Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Council of the Law Society of New South Wales v Martin [2021] NSWCATOD 194 Hearing dates: 20 September 2021 Date of orders: 01 December 2021 Decision date: 01 December 2021 Jurisdiction: Occupational Division Before: A Boxall, Senior Member M Sindler, Senior Member B Thomson, General Member Decision: (1) The Respondent is found guilty of professional misconduct. (2) The Respondent is reprimanded for professional misconduct. (3) The Respondent shall pay a fine of $5,000. (4) The Respondent must by 31 December 2022 (the Relevant Date) undertake further professional education in accordance with the following terms: (a) The Respondent must undertake, complete and pass at his own expense an appropriate practice management course (the Course) as approved by the Director, Legal Regulation, of the Law Society of New South Wales (the Director) and achieve a pass mark of at least 65% in that Course, (b) The Respondent shall ensure that, no later than seven (7) days after receipt of notification of the result of his participation in the Course, evidence of that result is provided to the Director. (5) If the Respondent fails to comply with order (4) by the Relevant Date, his practising certificate for: (a) The 12 months beginning on 1 July 2023 and ending on 30 June 2024, and (b) Each subsequent 12-month period, until he complies with that order, is to be issued on terms that he may not practise as the principal of a legal practice. (6) The Respondent shall pay the costs of the Applicant as agreed or assessed. Catchwords: OCCUPATIONS — Legal practitioners — Solicitors —Professional misconduct — Conflict of interest and duty — Costs agreement — Dealings with client — Trust accounts Legislation Cited: Civil and Administrative Tribunal Act 2013 (NSW), s 36 Conveyancing Act 1919 (NSW) , s 23C(1)(a) Law of Property Act 1936 (SA), s 29(1)(a) Legal Profession Uniform Law (NSW) ss 32, 33, 35, 128, 129, 135, 137, 146, 296, 297, 298, 300, 302, 303 Legal Profession Uniform Law Application Act 2014, ss 4, 11 Cases Cited: Allinson v General Council of Medical Education and Registration [1894] 1 QB 750 Council of the New South Wales Bar Association v Sahade [2007] NSWCA 145 Council of the New South Wales Bar Association v Costigan [2013] NSWCA 407 Council of the Law Society of New South Wales v Gurusamy [2019] NSWCATOD 89 Council of the Law Society of New South Wales v Koops [2021] NSWCATOD 38 Council of the Law Society of New South Wales v Thadsanamorthy [2019] NSWCATOD 96 GLGC Pty Limited v Zhang [2021] NSWSC 9 Law Society of New South Wales v Manolakos [2018] NSWCATOD 54 Malouf v Constantinou [2017] NSWSC 923 46 MJ Leonard Pty Ltd v Bristol Custodians Limited (in liquidation) [2013] NSWSC 1734 Prothonotary of the Supreme Court of New South Wales v McCaffrey [2004] NSWCA 470 Category: Principal judgment Parties: Council of the Law Society of New South Wales (Applicant) Alexander Richard Martin (Respondent) Representation: Counsel: J Simpkins (Respondent) Solicitors: Council of the Law Society of New South Wales (Applicant) HWL Ebsworth Lawyers (Respondent) File Number(s): 2021/00019459 Publication restriction: Nil REASONS FOR DECISION Background and jurisdictional matters 1. This matter concerns an application made to the Tribunal on 21 January 2021 by the Council of the Law Society of New South Wales under the Legal Profession Uniform Law (NSW) (the Law), seeking certain disciplinary findings and orders against Alexander Richard Martin, who at all relevant times was the sole principal of an incorporated legal practice known as Martin Legal Pty Limited (the Law Practice). 2. The Law was incorporated into the law of New South Wales by section 4 of the Legal Profession Uniform Law Application Act 2014 (NSW) (the Act). Its relevant provisions commenced on 1 July 2015, and since the events which form the subject of this complaint occurred after that date, the Law applies to them. 3. The Act provides: 1. In section 11(1), that the Applicant is the designated local regulatory authority; and 2. In section 11(3), that this Tribunal is the designated tribunal, for the purposes of the provisions of the Law referred to below. 1. Section 300 of the Law provides relevantly that: (1) The designated local regulatory authority may initiate and prosecute proceedings against a respondent lawyer in the designated tribunal if the designated local regulatory authority is of the opinion that— (a) the alleged conduct may amount to unsatisfactory professional conduct that would be more appropriately dealt with by the designated tribunal; or (b) the alleged conduct may amount to professional misconduct. 1. The Applicant has, therefore, authority to initiate this application and the Tribunal has jurisdiction to determine it. A preliminary matter 1. The Respondent: 1. Informed the Tribunal that it had come to his attention that a further complaint involving him (and another solicitor) had been made to the Office of the Legal Services Commissioner by Ms Ellina Christi (whose initial complaint to that same body ultimately resulted in this application); 2. Noted that the history of dealings between Ms Christi and him was such that this recent complaint necessarily had to do with the same events as did this application; and 3. Sought the adjournment of this hearing so that the recent complaint (if in fact it matured into a further application by the Applicant) and the present application could be dealt with on a consolidated basis. 