CAMPBELL JOHN WALLIS v THE LAW SOCIETY OF NEW SOUTH WALES SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY, HOPE and CLARKE JJA 18 October 1988, 8 November 1988 [1988] NSWCA 165 Legal Practitioners — Solicitor — Appeal against order that he be struck from roll — Professional misconduct admitted — Determination of Order to be made — Practice of "kiting" in Trust Account — Consideration to be given to material and emotional pressures upon solicitors — Appeal dismissed with costs. Mahoney JA As the result, as the court is informed, of a routine inspection ofMr Wallis's accounts, he was cited before the Solicitors Statutory Committee to answer a number of charges of professional misconduct occurring over a period of some sixteen months between 10 May 1984 and 30 September 1985. The charges are particularised in the Statement of the Findings of the Statutory Committee. On 15 July 1987 the Statutory Committee found the charges established and ordered that Mr Wallis be removed from the Roll of Solicitors. He has appealed to this Court against that order. Before the Statutory Committee and before this Court, the charges were divided into four groups. Those dealing with the trust account records of the solicitor and his financial dealing as recorded in the trust account; the breach of his fiduciary duty to Mrs Lynne Pursley; unauthorised delegation of authority to operate upon his trust account; and his false certification, in his applications for renewal of practising certificates in the years 1984, 1985 and 1986, that he had complied with the relevant sections of the Legal Practitioners Act and had not borrowed from his clients in contravention of the Law Society's Special Bulletin No 2 of 1979. In order to understand the findings made by the Statutory Committee and the nature of the case presented by Mr Wallis to this Court, it is necessary to refer, in outline, to the charges and the particulars given in respect of them. The charges were set forth in the following form: 1. The solicitor in the circumstances described in the reports wilfully failed to comply with the provisions of s41(1) of the Legal Practitioners Act 1898 (as amended). Particulars: (a) The solicitor withdrew money from his trust account without notice to his clients and without their authority, in purported satisfaction of costs and disbursements in respect of which he had rendered no account to his clients." (There were then particularised matters relating to twenty eight incidents or groups of incidents affecting a substantial number of clients.) (b) In the matter of Steve Blodorn (SGBR1 Pg 34 Appendix 69) the solicitor withdrew money from his trust account in excess of the amount claimed in the memorandum of disbursements rendered to the client. (c) The solicitor drew cheques on his trust account and deposited them to his general account when, to his knowledge, the clients' ledger 2 UNREPORTED JUDGMENTS accounts, on which the cheques were purportedly drawn, held insufficient funds and, as a result a shortage was created in the funds held by the solicitor for his trust account clients. Matter Report Reference $ (i) SJ Blodorn (SGBR1 Pg 33 Appendix 68 2200.00 11.4.86 and SGBRI1 Pg 34% Appendix 69) 1721.25 18.4.85 (ii) DJ Thompson (SGBR1 Pg 51 Appendix 100) 700.00 29.3.85 (iii) Particulars in paragraph (a)(i)-(ix) inclusive and (xi)-(xvix) inclusive are repeated. (d) The solicitor drew cheque on his trust account purportedly in payment of disbursements he had incurred on behalf of clients when the trust ledger accounts upon which the said cheques were drawn held insufficient funds and as a result a shortage was created in the funds held by the solicitor for his trust account clients. (The charge then specified eight clients and matters relating to them). (e) The solicitor drew cheques in favour of trust clients or on their behalf on his trust account purporting to be their entitlement for the balance of their funds but in doing so created a shortage in the funds held by the solicitor for his trust clients. Matter Report Reference (i) Curach, MJ and DE (SGBRI1 Pg 37 Appendix 73) (ii) Vassallo, Monica (SGBRI1 Pg 53 Appendix 103) (ii) Damson Pty Ltd to Martin SGBRI1 pg 53 Appendix 103) (f) Particulars to questions 3 and 4 are repeated. 2. The solicitor in the circumstances described in the reports wilfully failed to comply with the provisions of s42(2) of the Legal Practitioners Act 1898 (as amended). Particulars: (a) Cheques drawn by the solicitor on the Campbell J Wallis General Account were paid to the trust account purportedly in reimbursement of shortages in the trust account which cheques were entered in the trust ledger as at the date of drawing but which were not credited to the trust account until some time later (SGBR1 pp 58-61). (b) The solicitor failed to give adequate and proper narration in his accounts. (SGBR2, pp 133-137). (c) The solicitor failed to post entries to his accounts in chronological order or posted entries late to the said accounts. (The charges then particularised eight clients and matters relating to them). (d) Particulars to questions 3 and 4 are repeated. 