Victorian Lawyers RPA Ltd v Incerti [2001] VSC 15

5. On 1 October 1999 the Tribunal found the defendant guilty on both counts of misconduct and it made the following orders:

(a) that the defendant's practising certificate be cancelled from 12 November 1999;

(b) that the defendant be entitled to apply only after 12 May 2000 for a practising certificate either as a principal or as an employee of another legal practitioner;

(c) that the defendant pay the costs of the RPA of the proceedings, in the sum of $2,750.

11. The first charge of misconduct was with respect to a breach of s. 137 of the Act, constituted by a wilful or reckless contravention of Rule 3 of the Solicitors (Professional Conduct or Practice) Rules 1984. That charge related to a complaint made by Mr Khelder Belrost ("the complainant") as to the failure of the defendant to use his best endeavours to complete in a reasonable time a workers' compensation action brought by the complainant.

14. The second charge was that of misconduct at common law, namely, defalcation from the estate of Margaret Lucy Kelly. That defalcation occurred on 27 November 1998 when the defendant transferred $10,000 from the trust ledger account of the estate of Margaret Lucy Kelly to the trust ledger account of the complainant.

17. The circumstances giving rise to the charges were as follows. The complainant suffered an eye injury on 15 May 1984 and instructed the defendant to handle his workers' compensation claim. On 27 July 1993 a magistrate approved an award of $10,000 to the complainant in full settlement of all forms of future compensation for injury arising out of or in the course of his employment. The procedure for payment of the sum of $10,000 was apparently affected by changes in workers' compensation legislation, and by the fact that the defendant employer was uninsured, and the defendant sought the advice of counsel as to the method which he should adopt to ensure the payment of the funds. Counsel gave written advice to the defendant on 28 July 1993, setting out the process which he should follow to ensure payment of the funds from the WorkCover Authority fund. Notwithstanding the fact that he had such written advice as to the steps to take, the defendant then failed to take the necessary steps to effect payment of the compensation sum.

20. On 18 July 1995, a week short of two years after the defendant had received the advice of counsel, during which period the defendant had still taken no steps at all, the solicitors for the defendant in the workers' compensation claim themselves wrote to the defendant telling him that it was necessary for him to apply to the court before the moneys could be paid out. The solicitor for the defendant offered to assist the defendant, if he required any assistance, in undertaking the necessary process. The defendant failed to take up the offer of assistance and by December 1997 still nothing had been done.

23. In December 1997 the remarkably patient complainant sought independent advice and an agent acting for the complainant wrote to the defendant expressing concern as to the exceptional delay which had occurred in the payment of the compensation award. On 19 December 1997, a week after receiving the agent's letter, the defendant lodged a Form 18 application with the WorkCover Registrar seeking payment of the award. The Registrar advised the defendant that an affidavit was required to be filed, and referred the defendant to the relevant Practice Note which related to the steps to be taken. Nothing further was done by the defendant.

26. In June 1998 the delegate of the RPA wrote to the defendant providing a copy of a complaint lodged by the complainant on 10 June 1998. On 3 July 1998 the defendant responded to the RPA delegate indicating that he was hopeful that the matter would be shortly concluded and then wrote again on 11 August 1998 indicating that a claim for interest would be made and that it was likely that the funds would be received "later that week". The defendant advised the delegate that he believed that all necessary procedures had been undertaken by him to ensure the payment. On 18 September 1998 the defendant wrote to the delegate stating that he believed payment was to be made within the next 30 days. In its reasons for decision the Tribunal noted that notwithstanding the advice which he gave to the delegate in the letters of August and September 1998 the legal practitioner had not taken the appropriate steps by way of preparation of an affidavit or by filing any further application in order to advance the matter. The assertions which he made in his letters to the delegate were baseless. The defendant conceded that he had made false statements to the RPA in that way.

29. The defendant was a partner in the firm Armstrong Ross. The defendant and his partner, John Wallis, were co-executors of the estate of Margaret Lucy Kelly which was subject to a court challenge by the relatives of the deceased who were seeking to invalidate probate. The estate was valued at about $230,000. On 27 November 1998 the defendant transferred $10,000 from the trust ledger account of the estate of Margaret Lucy Kelly to the trust ledger account of the complainant. That transaction was recorded as a temporary loan. The Tribunal found that although the trust ledgers recorded that the transaction was a loan, there was, in fact, no loan agreement and the complainant, as the supposed borrower, had not been advised that the money which had been paid to him was recorded as being a temporary loan to him. On the same day, trust cheques were drawn and debited to the trust account of the complainant to a total of $10,000. Mr Wallis was not aware of the transaction and did not authorise the advance from the estate.