1. The Applicant had no firm view. 2. The Tribunal recognised the arguments in principle for dealing with this application and any disciplinary action emerging from the recent complaint in a single hearing. However, it considered that on balance: 1. The uncertainty which surrounds the substance and objectives of the recent complaint; 2. The advanced stage of preparation of all parties in relation to the present application; 3. The discrete and circumscribed nature of the issues raised by this application; and 4. The public interest in the prompt determination of disciplinary applications against legal practitioners, together made it appropriate to deal with the present application immediately rather than to adjourn it indefinitely until the status of the recent complaint could be ascertained. This approach was, in the Tribunal's assessment, more consistent with the guiding principle for its procedural conduct provided for in section 36 of the Civil and Administrative Tribunal Act 2013 (NSW). It therefore dismissed the adjournment application. Relevant legislative provisions 1. Section 32 of the Law provides as follows: 32 Business structures Legal services may be provided under any business structure, subject to the provisions of this Law and the Uniform Rules. 1. Section 33 of the Law provides as follows: 33 Obligations not affected by nature of business structures (1) An Australian legal practitioner must comply with this Law, the Uniform Rules and his or her other professional obligations, regardless of the business structure in which or in connection with which the practitioner provides legal services. (2) A law practice must comply with this Law, the Uniform Rules and its other professional obligations, regardless of the business structure in which or in connection with which the law practice provides legal services. 1. Section 35 of the Law provides as follows: 35 Liability of principals (1) If a law practice contravenes, whether by act or omission, any provision of this Law or the Uniform Rules imposing an obligation on the law practice, a principal of the law practice is taken to have contravened the same provision, if— (a) the principal knowingly authorised or permitted the contravention; or (b) the principal was in, or ought reasonably to have been in, a position to influence the conduct of the law practice in relation to its contravention of the provision and failed to take reasonable steps to prevent the contravention by the law practice. (2) A contravention by a principal arising under subsection (1) is capable of constituting unsatisfactory professional conduct or professional misconduct by the principal. (3) Neither subsection (1) nor (2) affects any liability of the law practice or any other person for the contravention. 1. Section 128 of the Law includes the following definitions: authorised ADI means an ADI authorised to maintain trust accounts to hold trust money under section 149; controlled money means money received or held by a law practice in respect of which the law practice has a written direction to deposit the money in an account (other than a general trust account) over which the law practice has or will have exclusive control; controlled money account means an account maintained by a law practice with an ADI for the holding of controlled money received by the law practice; general trust account means an account maintained by a law practice with an authorised ADI for the holding of trust money, other than controlled money or transit money; … transit money means money received by a law practice subject to instructions to pay or deliver it to a third party, other than an associate of the law practice; trust account means an account maintained by a law practice with an authorised ADI to hold trust money; 1. Section 129 of the Law provides relevantly as follows: 129 Meaning of trust money (1) For the purposes of this Law, trust money is money entrusted to a law practice in the course of or in connection with the provision of legal services by the law practice, and includes— (a) money received by the law practice on account of legal costs in advance of providing the services; and (b) controlled money received by the law practice; and (c) transit money received by the law practice; and (d) money received by the law practice, that is the subject of a power exercisable by the law practice or an associate of the law practice, to deal with the money for or on behalf of another person. (2) However, the following money is not trust money for the purposes of this Law— (a) money received by a law practice for legal services that have been provided and in respect of which a bill has been given to the client; 1. Section 135 of the Law provides as follows: 135 Dealing with trust money (1) A law practice must deal with trust money in accordance with this Law and the Uniform Rules and not otherwise. Civil penalty: 50 penalty units. (2) Trust money held by a law practice may be dealt with only by the law practice or an associate of the law practice. 1. Section 137 of the Law provides as follows: 137 Certain trust money to be deposited in general trust account A law practice must deposit trust money (other than cash) into the law practice's general trust account as soon as practicable after receiving it unless— (a) the law practice has a written direction by a person legally entitled to provide it to deal with the money otherwise than by depositing it in the account; or (b) the money is controlled money or transit money; or (c) the money is the subject of a power given to the practice or an associate of the practice to deal with the money for or on behalf of another person. 1. Section 146 of the Law provides as follows; 146 Intermixing money A law practice must not mix trust money with other money unless authorised to do so by the designated local regulatory authority, and only in accordance with any conditions the designated local regulatory authority imposes in relation to that authorisation. 1. Section 296 of the Law provides as follows: 296 Unsatisfactory professional conduct For the purposes of this Law, unsatisfactory professional conduct includes conduct of a lawyer occurring in connection with the practice of law that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer. 1. Section 297 of the Law provides relevantly as follows: 297 Professional misconduct (1) For the purposes of this Law, professional misconduct includes— (a) unsatisfactory professional conduct of a lawyer, where the conduct involves a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence; and (b) conduct of a lawyer whether occurring in connection with the practice of law or occurring otherwise than in connection with the practice of law that would, if established, justify a finding that the lawyer is not a fit and proper person to engage in legal practice. 