3. The solicitor wrongfully intermingled the financial affairs of companies or partnerships in which he had a personal interest with the financial affairs of his clients. Particulars: (The charges then particularised matters relating to an "Alfred Street Partnership" and "Symis Pty Ltd" and details of matters in relation to each of them). 4. Without the knowledge or authority of his clients the solicitor applied trust clients' funds to the use of other trust clients. Particulars: WRAMPBELL JOHN WALLIS v THE LAW SOCIETY OF NEW SOUTH WALES (Mahone$ JA) (The charges then particularised matters relating to a number of clients and matters relating to them). 5. The solicitor wrongfully intermingled his own financial affairs with those of his clients. Particulars: (a) The solicitor conducted an account for his own personal financial affairs in his trust account styled 'CJ Wallis Miscellaneous'. From time to time the solicitor transferred funds to and from this account without identifying their purpose and between 9 April 1985 and 19 April 1985 the account went into debit in an amount of $1879.44 increasing to $5449.44 (SGBRI p 63 Appendix 127). 6. Whether between November 1982 and January 1985 the solicitor in breach of his fiduciary duty to his client Lynne Pursley (Pursley) caused or permitted Vimstall Pty Ltd (Vimstall) a company in which he had a beneficial interest to borrow $40,000.00 from his client Pursley in circumstances where he preferred his own interests and the interests of the company Vimstall to those of his client Pursley in that he failed to ensure that she was independently advised, failed to disclose fully his financial position and failed to adequately secure the repayment of the loan. Particulars: (a) In or about 14 January 1983 Pursley advanced $40,000.00 to Vimstall. The advance was secured by: (i) Agreement dated 11 January 1983 between Pursley (as lender) Vimstall (as borrower) and the solicitor, Mark John Curach (Curach) and Norman Clifford Boyle (Boyle) (as guarantors) whereby Pursley agreed to advance $40,000.00 to Vimstall upon certain terms and the guarantors agreed to guarantee Vimstall's obligations under the agreement. (ii) A third unregistered mortgage between the solicitor and Elaine Elvira Wallis (as mortgagors) and Pursley (as mortgagee) dated 11 January 1983 over the land in Certificate of Title Volume 5612 Folio 101 which was protected by Caveat No T440017 which was registered on 22 February 1983. (iii) A second unregistered mortgage between Curach (as mortgagor) and Pursley (as mortgagee) dated 11 January 1983 over the land in Certificate of Title Volume 5602 Folios 185 and 186 (now Certificate of Title Volume 14376 Folio 56) which was protected by Caveat No T440018 which was registered on 14 March 1983. (iv) A second unregistered mortgage between Boyle (as mortgagor) and Pursley (as mortgagee) dated 11 January 1983 over the land in Certificate of Title Volume 12360 Folio 111 which was protected by Caveat No T440016 which was registered on 25 February 1983. (b) In or about September 1983 and at her request Pursley was paid $20,000.00 in reduction of the advance and the solicitor delayed in adequately documenting or failed to adequately document the transaction. (c) In or about November 1983 the solicitor induced Pursley to execute a Withdrawal of Caveat Registered No T440018 on the basis that Curach had transferred his interests in Vimstall to Stephen Wall (Wall) and the solicitor failed to obtain any substitute security therefor. (d) In or about November 1983 the solicitor advised Pursley that the solicitor and Boyle wished to refinance their properties over which Pursley's loan was secured and induced Pursley to execute Withdrawals of Caveats Registered Numbers T440017 and T440016 by representing to her that the refinancing would not affect her security whereas in the case of the solicitor the solicitor's 4 UNREPORTED JUDGMENTS indebtedness to Westpac Banking Corporation, the proprietor of the first and second registered mortgages over the solicitor's property, was substantially increased by the refinancing without Pursley's knowledge or authority. 7. The solicitor delegated his authority to operate his trust account to unauthorised persons (SGBR1 p 661.) 8. The solicitor falsely certified in his practising certificate applications for the years ending 30 June 1984, 30 June 1985 and 30 June 1986 that he had complied with the requirements of s41 and s42 of the Legal Practitioners Act 1898 (as amended). 9. If the answer to all or any of the above questions is in the affirmative the solicitor has been guilty of professional misconduct. 