32. On 7 January 1999, when the defendant was on leave, Mr Wallis had dealings with the trust account of the estate and became aware of the transaction referred to above. He confronted the defendant with the matter. It was Mr Wallis who contacted the RPA, as a result of which an inspection of the practice commenced on 8 January 1999. That inspection confirmed the unauthorised transfer of funds from the estate account. On 7 January 1999, the same day that Mr Wallis discovered the irregularity, a cheque drawn on the office account of Armstrong Ross was made payable to the estate of Mrs Kelly, thus restoring the funds to the account of the estate. The Tribunal held that the amount of interest lost by the Kelly estate was small, in the order of less than $100. The defendant agreed to pay such interest.

35. In his evidence before the Tribunal, the defendant said that he had thought that if the Kelly estate paid the sum of $10,000 to the complainant then when the firm, Armstrong Ross, received payment of the $10,000 from the WorkCover Authority the estate could then be repaid from that sum, and he told the Tribunal that he had intended to pay interest to the Kelly estate for the period that it was deprived of the funds: the payment of interest was to have been made from the firm's costs which would have been payable to it by the defendant to the workers' compensation proceeding.

38. Further, in his evidence, the defendant said that "it had not occurred to him that he had done anything wrong in drawing the two cheques on the money held in the firm's trust account for the Kelly estate".

41. In cross-examination, he conceded that the letters written to the delegate of the RPA in August and September 1998 had contained false statements, in that he had not done what he claimed to have done so as to obtain payment of the $10,000 from the WorkCover Authority. He agreed that he had also mislead the RPA when he later advised that the payment of $10,000 had been made to the complainant, because he had not disclosed that the funds had come from a source other than the WorkCover Authority.

44. The defendant conceded his guilt with respect to the two charges of misconduct. The Tribunal held that the delay in the handling of the workers' compensation claim was inexcusable and was "inept to a high degree". The Tribunal made the following further finding as to the withdrawal of funds from the trust account of the Kelly estate:

"We consider that the actions of the legal practitioner go well beyond a mistake in not thinking of the logic of what he was doing, as suggested by Mr Wallis in his evidence. We do not accept the legal practitioner's evidence that it did not occur to him that he had done anything wrong in drawing the two cheques on the firm's trust account for the Kelly estate. We consider that the actions of the legal practitioner in making the unauthorised payments from money's held in the firm's trust account for the Kelly estate were quite deliberate in their nature and were intended by him to avoid the consequences to himself which were likely to flow from the complaint made to the Law Institute by the complainant on or about 10 June 1998".

48. The Tribunal further held that the actions with respect to the trust account were part of "a deliberate course of action designed to improve his own position with regard to his delay in obtaining payment for the complainant of his workers' compensation award". The Tribunal held that that view was supported by the misleading statements made in the letters to the RPA. The Tribunal held that the actions with respect to the trust account funds constituted conduct which competent practitioners of good repute would reasonably regard as disgraceful and dishonourable and would constitute misconduct at common law. There is no dispute as to that finding.

51. At the time when the Tribunal made its findings of misconduct, s.160(2)(b) required the Tribunal to refer the practitioner to the Supreme Court so that the Court might determine whether he should be struck off the role of practitioners. These proceedings are brought in compliance with that direction, but the sub-section was repealed by amending legislation which came into effect on 8 December 1999[1], about five weeks after the orders were made. Thereafter it was no longer mandatory for the Tribunal to refer the matter to the Supreme Court upon a finding of misconduct being made, however, if the Tribunal chose to do so then it had a discretion as to whether or not it made a recommendation to the Court that the practitioner's name be struck off the roll. Such a discretion had also applied prior to the amending legislation. By the terms of s.160(3), a recommendation that the practitioner's name be struck off was obliged to be followed by the court, unless the court was satisfied that the Tribunal had made an error of law in finding the practitioner guilty of misconduct.

54. In the present case the Tribunal advised that it did not recommend that the defendant's name be struck off the roll.

57. I turn, then, to the question whether the conduct of the defendant was such that I should order that his name be struck off the roll of practitioners.