1. Section 298 of the Law provides relevantly as follows: 298 Conduct capable of constituting unsatisfactory professional conduct or professional misconduct Without limitation, the following conduct is capable of constituting unsatisfactory professional conduct or professional misconduct— (a) conduct consisting of a contravention of this Law, whether or not— (i) the contravention is an offence or punishable by way of a pecuniary penalty order; or (ii) the person has been convicted of an offence in relation to the contravention; or (iii) a pecuniary penalty order has been made against the person under Part 9.7 in relation to the contravention; 1. Section 302 of the Law provides as follows: 302 Determination by designated tribunal—disciplinary matters (1) If, after it has completed a hearing under this Part into the conduct of a respondent lawyer, the designated tribunal finds that the lawyer is guilty of unsatisfactory professional conduct or professional misconduct, the designated tribunal may make any orders that it thinks fit, including any of the orders that a local regulatory authority can make under section 299 in relation to a lawyer and any one or more of the following— (a) an order that the lawyer do or refrain from doing something in connection with the practice of law; ... (l) an order that the lawyer pay a fine of a specified amount not exceeding $100 000 if the lawyer is found guilty of professional misconduct. 1. Section 303 of the Law provides relevantly as follows: 303 Costs (1) The designated tribunal must make orders requiring a lawyer whom it has found guilty of unsatisfactory professional conduct or professional misconduct to pay costs (including costs of the designated local regulatory authority and the complainant), unless the designated tribunal is satisfied that exceptional circumstances exist. Evidence 1. The Applicant provided the following written evidence, all of which was admitted into evidence: 1. Affidavit of Anthony James Lean dated 19 January 2021, together with certain exhibits; 2. Affidavit of Mark Robert Hodges dated 20 January 2021; 3. Affidavit of Ellina Christi dated 20 January 2021; 4. Second Affidavit of Ellina Christi dated 25 January 2021; 5. Affidavit of Gregory William Livermore dated 12 July 2021; 6. Affidavit of Gavin Taylor Connor dated 13 July 2021, together with certain exhibits; 7. Second Affidavit of Anthony James Lean dated 13 July 2021, together with certain exhibits; and 8. Affidavit of James Sofiak dated 13 July 2021. 1. The Respondent provided the following written evidence, all of which was admitted into evidence: 1. Affidavit of Alexander Richard Martin dated 26 May 2021; and 2. Second Affidavit of Alexander Richard Martin dated 14 September 2021. 1. Mr Martin also provided, and was cross-examined on, oral evidence. The Applicant's allegations 1. The Applicant alleges the following: 1. The relevant acts or omissions of the Law Practice occurred between 4 February 2016 and 14 November 2016 (the relevant period). 2. During the relevant period, the Respondent was a solicitor (having been admitted as a lawyer in New South Wales on 20 December 1989) and the sole principal of the Law Practice. 3. The Respondent is thus taken under section 35 of the Law to have contravened certain provisions of the Law by reason of the Law Practice's contraventions of those provisions. 4. At no time during the relevant period did the Law Practice have a trust account. 5. On 3 February 2016, the Respondent had a telephone discussion with Ms Ellina Christi, in which they discussed the possibility of the Law Practice representing Ms Christi and a company which she controlled, Logos Research Pty Limited (Logos), in connection with certain proceedings before the Federal Court of Australia. 6. On 4 February 2016, the Respondent sent to Ms Christi a letter which: 1. Set out an estimate of the Law Practice's costs in acting for Ms Christi and Logos; 2. Indicated that the Law Practice: 1. would accept an immediate part payment of $20,000 (the Deposit) on account of its expected costs; 2. would wait for payment of the balance until the proceeds of sale of a property owned by Ms Christi or Logos; and 3. on receipt of certain specific evidence that the payment had been made of the Deposit, would immediately start work on the matter; and 1. informed Ms Christi of the bank details to which the part-payment should be sent, being the Law Practice's general office account with National Australia Bank (the Office Account). 1. This letter was accompanied by a tax invoice for professional fees in the amount of $20,000. 2. On 4 February 2016: 1. Ms Christi paid the Deposit in accordance with those instructions; and 2. The Law Practice then began work in relation to the Proceedings. 1. This was money entrusted to the Law Practice " ... in the course of or in connection with the provision of legal services by ..." the Law Practice, and thus trust money within the meaning of section 129 of the Law. It was, moreover, "money received by the law practice on account of legal costs in advance of providing the services" and so expressly included under section 129(1)(a) of the Law in the definition of trust money. 2. On 5 February 2016, the Law Practice sent Ms Christi a document headed "Retainer Agreement" in relation to the Proceedings (the Retainer Agreement), which included provisions providing for: 1. the grant by Ms Christi and Logos of an equitable charge over any real property in which she or Logos claimed a legal or equitable interest, to secure fees unpaid to the Law Practice; 2. consent to the Law Practice lodging a caveat over any such real property to protect that equitable charge; and 3. the acceptance of the terms of the Retainer Agreement by means of: 1. signature and return of a copy; 2. giving instructions to the Law Practice to act following receipt of the Retainer Agreement; or 3. oral acceptance of the terms of the Retainer Agreement. The provisions summarised in subparagraphs (a) and (b) are referred to subsequently in these reasons as the "charging and caveat provisions". 