10. The solicitor for any reason on the facts before the Committee has been guilty of professional misconduct. Before this Court the solicitor challenged, and challenged only, the findings of the Statutory Committee in respect of the following parts of the charges made, namely, 1(a), 1(f), 2(a), 2(d), 3(a), 3(b), 4 and S(a). In relation to the other matters, the correctness of the charges was accepted but the contention was that what was done did not warrant that he be removed from the Roll of Solicitors. At the hearing before the Statutory Committee, the evidence consisted partly of oral evidence and partly of documents. That evidence has been accepted as the evidence before this Court and the appeal has proceeded accordingly. Before the Statutory Committee, the solicitor himself gave evidence. He represented himself and did not cross-examine any of the witnesses. Before this Court, Mr Wallis was represented by Mr McIlwaine and Mr Laughton. Mr Mcllwaine has taken the court to the more important of the findings of the Statutory Committee which are challenged by Mr Wallis. He submitted, inter alia, that those findings are either incorrect or put the matter too strongly against Mr Wallis. He submitted, for example, that the findings made in respect of par I(a) of the charges were, in some respects at least, incorrect and that, when the solicitor withdrew money from his trust account, he had the authority of the relevant client to do what he did. And, in relation to charge 6, he submitted that, while it was not contested that there had been a breach of fiduciary duty in relation to Mrs Pursley, the breach was not as serious as the Statutory Committee found. In respect of some of the matters to which Mr McIlwaine took the court, there is, or may be, substance. In respect of others there is, in my opinion, no qualification to be made to what the Statutory Committee found. However, it is not necessary for the court to deal in detail with these matters. In my opinion, the matters in respect of which there is no contest show that Mr Wallis is not a fit and proper person to be a solicitor. It is sufficient to go to the matters referred to in para 1(c) of the charges. The solicitor, in relation to these matters, has conceded that he drew cheques on his trust account when "to his knowledge" the accounts held insufficient funds and as a result "a shortage was created in the funds held by the solicitor for" his other trust account clients. This charge related to a large number of cases which occurred during the period of sixteen months to which I have referred. Two features of what were done may be referred to. First, what the solicitor did, he did knowingly. This involves that he knowingly misused the moneys of clients held in his trust account on a number of occasions during the relevant period. There was, in my opinion, no satisfactory explanation for what he did. Mr Wallis suggested that he had an authority from the clients in question to draw \WRAMPBELL JOHN WALLIS v THE LAW SOCIETY OF NEW SOUTH WALES (Mahoney JA) relevant moneys from the amounts held for them in the trust account. No written evidence of such an authority was given in respect of any client. In respect of his main client, Mr Thompson, oral evidence was given that Mr Wallis and Mr Thompson were very close friends and that, since early 1980, Mr Wallis had had "general instructions" from Mr Thompson, acting for the companies in the "DJ Thompson group" "to deal with trust funds held for any of those companies as required by the group". The Statutory Committee did not accept that the various companies and entities involved had properly given authority in general terms to Mr Wallis enabling him to transfer funds amongst their respective accounts at his discretion but it accepted, I think, the evidence of Mr Thompson that he was aware of the solicitor's practice regarding the transfer of funds in relation to those entities and that he, Mr Thompson, acquiesced in the practice. No other evidence was produced from clients to suggest that Mr Wallis had such an authority from them. But in any event, no authority of that kind could authorise Mr Wallis to draw from his trust account in respect of a particular client more money than was held in the account in respect of that client. To do that was to draw moneys held for other clients. Mr Wallis sought to justify, or at least explain, what he did by the statement that there were available in respect of relevant clients moneys held in other accounts which could and should have been transferred from those accounts to the trust account and that, if those transfers had been made, the amounts that he had drawn would not have exceeded the amounts available to be drawn. In my opinion, these submissions should not be accepted. What is suggested does not justify what Mr Wallis did. Two examples were taken by the Statutory Committee, the matter of Connell and Winkworth, and the matter of SJ Blodorn. In respect of the Connell and Winkworth matter, it is accepted that the Trust Ledger disclosed a debit balance of $1699 on 7 March 1985 which was increased to $2024 on 15 March 1985. On 7 March 1985, a trust account cheque made payable to CJ Wallis General Account No 2 was drawn for $1900 resulting in a debit balance of $1699 on that date. A further trust account cheque was drawn on 15 March 1985 also