60. In Victorian Lawyers RPA Ltd v Vodicka[2] I had occasion to examine the history of the legislation concerned with professional discipline. I also examined the applicable principles of law, in some detail, on that occasion, and counsel for the plaintiff adopted my analysis of the relevant principles which had been set out in that judgment. It is not necessary, therefore, that I repeat the analysis of the legislation and authority contained in my reasons for the earlier decision. It is sufficient to note that, as the authorities make clear, the decision to strike a practitioner from the roll is a particularly grave one and the conduct giving rise to such an order has invariably been extremely serious, and has usually followed a disciplinary tribunal's cancellation of the practitioner's practising certificate for a period of many years. The issue is not whether the defendant is a fit and proper person to be on the roll at the time when the order was made cancelling his certificate but whether he is now a fit and proper person to remain on the roll[3]. The question is whether it is necessary for the protection of the public that I now make an order striking his name from the roll of practitioners.

63. As counsel for the RPA noted, in his helpful submissions, since the passage of the Law Institute Act 1917 there has been a continuing legislative process which saw the increasing devolution of disciplinary powers over the legal profession from the Supreme Court to statutory disciplinary bodies. Counsel submitted that whilst after the introduction of the Solicitors Disciplinary Tribunal in 1978 the ultimate sanction of the removal of a name of a practitioner from the roll of practitioners remained with the court, it was the nominated tribunal which was given the primary role of examining the conduct of which complaint was made.

66. Mr Bourke, counsel for the defendant, submitted that there are a number of factors which should lead to the conclusion that it would not be appropriate or necessary, in the interests of the protection of the community, that the defendant's name be struck from the roll of practitioners. He stressed that no finding of fraud had been made against the defendant; that he had received no financial benefit, nor was it ever intended that he would; that the conduct stemmed from the fact that he had no experience, at all, in dealing with workers compensation matters. The defendant, who is now aged 43 years, was admitted to practice in 1982 and had been a partner in the firm since October 1993. His practice had always been confined to areas of finance and probate. Mr Bourke also noted that the complainant had been paid an additional $3000 by the defendant as compensation for the delay in payment to him of his compensation entitlement.

69. Before dealing further with factors relevant to the decision which I should make, I wish to deal with issues which arose with respect to an affidavit sworn by the defendant on 1 August 2000 in Lancashire, England. In the affidavit he advised that he would not be able to be present at the hearing of this proceeding but fortunately that proved not to be the case and both the defendant and his wife attended before me.

72. During the course of the hearing I expressed concern that in some of its passages the affidavit did not seem to me to reflect an appropriate degree of awareness of the gravity of the conduct with which the two charges were concerned. Although the defendant deposed that "I accept that my action amounted to a trust defalcation", elsewhere in his affidavit, he tended to minimise his conduct. In one paragraph he said:

"Effective from 15 November 1999 my practising certificate was cancelled for six months as a result of an irregular trust transaction which was construed as a trust defalcation. The trust transaction took place in November 1998 and, simply put, involved transferring an amount of $10,000 from an account of a deceased estate to a second client account by way of a short term unsecured loan. I first became aware in January 1999 after speaking to my partner John Wallis that the transaction was irregular and could amount to a trust defalcation. It was decided to immediately voluntarily report the matter to the Law Institute of Victoria now Victorian Lawyers RPA Ltd, and the firm's auditors."

76. As I have noted, the Tribunal rejected the contention advanced by the defendant that until he had been spoken to by his partner, Mr Wallis, it had not occurred to him that he had done anything wrong in drawing the two cheques on the trust account for the Kelly estate. The Tribunal concluded that the actions of the defendant were: "quite deliberate in their nature and were intended by him to avoid the consequences to himself which were likely to flow from the complaint made to the Law Institute by the complainant".

79. Whilst I accept that it is not unusual for a person, against whom adverse findings of fact have been made by a tribunal (or a court), to maintain his own interpretation and gloss as to his conduct, I was concerned that in the passage cited, above, the defendant was not facing up to the seriousness of the conduct which has been found against him. Furthermore, the phrase "It was decided to immediately voluntarily report the matter..." conveys an impression that it may have been a decision taken by himself. It is clear, however, that the decision to adopt that course was taken by Mr Wallis, not by the defendant, but, to his credit, it seems that the defendant did not attempt to persuade Mr Wallis not to adopt that course.