1. On 9 March 2016: 1. The Respondent asked Ms Christi to deposit into the Office Account a further $10,000, to cover counsel's fees in relation to the Proceedings; and 2. Ms Christi did so. Subsequently, $6,187.50 of that amount was used to pay counsel's fees. 1. In consequence, at least the balance of that amount, being $3,812.50, was money entrusted to the Law Practice " ... in the course of or in connection with the provision of legal services by ..." the Law Practice, and thus trust money within the meaning of section 129 of the Law. It was required to be deposited into a trust account. 2. Neither of the two amounts of trust money was deposited in a trust account, as required by section 137 of the Law. 3. Moreover, since those amounts were deposited into the Office Account, they were intermixed with money that was not trust money. This was in breach of section 146 of the Law. 4. On or around 20 May 2016, having formed the suspicion that he may not have sent the Retainer Agreement to Ms Christi, the Respondent wrote to her: 1. Claiming that she owed the Law Practice $33,592.48; 2. Enclosing a copy of the Retainer Agreement; and 3. Enclosing a final tax invoice for the Law Practice's costs and disbursements in connection with the Proceedings. 1. At no time did Ms Christi: 1. Pay the claimed amount of $33,592.48; or 2. Communicate to the Respondent that she had received, read, understood or accepted the Retainer Agreement. 1. On or about 14 November 2016, the Respondent caused to be lodged with the South Australian Lands Titles Registration Office the caveats contemplated by the Retainer Agreement over two properties in which Logos or Ms Christi claimed an interest. At that time, the Respondent was of the view that he may not have provided Ms Christi with the Retainer Agreement before 20 May 2016. 2. In doing so, he caused the caveats to be lodged without having a proper basis for doing so. 1. The Applicant further says that the Respondent's conduct in: 1. Breaching section 137 of the Law by failing to cause trust monies to be paid into a trust account (the First Ground); 2. Breaching section 135 of the Law, by dealing with trust money otherwise than in accordance with the Law (the Second Ground); and 3. Causing the two caveats to be lodged without a proper basis for doing so (the Third Ground), amounted to professional misconduct and sought certain orders from the Tribunal in response to it. The Respondent's response 1. In his response dated 15 April 2021 to the application, the Respondent admits: 1. the three grounds alleged by the Applicant in its application (and summarised in [26] of these reasons; and 2. the factual matters alleged by the Applicant in paragraphs 1 to 19 of the Particulars set out in its application and summarised in [25] of these reasons. The Tribunal's consideration of the evidence 1. Putting to one side the Respondent's admissions, the Tribunal is satisfied from the evidence before it that: 1. The sum of $20,000 received by the Law Practice on or about 4 February 2016 was trust money within the meaning of section 129 of the Law, being both: 1. money received by the Law Practice " ... in the course of or in connection with the provision of legal services by ..." the Law Practice; and 2. "money received by the law practice on account of legal costs in advance of providing the services", to which the provisions of section 137 applied; 1. Of the sum of $10,000 received by the Law Practice on or about 9 March 2016: 1. $6,817.50 referrable to counsel's fees may potentially have been characterizable as transit money, as defined in section 128 of the Law, being money received by the Law Practice subject to an instruction that it be paid to a third party, and thus excluded under section 137(b) of the Law from the requirement to be paid into a trust account; but 2. The balance, amounting to $3,812.50, was money entrusted to the Law Practice "... in the course of or in connection with the provision of legal services by ..." the Law Practice, and thus trust money within the meaning of section 129 of the Law to which the provisions of section 137 applied; 1. Neither of those receipts of trust money was credited to a general trust account of the Law Practice; 2. This was a contravention of section 137 of the Law; 3. Rather, those amounts were credited to the Office Account of the Law Practice, and in consequence were mixed with moneys which were not trust moneys; 4. This was a contravention of section 146 of the Law; 5. These two contraventions also constitute contraventions of section 135 of the Law; 6. The Respondent was at all relevant times a solicitor and the sole principal of the Law Practice; 7. The Respondent, as he recognised both in his written and oral evidence, knowingly authorised or permitted these practices; the Tribunal accepts that the Respondent genuinely believed that these practices were in fact not contraventions of the Law; 8. The consequence of the findings in subparagraphs (8) and (9) is that under section 35(1) of the Law the Respondent is also taken as having contravened sections 135, 137 and 146 of the Law; 9. Those contraventions of the Law are capable in accordance with sections 35(2) and 298 of the Law of constituting unsatisfactory professional conduct or professional misconduct by the Respondent, so that the bases for the First Ground and the Second Ground are made out. 1. His clear and unequivocal admissions notwithstanding, the Respondent devoted a significant part of his oral and written evidence to three aspects of matters: 1. The first was an impassioned account of his professional commitment to protecting Ms Christi's financial well-being, and of the professional skill and effort which he deployed in her interests; 2. The second was an account of the eventual tensions which crept into that professional relationship, and of his efforts to