payable to CJ Wallis General Account No 2 for $325 and that increased the debit balance to $2024 as at that date. The debit balance was eliminated in the trust ledger on 29 March 1985 when a notation was made that $2024 was credited to this client's account by way of a Cash Receipts entry recording a cheque drawn on the CJ Wallis General Account No 2. However, that amount was not deposited in the trust bank account until 2 April 1985. Accordingly, the client's account in the trust account was overdrawn by $1699 for eight days and $2024 for eighteen days. Mr Wallis contended that he should not have reimbursed the trust account in this way from his general account but should have "transferred the funds from the client's other funds in the Trust Ledger Account C50". However, no evidence was produced from the client authorising such a transfer. The significance of what was done may, I think, be understood in the light of, as it was described, the practice of "kiting" to which I shall refer. Detailed evidence was given in relation to transactions involving Mr SJ Blodorn. The conclusions of the Statutory Committee were stated as follows: His apparent indifference to the situation and his blatant disregard of his obligations was illustrated by the trust ledger account of Mr S Blodorn to which the particulars in the Schedule under para 1(b) and (c) were directed. On 18 April 1985 the Solicitor drew a cheque for $1721.25 against that account on account of costs and disbursements. The 6 UNREPORTED JUDGMENTS Solicitor's fees account for costs and disbursements in the client's file did not agree with this amount. Quite apart from that matter at the time the cheque was drawn there were no funds in the client's trust ledger account. In consequence the drawing of the cheque created a debit balance of $1721.25 in that account. The debit balance was eliminated in the trust account ledger on 31 May 1985 when the sum of $1721.25 was credited to the client's account by way of a cash receipts entry recording a cheque drawn on the CJ Wallis General Account No 2. However, this amount was not deposited to the trust bank account until 11 June 1985. Accordingly, the client's account was overdrawn by $1721.25 for fifty six (56) days. The Committee asked the Solicitor for his explanation for drawing the trust account cheque against Mr Blodorn's trust ledger account when it had a nil balance; Q. What do you say about that, What explanation do you give the Committee for that occurrence; for the debit that occurred? A. Ido recall on that particular occasion my secretary indicated to me that funds were due in from Mrs Blodorn on that day. I believed that those funds had come in, and, in anticipation of those funds coming in had signed the cheque by way of transfer of costs and disbursements. (T 60.8) The Committee canvassed that explanation with the Solicitor (T 61) in the course of which it became apparent that when his secretary indicated that funds 'were due in from Mrs Blodorn on that day' the funds had not been brought in, the Solicitor made no enquiry to determine whether the funds came in that day before drawing the cheque and the Solicitor did not become aware of the deficiency until 'the end of April' when he 'knew something was wrong with the trust account' (T 61.5). He did not correct the situation until 31 May 1985 because he 'did not know the exact state of the trust account' until then. At that point of his evidence it became apparent, and the Solicitor conceded, that the anticipated payment in by Mrs Blodorn related to another account, namely the trust ledger account of Mr and Mrs Blodorn (168). The Solicitor was given an opportunity to consider the matter overnight and, having done so, had his attention again directed to the account of Mr Steve Blodorn (169). In respect of that matter the following ensued: Mr Gullotta: Mr Wallis, at the close of proceedings yesterday we were looking at page 69 of the Reference which was a trust ledger in relation to a Mr Blodorn's account. A. I have had the opportunity of looking at the matter overnight. I cannot cast any further light upon that topic. I do recall it was an instance where I had directed my girl to make a drawing for costs and disbursements. I do recall there was confusion over the amount of those costs. There was also confusion over the receipt of the moneys from the client. I am really unable to be more precise than that. (T 66.5). Evidence was given and accepted by the Statutory Committee that Mr Wallis had engaged in the practice of "kiting". This practice was described by Mr Lord, a chartered accountant and a partner in the firm of Duesbury's which had been appointed receiver in respect of Mr Wallis's trust account. Over-simplified, the practice involved; that cheques were drawn from accounts in the trust account during the course of a month; that the amounts involved were used by the solicitor; that cheques were drawn on, eg, the solicitor's general account subsequently in respect of those amounts; that the trust account was shown as