82. In his affidavit, the defendant also asserts that he cooperated with the RPA and its investigating officers, and that when interviewed by the Fraud Squad of Victoria Police he made full and frank admissions. The defendant deposed: "I acknowledge that actions regarding the trust transfer were irregular and a breach of the Rules, but it was not carried out fraudulently or dishonestly, the matter was reported immediately I became aware of the irregularities to the authorities, and I have fully cooperated with all investigations both professional and criminal". Yet, whilst the defendant did cooperate with the RPA to a substantial extent, it must be noted - as he admitted to the Tribunal - that he also sought to mislead its investigating officers by letters which he wrote. The defendant's affidavit does not address that finding made by the Tribunal.

85. The defendant, by his affidavit, could not have hoped to mislead the court as to the seriousness of his conduct, because the true picture was clearly and comprehensively outlined in the findings and reasons for decision of the Tribunal. I do not consider that the affidavit betrays an effort to mislead the court. Had I reached that conclusion the consequences of such conduct may have proved disastrous for the defendant's cause in this proceeding. Rather, it seems to me that it reflects some reluctance on the part of the defendant to admit to himself just how serious his conduct was, and how far short of professional standards it fell. Whilst, as Mr Bourke submitted, it may be human nature for a person in the position of the defendant, facing the professional and private obloquy which accompanies such conduct and such proceedings, to minimise the conduct in his own mind, it is obviously essential that the practitioner, if given the chance to again practice, faces up to the findings made against him by the independent tribunal which was charged with the duty of enforcing proper professional standards.

88. Having heard the submission of Mr Bourke, and having regard to the totality of the affidavit, I am satisfied that the attempt to minimise his conduct, which passages of the affidavit betray, does not reflect a lack of appropriate insight on the part of the defendant. Soon after the cancellation of his practising certificate and at the suggestion of his former partner, Mr Wallis, that he needed "to get away from it all", the defendant and his family moved overseas, to reside with relatives in Italy and England. He obtained no paid work, and the dislocation was at some personal cost to his family. Although the period of cancellation of his certificate expired in May 2000, the defendant has made no attempt to apply for a new practising certificate. The defendant's conduct in moving overseas, and in not applying, at once, for a new certificate, suggests that he is well aware that his conduct would be viewed seriously by members of the profession, and I conclude that notwithstanding the contrary appearance that some passages of the affidavit convey, the defendant accepts that his conduct justifies such disapproval.

91. I turn to the question whether the defendant should be struck of the roll of practitioners. The plaintiff, the RPA, through its counsel, did not urge me to adopt any particular course. Whilst noting and emphasising those aggravating aspects of the behaviour of the practitioner which had been identified by the Tribunal, counsel for the plaintiff noted, too, that the period of cancellation of six months was, perhaps, the minimum period of suspension that the Tribunal might have contemplated imposing on a person found guilty of two such offences. My earlier decision in Vodicka, also concerned a case which arose before the amendments to the legislation which I earlier discussed in these reasons. In that case the misconduct related to a number of dealings with client funds by way of loans to the benefit of the practitioner and other clients, and the cancellation of the certificate by the Tribunal was for an effective period of some twenty months. In that case I concluded that it was a reasonable inference to be drawn from the reasons of the Tribunal that had it the discretion at that time not to refer the matter to the Supreme Court it may not have done so. A similar inference is open to be drawn in the present case, given the relatively short period of cancellation of the practising certificate and given the fact that the Tribunal declined to recommend that the practitioner's name be struck off. Of course, even if that is an appropriate inference to be drawn, the question is one for my decision, not for the Tribunal.

94. The defendant was charged with an offence under s. 174(3) of the Legal Practice Act 1996 and when he appeared in the Magistrates' Court the magistrate convicted and fined him $2,500 on 9 December 1999. The defendant appealed against that penalty, challenging only the imposition of a conviction. On 31 January 2000 his Honour Judge Kimm upheld the appeal and sentenced the defendant to pay a fine of $2,500, but without imposing a conviction.

97. Mr Bourke noted that in my reasons in Vodicka I observed that in deciding that Vodicka's name should not be struck off the roll of practitioners I regarded it as significant that the practitioner had not been convicted of any criminal offence. Mr Bourke submitted that I should not conclude that, because of the criminal proceedings which he had faced, the defendant's position differed from that of Mr Vodicka to such an extent that the outcome in his case should be different to that of Mr Vodicka. Mr Bourke submitted that by virtue of the appeal outcome the defendant does not stand convicted of any offence, and should receive the full benefit of being a person without conviction, as is accorded to him by s.8(2) of the Sentencing Act 1991.