afford a measure of protection for the Law Practice's financial interests against what he considered to be an unfair and ungrateful change in attitude by Ms Christi towards the Law Practice and him; this included both an account of the difficulties which he had in satisfying himself (as he eventually did) in mid-2016 that the Retainer Letter had been sent to Ms Christi, and of the process undertaken in placing the caveats; and 3. The third was a lengthy account of his approach towards the use of trust accounts, his reasons for seeking to avoid doing so if at all possible, his belief at the relevant time that the practices undertaken by the Law Practice in relation to the moneys received from Ms Christi were not in breach of the rules concerning the receipt and holding of trust money, and his recollections of certain conversations with staff members of the Applicant on various occasions between 2007 and 2013 concerning the use of trust accounts. 1. As to the Respondent's professional commitment to Ms Christi, the Tribunal doubts neither its sincerity nor its strength at the relevant time. Equally, the Tribunal has no reason to question the disappointment which the Respondent expressed at the cooling, to the point of the present complaint being made, of that professional relationship. 2. Turning to the Respondent's views on trust accounts, several matters emerged from his written and oral evidence: 1. The nature of its practice, being essentially insolvency-related litigation, was not one in which the Law Practice had frequent occasion to receive moneys from or for the account of clients in significant amounts; 2. The Law Practice's receipts tended to be either on account of costs and disbursements, or by way of transit money (as defined in section 128 of the Law), such as receipts of money earmarked for immediate on-payment to counsel, which, even if trust moneys, were under section 137 of the Law not required to be paid into the Law Practice's trust account (if indeed it had one); 3. He had the firm conviction – which, it should be noted, the Applicant disputed vigorously on the basis of the recollections (or what might be described in some instances as the informed surmise) of various staff members set out in certain of the affidavits filed by the Applicant – that in various discussions between him and the Applicant's personnel involved in trust account matters he had been advised that there was no need to credit payments on account of anticipated fees to a trust account where the payment was made on the same day as the relevant invoice was issued; 4. As a matter of principle, he disliked the compliance burden surrounding trust accounts, such as annual audits; 5. He was prepared as a business matter to accept a higher level of bad debts rather than to incur the burden of operating a trust account; and 6. In any event, he protected the Law Practice's commercial interests to a degree by including in its standard engagement letter a form of equitable charge, under which the client charged any real property in which the client claimed an interest in order to secure unpaid fees. 1. The historical debate between the Respondent and the Applicant, over what certain of the Applicant's staff may or may not have said to the Respondent at some point between 2007 and 2013 concerning the trust accounting implications of the simultaneous issue and payment of invoices for future legal fees, appeared to the Tribunal to be something of a distraction in the context of the present matter: 1. The Respondent's evidence on these matters is, with respect, flawed in two respects: 1. First, it is unsupported by any documentation, such as a contemporaneous exchange of correspondence or even a file note which records the discussions; and 2. Secondly, the discussions to which the Respondent refers took place between 14 and 8 years ago, which allows ample time for memories to be dulled or inadvertently coloured by hindsight or both. 1. In any event, even despite these difficulties with the Respondent's recollections, what is in issue here is not the terms of sporadic discussions between the Respondent and staff members of the Applicant at various times between 2007 and 2013, but rather the Law Practice's (and the Respondent's) compliance with the Law as it stood in 2016. The Law commenced on 1 July 2015, and so was in operation at the time of the Law Practice's and the Respondent's dealings with Ms Christi. The provisions of Section 129 of the Law are unambiguous: money entrusted to a law practice "... in the course of or in connection with the provision of legal services by ..." the practice, including specifically "money received by the law practice on account of legal costs in advance of providing the services", is trust money for the purposes of the Law. 2. The tax invoice for $20,000 issued by the Law Practice to Ms Christi and Logos on 4 February 2016 identifies the services to which it relates as being "... our estimated professional costs of and incidental to acting for you in relation to the abovementioned Federal Court of Australia proceedings, full details of which will be provided in due course". 3. The Law Practice's letter of 4 February 2016 makes it clear that no work had been undertaken by the Law Practice on the matter at that time: "Please send to me a copy of the deposit slip by email, so that I can see that your deposit has been made. On the assumption that you will make this deposit into my account today, I will immediately commence the work that needs to be done for you, including briefing counsel on your behalf". 