelle Castle, a barrister, both of whom have had professional dealings with Mr Roulstone. There are also affidavits by Mr Macken a fellow practitioner who has known Mr Roulstone for about thirty years since their student days and also as a fellow Councillor of the Law Society. There is an affidavit by Mr Neil Peter Wickenden, a partner in HLB Mann Judd, the accountants for Mr Roulstone and Mr Barakat, and Mr Robert Royce Leitch, senior partner LHD Lawyers, who has known Mr Roulstone since 1986 and has had a commercial relationship with Mr Roulstone insofar as they have "referred various conflict matters between our firms". They also have a social relationship between their families. 218All the deponents of these affidavits have expressed an opinion that Mr Roulstone is a "fit and proper person to hold a practising certificate". 219All these witnesses have stated in their affidavits that they have read the Law Society's reasons for its decision. Ms Castle and Mr Leitch also state that they have read the section 67 statement by Mr Roulstone and the submissions on his behalf by his solicitor. 220The Tribunal accepts that these witnesses have known Mr Roulstone to be a person of good character. These proceedings do not relate to conduct prior to 2010. They relate particularly to the conduct described in the findings in the context that is set out in many pages of detail. The character witnesses, of course, have not had the benefit of reading those findings. 221The Tribunal has taken into account that there have been no prior findings of unprofessional conduct or professional misconduct against Mr Roulstone. 222The Tribunal relies only on the findings of conduct that are set out in the reasons of the Tribunal.
CONCLUSIONS AS TO THE PAYMENTS SPECIFIED BY THE LAW SOCIETY IN PARAGRAPH 4 OF ITS REASONS AND OTHER PAYMENTS 223Between 11 January 2011 and 1 May 2012 payments to a total of at least $5,075,851.33 were made to Mr Roulstone or to others on his behalf as part of the consideration for the sale of his shares in the Keddies practice. Of those funds his share of the amounts actually paid to creditor clients was only $667,644, despite his liability for millions more dollars under court judgments from defended hearings and consent orders in favour of clients in respect of overcharging. Apart from the $667,644 none of the funds he received were paid to creditors who had a judgment against him. None of the $5,075,851.33 was paid in respect of his taxation assessment for 2010/11 despite much of that assessment relating to his receipt of the $5,075,851.33. 224Mr Roulstone knew from when he commenced negotiating the sale of his shares in the law practice in October 2010 that he would be liable for capital gains tax in respect of the sale proceeds. He says that he did not pay all or any of his taxation assessment from the funds he received from the sale of his shares as he was advised by his insolvency advisers not to do so. 225Instead, he chose to: 1. pay $1,616,363.19 to the Roulstone Family Trust for the benefit of him and/or his family; 2. pay $500,000.00 in superannuation contributions to the Roulstone Superannuation Fund for the benefit of him or his family and thereby reducing the funds available to unsecured creditors in his bankruptcy; 3. authorise a payment of $333,333.33 to Verekers Lawyers for his own benefit; 4. pay $500,000.00 to a bank to discharge the loan secured over his wife's property thereby benefiting his wife; 5. pay other funds to the client claims account that have not been accounted for; 6. use $667,034 allegedly for a private school fees debt and for "taxation payment, accounting fees, legal fees, rent, living expenses, credit card, school fees etc, business expenses related to future employment prospects", which alleged expenses have not been substantiated; and 7. Fail to account for $416,121.00 of the funds he received. 226The Tribunal does not accept that the payments by Mr Roulstone to the Roulstone Family Trust or to the Roulstone Superannuation Fund or to reduce a bank loan were made with the intention of "parking" the money pending a possible bankruptcy. Viewed in the context of knowledge and transactions since the first claim in 2010 the Tribunal is comfortably satisfied that those transactions and others were motivated primarily by consistent intention to protect or salvage as much wealth as possible for himself and his family, even when it would be at the expense of the taxpayers and client judgment creditors. They were made on the chance that there would not be a bankruptcy and also the chance that if there were, the transaction would not be challenged or would survive challenge. That is also consistent with his conduct after he became bankrupt, which was inconsistent with the transactions being intended merely to "park" money. 227The applicants both raised in their defence the fact that they acted on the advice of insolvency experts. But that does not absolve them from failure to adhere to ethical obligations. Similarly, they submitted that their conduct in arranging the availability of funds for their composition proposals to their creditors reduced the culpability of that conduct. But again, that conduct cannot excuse them from their unethical behaviour before and since bankruptcy, which had the effect of dissipating more funds than would be available to the creditors under their composition proposals. Also the composition proposals came only after the bankruptcy and in the context that each of them had by some of his conduct been less than supportive of his Trustee in his role of collecting funds the subject of the unethical transactions. 228Mr Roulstone paid little regard to the ethical implications of not paying even consent judgments for overcharging in favour of former clients when he was using available funds to pay the family trust, to pay private school fees for his children and to use very substantial amounts from the sale of shares and his income for accumulation of family wealth, increasing his superannuation and affording his family a very high standard of living. 229Mr Roulstone and Mr Barakat received sufficient funds from the sale to pay the client verdicts and the income tax assessed. For his part, Mr Roulstone chose not to. He consistently preferred the interests of himself and his family over those of the taxpayers and his judgment creditor clients, who had been overcharged by his law practice. That motivation commenced before the first resolution of client claims, as demonstrated by the delays generally in negotiation and payment and particularly in relation to larger claims. 230In 2010 there was no certainty that insolvency would eventuate, but by the decision of Curtis DCJ was delivered on 8 November 2011, the 3 solicitors knew there was a very real possibility of bankruptcy. 231Mr Roulstone, with considerable experience in the law and of the concern of the profession that lawyers behave ethically, chose to prefer the financial interests of himself and his family over those of the taxpayer and his judgment creditor clients. Those transactions were unethical conduct by a solicitor. The conduct of Mr Roulstone in failing to properly account for much of the money he received from the sale of his shares is further evidence of his failure to understand the ethical obligations of a solicitor. 232The Tribunal finds that Mr Roulstone is not a fit and proper person to hold a local practising certificate. The finding of the Council of the Law Society to that effect is confirmed. The correct and preferable decision is to suspend his practising certificate, as was decided by the Council of the Law Society.
ORDERS 233The Tribunal confirms the decision of the Council of the Law Society of New South Wales on 22 November 2012 determining that the applicant is not a fit and proper person to hold a local practising certificate and the decision to suspend his practising certificate.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 November 2013
Roulstone
Law Society of NSW
(1957) 97 CLR 279
(2001) 52 NSWLR 279