having received those cheques before the end of the relevant month so that, at the end of the month, there was no deficiency in it; and that the cheques were not in fact deposited in the trust account until some time later. The result of the practice was, as Mr Lord described it in evidence, "the advancement of a loan". Mr Lord said, "Funds were withdrawn from the trust account and were used by the solicitor in his general account, and subsequently reimbursed in the following WRAMPBELL JOHN WALLIS v THE LAW SOCIETY OF NEW SOUTH WALES (Mahoney JA) month; but the records were showing it was corrected in the month those funds were taken. It was in actual fact the taking of costs and disbursements in advance." Mr Wallis did not cross-examine Mr Lord in respect of any matter. The appeal has proceeded on the basis that the facts as outlined by Mr Lord are correct. However, in his final submissions, made in writing to the Statutory Committee, while submitting that the events which Mr Lord had referred to had occurred, Mr Wallis denied that what had taken place had taken place "deliberately". In those submissions, which have been placed before this Court, Mr Wallis said, There is no doubt that 'kiting' as indicated in the submission of the Society has occurred but I deny most emphatically that it was deliberate. I rely on the evidence before the Committee relating to the state of my staff at the time that the shortfalls in my trust account occurred and I believe that it was these problems which caused the shortfalls and not as a result of any deliberate act on my part. The combination of a very heavy workload and the consequent lack of time spent by me in properly supervising the trust accounts as well as the lack of experience of my staff combined in my submission to bring about the problem. Once again I say that there was no deliberate attempt to take funds from the trust account to which I was not entitled. The Statutory Committee, having heard Mr Lord and Mr Wallis, expressed itself as satisfied that his actions in "kiting" "were clearly deliberate". Mr McIlwaine, in his submissions, did not deal with the matter in any way which, I think, is significantly different from that put by Mr Wallis in his submissions. Ihave taken into account what was said by Mr Wallis in this regard before the Statutory Committee. I am conscious that the conclusion that Mr Wallis followed the practice of "kiting" depends upon the inference to be drawn from the facts as found. Giving full weight to the explanation of those facts as offered by Mr Wallis, and bearing in mind the need to be appropriately satisfied in respect of such a matter, I have come to the conclusion that the reason why the trust account was drawn upon as it was was, in general, that suggested by Mr Lord and not that suggested by Mr Wallis. I do not accept that what was suggested by Mr Wallis explains why the moneys were withdrawn and replaced in the trust account and the entries made as the evidence disclosed. I am satisfied, on the basis of the matters to which I have referred, that Mr Wallis's appeal should fail. If he did these things, he is not a fit and proper person to practice as a solicitor. Mr MclIlwaine submitted that what he had done, though wrong, did not indicate that, for the protection of the public, it was necessary that Mr Wallis be removed from the Roll of Solicitors. He submitted that the protection of the public requires only that appropriate conditions be imposed upon his further practice of his profession. And he urged that what had been done had been done under the pressure of a busy conveyancing and commercial practice. I am not unappreciative of the difficulties, material and emotional, with which a solicitor may be faced. The court has on other occasions referred to the pressures under which legal practitioners are sometimes required to work. The inference as to their professional fitness to practice which is to be drawn from what they have done is to be drawn after taking such matters into account. It is proper to take into account the other matters to which Mr McIlwaine has referred, such as, for example, that there was no actual defalcation and that no client lost money by what was done. 8 UNREPORTED JUDGMENTS However, in my opinion, the way in which Mr Wallis acted in relation to the moneys held by him for clients during the period in question constituted serious professional misconduct. He used clients' money for his own purposes and did it on a number of occasions. He did it "knowingly". What he did could have no justification in law. And the explanation which he advanced is not acceptable. I do not think that the public can be adequately protected merely by the imposition of conditions. It is proper that his name be removed from the Roll of Solicitors. The appeal should be dismissed with costs. Counsel for the Appellant: Mr RS McIlwaine and Mr GA Laughton Solicitors for the Appellant: Robert L Ferry Counsel for the Respondent: Mr SP Gullotta Solicitors for the Respondent: Ms Rosemary MacDougal