4. The only reasonable interpretation to be placed on the plain words of this correspondence is that on 4 February 2016 the Law Practice had done no work for Ms Christi. It was, however, prepared to commence work if it received the sum of $20,000 in advance part-payment of legal fees. The inescapable conclusion is that the payment of $20,000 was not only money entrusted in the course of or in connection with the provision of legal services by the Law Practice, but also "money received by the law practice on account of legal costs in advance of providing the services". On either basis, it was trust money which was required to be dealt with in accordance with section 137 of the Law. 1. These reasons now turn to the issues relevant to the Third Ground: 1. The Applicant says in its submissions that the Respondent did not have a proper basis to lodge the caveats since: 1. He only thought that Ms Christi had not been provided with the Retainer Agreement containing the charging and caveat clause before the issue of the 20 May 2016 invoice; 2. Alternatively, he did not know that Ms Christi had been provided with the Retainer Agreement before the issue of the 20 May 2016 invoice; and 3. At no time did he explain to Ms Christi the significance of the charging and caveat clause or suggest that she seek legal advice in relation to it. 1. The Applicant further says that for a solicitor to lodge a caveat against land owned by a client without a proper basis for doing so amounts to professional misconduct. It refers to the Tribunal's decision in Law Society of New South Wales v Manolakos [2018] NSWCATOD 54 in support of this proposition. 2. Although the Respondent admitted the elements of the Third Ground in his Reply dated 15 April 2021, he appeared to resile from this, to some degree at least, in the oral evidence which he gave at the hearing. He said that on or about 20 May 2016 he had been unable to find in the Law Practice's records any record of the Retainer Agreement having been sent to Ms Christi in February of that year, although he had a strong recollection of doing so. To err on the side of safety, he sent her a further copy when he sent the final tax invoice on 20 May 2016. However, when the caveats were lodged, he was reasonably satisfied that Ms Christi had received the Retainer Agreement (including the charging and caveat clause) by the time the Law Practice commenced work on her affairs in early February 2016. He therefore believed when he caused the caveats to be lodged that the Law Practice had a caveatable interest in the relevant properties, under an equitable charge created by Ms Christi's acceptance through conduct of the terms of the Retainer Agreement. Further investigations revealed that the Retainer Agreement had in fact been sent to Ms Christi in early February 2016, not from the Law Practice's email system but rather from another email system operated by his wife, vindicating his recollection of matters when the caveats were lodged. 1. The Tribunal did not find the approach of either the Applicant or the Respondent in relation to the Third Ground particularly satisfying: 1. The decision in Law Society of New South Wales v Manolakos was not immediately helpful. This is because it concerns a solicitor who lodged a caveat over a client's land in circumstances where the solicitor was merely owed an unsecured debt for fees by the client and did not have any identifiable legal or equitable interest in the land concerned (such as a mortgage or charge to secure unpaid fees) to support the caveat. The solicitor in that case appears to have incorrectly considered the caveat as constituting, rather than merely supplementing, a security interest. This is distinguishable from the present situation, since: 1. the Retainer Agreement contained the charging and caveat clause which purported to create security over the land in favour of the Law Practice; and 2. the Respondent thus had a basis, subject to the qualifications below, for believing that the Law Practice did in fact have such a caveatable interest. 1. Underlying the parties' respective positions on the Third Ground appeared to be the assumption that, if: 1. the Retainer Agreement had been received by Ms Christi on or about 4 February 2016; and 2. she had acted (as she did) in one of the two ways set out in [25(10)(c)(ii) and (iii)] above, that was sufficient not only to bind her and Logos contractually under the Retainer Agreement, but also to create the charge contemplated by the charging and caveat clause. This assumption, however, takes no account of section 29(1)(a) of the Law of Property Act 1936 (SA), the South Australian equivalent of section 23C(1)(a) of the Conveyancing Act 1919 (NSW). That section provides, subject to certain exceptions, that: ... no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorised in writing ... 1. If Ms Christi had signed and returned a copy of the Retainer Agreement as contemplated in [25(10)(c)(i)] above, the statutory condition might well have been satisfied. There is, however, no evidence that she did so. Hence there is a fundamental issue, which neither party addressed, that even if Ms Christi did receive the Retainer Agreement in February 2016, her apparent failure to sign and return a copy of it to the Law Practice seemingly had the consequence that, whatever the contractual relationship between her and the Law Practice, the statutory precondition - namely writing signed by or on behalf of Ms Christi and Logos - to the creation of the proprietary interest contemplated by the charging and caveat clause was not satisfied. If so, it follows that the Law Practice did not have a caveatable interest. 2. There is, moreover, a third issue concerning the charging and caveat clause, which was alluded to briefly by the Applicant in its submissions and formed the subject of written submissions provided at the Tribunal's request by both parties after the hearing. This is whether the circumstances in which the Law Practice sought to obtain the charge gave rise to a breach of the fiduciary duty owed by the Law Practice and the Respondent, as solicitor, to Ms Christi and Logos, as clients. 