100. I accept that the defendant is a person without conviction, and that the finding of guilt can not be treated as a conviction by me. I do not accept, however, that the finding of guilt of the criminal offence is irrelevant to my decision, and Mr Bourke did not seek to contend otherwise. It is one factor, among many, to be taken into account, but in this case the finding of guilt on the criminal charge does not constitute a finding of fraud, or of an intention to cheat the estate, on the part of the defendant.

103. Mr Bourke submitted that the loss of profits and income suffered by the defendant, by virtue of the cancellation of his practising certificate, totals in excess of $80,000. The defendant has been without work since the cancellation of his practising certificate and has been living on savings and on a substantial loan from a family member. As Brooking J observed in Re B (A Solicitor)[4] the power to strike off is not punitive but protective; the court must determine whether, having regard to the need for protection of the community, the defendant is a fit and proper person to remain on the roll. In the determination of that question, the financial or personal loss suffered by the practitioner by virtue of his proven conduct is unlikely to be a significant factor, if at all. More relevant to that question is the fact that the former partner of the defendant, Mr Wallis (the partnership is now dissolved), stands by the defendant, and, subject to there being sufficient work to justify doing so, will offer him employment. Mr Wallis would not discount the possibility of a future partnership. Thus, the legal practitioner who is in a good position to judge the conduct of the defendant against his whole career, and to assess whether the defendant's return to practice would be inconsistent with the interests of the community, adopts a position favourable to the defendant.

106. As I have earlier noted, the Tribunal did not make a recommendation that the defendant's name should be struck of the roll, and that is an important consideration.

109. I am satisfied that it is not necessary for the protection of the community that the practitioner's name be struck off the roll of practitioners. As serious as it was, the conduct was not undertaken for purposes of personal gain. The conduct in dealing improperly with the trust account of the estate was a hopeless attempt to stall criticism for the extraordinary delay in attending to the settlement of the compensation monies, but I am satisfied that the defendant never intended that either the estate or the complainant would be out of pocket. The delay in finalising the compensation case was truly remarkable. The defendant had ample advice as to how he might attend to the matter, and it should have been obvious that either he should follow that advice or else he should have handed the file to another practitioner. Instead, he seems to have been paralysed by his own ignorance, the paralysis becoming more acute with each succeeding week of inactivity. It was conduct of a man out of his depth in an area of practice, and lacking the professional competence, experience and confidence to know how to deal with that fact. I am satisfied that it was not the conduct of a dishonest man (nor did the Tribunal so find) or of a person who should not again be permitted to practice. No doubt one relevant effect of the significant direct and indirect penalties which have been meted out to the defendant for his conduct has been the reinforcement of the message that high standards of competence and propriety are essential if he is to again practice.

112. Given the conclusion which I have reached, namely, that his conduct does not justify his name being struck off the roll, the defendant will be eligible to apply for a new practising certificate. The Tribunal held that he should be eligible after 12 May 2000 to apply for a certificate "either as a principal or as an employee of another legal practitioner". Whether, if he so applies, the defendant should be granted a full certificate, immediately, or whether it is appropriate that, for some period of time, he be granted only an employee certificate to practice is a question which the RPA will be required to address in the exercise of its statutory duties. In making the observations that I have in these reasons, I am not intending to usurp the function or to assume the responsibility which properly belongs with the professional body for ensuring the maintenance of professional standards.

115. I conclude, therefore, that, in all the circumstances, the conduct of the defendant is not such that it requires that his name should be struck off the roll of legal practitioners. I will hear counsel as to the formal orders which I should make. My preliminary view is that the defendant should pay the costs of these proceedings, but I will hear counsel should there be opposition to that course.

[1] Act No.52 of 1999, Legal Practice (Amendment) Act 1999.

[2] [2000] VSC 272 (Judgment delivered 28 June 2000).

[3] See Law Institute of New South Wales v Meagher [1909] HCA 87; (1910) 9 CLR 655 at 691 per Higgins J; Re B (A Solicitor) [1986] VicRp 69; [1986] VR 695 at 698 per Brooking J.

[4] [1986] VicRp 69; [1986] V.R. 695, at 698.