3. The issue has been considered in several relatively recent cases by the Supreme Court of New South Wales: 1. In MJ Leonard Pty Ltd v Bristol Custodians Limited (in liquidation) [2013] NSWSC 1734, Windeyer AJ considered a charging clause in a solicitor's costs agreement, under which the client was expressed to charge certain land with the payment of the solicitor's costs. The actual dispute concerned certain caveats registered by the solicitor in support of that charge. His Honour observed as follows: "[51] It is presumed that a solicitor is in such a position of ascendancy over his client that there will be undue influence exerted by the former over the latter. That presumption, of course, may be rebutted by the solicitor. It is easier to rebut when a corporate client is involved... [52] There is a clear conflict of interest here as between the solicitors and their clients. At the very least informed consent of the client to the charges was required. [53] Has the plaintiff breached the fiduciary duties it undoubtedly owes to the defendant? The plaintiff obtained a benefit from the defendants by their agreement to grant equitable charges over all land and personal property owned by them. It was submitted that this was far in excess of anything that was or is necessary to secure the fees alleged to be owing. There is no evidence of the land's value nor the defendants' equity therein, so I cannot evaluate that submission's accuracy. However, the defendants certainly could not have given a more extensive or comprehensive security than that which they did give. This called for explanation. The plaintiff obtained this benefit without explaining to the defendants the consequences such an equitable charge would have. The solicitor's interests are in direct conflict with those of his clients. It is enough to cite the decision of the House of Lords in Boardman v Phipps [1967] 2 AC 46 to show the consequences such a conflict will have and the strictness which equity applies to fiduciary relationships. The solicitor cannot benefit at his client's expense. [54] I would not consider knowing consent could be obtained by sending such an agreement by email or by post and asking the client to read it carefully. This statement refers only to [CLIENT] and not to the company. The charge it protected by caveat could prevent any further mortgage loans being obtained. The caveat could be entered whether or not any costs were outstanding as the charge comes into existence upon acceptance of the offer which is embodied in the costs agreements. Unless advised [CLIENT] would not necessarily know that an application could be made to the court to enforce the charge by judicial sale of the land, or for that matter of his motor car or trousers, or that if the charge were enforced an application could be made for the appointment of trustees for sale to the prejudice of members of his family." 1. In that case, His Honour also commented at [61] on the method in which such security should be taken, commenting adversely on the practice of including provisions of this kind in costs agreements such as the Retainer Agreement: "[61] .... Security, if taken, should be by separate document making the position quite clear. The purpose of costs agreements is to set out the work to be done and the basis of charging. In most cases no more should be required. If it is, and there are clearly cases where more is required, then a separate document is desirable." 1. Parker J considered similar issues in Malouf v Constantinou [2017] NSWSC 923 and GLGC Pty Limited v Zhang [2021] NSWSC 946, and in both cases adopted an approach consistent with that in MJ Leonard Pty Ltd v Bristol Custodians Limited (in liquidation). In the earlier case, His Honour at [177], referring to MJ Leonard Pty Ltd v Bristol Custodians Limited (in liquidation), commented on the appropriate form of security documentation: "I respectfully agree with his Honour that it is inappropriate for a solicitor to take security by means of a clause in a costs agreement and that if security is to be taken it should be by separate document, so that the client has a clear opportunity to understand the separate nature of the security obligations." 1. In GLGC Pty Limited v Zhang, His Honour went some way at [139] towards defining the dimensions of a solicitor's duty in such circumstances: "[139] A solicitor's duty in the case of a conflict is not a duty to refer the client to an independent solicitor as such. The duty is not to act without fully informed consent. Suggesting that the client take independent advice may be relevant to whether fully informed consent has been obtained, but it is not the same thing. If all the solicitor does is tell the client that independent advice can be obtained, without explaining the reasons why the solicitor's conflict may prejudice the client, the client's consent is unlikely to be fully informed: see Malouf v Constantinou [2017] NSWSC 923 at [103]-[104]. By the same token, it is possible in theory to give a sufficient explanation of the conflict and obtain appropriate consent without expressly recommending that the client obtain independent advice." (Emphasis added.) 1. What is apparent from this is that the Third Ground (or, more precisely, the wider circumstances underlying it) presents quite complex issues which neither the Applicant nor the Respondent explored fully, at either a conceptual or evidentiary level. Accordingly, the Tribunal was disinclined to make any findings concerning the Third Ground. 2. In view of the Tribunal's findings on the First and Second Grounds, however, nothing practically turns on this. Disciplinary findings 1. In order: 1. To mark the Tribunal's disapproval of the Respondent's conduct; 2. To identify appropriate professional standards, with a view to protecting the public; and 3. To deter future departures from appropriate professional standards, the Applicant urged the Tribunal to make a finding that the Respondent had engaged in professional misconduct, reprimand the Respondent and impose a fine. 1. It is axiomatic and uncontroversial that the proper handling of clients' money is an essential part of the solicitor's professional responsibilities, and one of the fundamental expectations which the public has of the profession. The provisions of the Law concerning trust money are a sophisticated set of rules designed both to articulate those responsibilities and to provide a clear pathway for meeting them. Any departure by a solicitor from compliance with those provisions will fall short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer, and accordingly constitute unsatisfactory professional conduct by the solicitor within the meaning of section 296 of the Law. 2. Moreover, so central is the proper handling of client money to the solicitor/client relationship that any departure by a solicitor from compliance with the provisions of the Law concerning trust money will typically be unsatisfactory professional conduct which involves "a substantial .... failure to reach or maintain a reasonable standard of competence and diligence" (emphasis added), thus amounting to professional misconduct within the meaning of section 297(1) of the Law. 3. The provisions of section 298 of the Law, that "... conduct consisting of a contravention of this Law..." is capable of constituting unsatisfactory professional conduct or professional misconduct merely reinforce these conclusions. 4. Further, it is well established that the common law concept of professional misconduct applies in New South Wales to legal practitioners: Prothonotary of the Supreme Court of New South Wales v McCaffrey [2004] NSWCA 470, Council of the New South Wales Bar Association v Sahade [2007] NSWCA 145 and Council of the New South Wales Bar Association v Costigan [2013] NSWCA 407. This concept was found in Allinson v General Council of Medical Education and Registration [1894] 1 QB 750 to be conduct in the pursuit of professional activities that would reasonably be regarded as disgraceful or dishonourable by professional colleagues of good repute and competency. 5. The Tribunal is satisfied that the Respondent's conduct in causing or permitting the Law Practice to deal as it did with Ms Christi's money, in breach of sections 135, 137 and 146 of the Law, was both: 1. professional misconduct within the meaning of section 297(1) of the Law, because it was both: 1. conduct which failed to reach the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer; and 2. a substantial failure to reach or maintain a reasonable standard of competence and diligence; and 1. professional misconduct in the common law sense, since the Respondent's failure to ensure that the Law Practice complied with the clear obligations in relation to trust money imposed by those sections was conduct: 1. entered into in the pursuit of professional activities; and 2. that would reasonably be regarded as disgraceful or dishonourable by professional colleagues of good repute and competency, having regard to the centrality of the proper handling of client money in maintaining public confidence in the profession. 1. The Tribunal notes, however, the Respondent's previous good record, his cooperation with the Applicant in investigating the complaints, his various admissions, his apologies for his conduct and his ready acceptance that henceforth the Law Practice must handle client funds in strict compliance with the Law. It has kept these considerations in mind in reaching its decision. 2. The Tribunal has decided to reprimand the Respondent for this conduct, in order both to mark its disapproval and to underline the professional standards which it, the public and the profession as a whole expect of solicitors. 3. The Respondent's failure to comply with the Law's requirements concerning the handling of trust money is a serious departure from those professional standards, and in order to emphasise the unacceptability of such departures the Tribunal has decided to require the Respondent to pay a fine of $5,000. In doing so, the Tribunal notes that this amount is generally consistent with the approach adopted by it in its decisions in Council of the Law Society of New South Wales v Koops [2021] NSWCATOD 38, Council of the Law Society of New South Wales v Gurusamy [2019] NSWCATOD 89 and Council of the Law Society of New South Wales v Thadsanamorthy [2019] NSWCATOD 96. 4. Since, as he told the Tribunal during his oral evidence, the Respondent intends to continue in practice, an order directed at further developing his familiarity with (and practice management skills relevant to) the handling of trust money is in the Tribunal's view appropriate to better protect the public. Accordingly, the Tribunal has decided to order that he attend an appropriate practice management course. 5. As to costs, section 303 of the Law requires the Tribunal to make a costs order against the Respondent in the absence of exceptional circumstances. There was no suggestion, either on the Respondent's part or that of the Applicant, of any relevant exceptional circumstances, nor can the Tribunal itself identify any. Accordingly, the Tribunal has no alternative but to make a costs order against the Respondent. Orders 1. The Tribunal orders as follows: 1. The Respondent is found guilty of professional misconduct. 2. The Respondent is reprimanded for professional misconduct. 3. The Respondent shall pay a fine of $5,000. 4. The Respondent must by 31 December 2022 (the Relevant Date) undertake further professional education in accordance with the following terms: 1. The Respondent must undertake, complete and pass at his own expense an appropriate practice management course (the Course) as approved by the Director, Legal Regulation, of the Law Society of New South Wales (the Director) and achieve a pass mark of at least 65% in that Course, 2. The Respondent shall ensure that, no later than seven (7) days after receipt of notification of the result of his participation in the Course, evidence of that result is provided to the Director. 1. If the Respondent fails to comply with order (4) by the Relevant Date, his practising certificate for: 1. The 12 months beginning on 1 July 2023 and ending on 30 June 2024, and 2. Each subsequent 12-month period, until he complies with that order, is to be issued on terms that he may not practise as the principal of a legal practice. 1. The Respondent shall pay the costs of the Applicant as agreed or assessed. ********** I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 01 December 2021