NASH v THE LAW SOCIETY OF NEW SOUTH WALES SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL Hope, SAMUELS and CLARKE JJA 11 August 1988, 30 August 1988 [1988] NSWCA 100 Legal Practitioners — Statutory Committee — application for readmission by a solicitor struck off for misconduct defaults due partly to mental instability evidence of good character — up-to-date medical evidence that mental instability controlled by treatment — conclusion that solicitor should be restored to the roll on a basis which would limit him to practicing as an employed solicitor. Hope JA I agree with Clarke JA. Samuels JA I agree with Clarke JA. Clarke JA Alexander Nash (the plaintiff) whose name was removed from the Roll of Solicitors of the Supreme Court of New South Wales by order of the Solicitors' Statutory Committee on 13 August 1981 has applied to the Court to have his name restored to the Roll. The principles which should guide the Court in determining whether the plaintiff's name should be restored to the Roll are well established. They require the solicitor to establish that he is again a fit and proper person to be admitted as a solicitor and to demonstrate that proposition upon solid and substantial grounds. (Kotowicz v Law Society of NSW, NSW Court of Appeal, 7/8/87, unreported, per Samuels JA, p 3). This statement should be understood in the context of the disadvantaged position in which a disbarred solicitor finds himself. In Ex parte Lenehan, (77 CLR 403) Latham CJ, Dixon and Williams JJ, said, at 422: When such a person applies for reinstatement he is in a more disadvantageous position than an original applicant because he must displace the decision as to probable permanent unfitness which was the basis of his removal. A solicitor may be restored to the roll after he has been struck off but the power to reinstate should be exercised with the greatest caution and only upon solid and substantial grounds. Senior Counsel for the Plaintiff, Mr Chester Porter QC, accepted that the plaintiff faced the task of establishing the existence of solid and substantial grounds in favour of his re-admission as a Solicitor. He did not seek to question the seriousness of the misconduct which led to the order for removal of the plaintiffs name from the Roll of Solicitors but submitted that the Solicitor's conduct during the years immediately preceding his appearance before the Solicitors Statutory Committee was explained, in part at least, by a condition known as Bi-Polar Affective Disorder (Previously "manic depression'), an illness with serious consequences. Senior Counsel also recognised that the evidence concerning the plaintiffs condition during those years did not affect the conclusion that he was unfit to be a Solicitor at the time his name was removed from the Roll. His submission was, in essence, that the totality of the evidence adduced before this court demonstrated that the plaintiffs illness had contributed significantly to the 2 UNREPORTED JUDGMENTS misconduct with which he was charged and that, as it had now been controlled, there was little likelihood of a repetition of the serious misconduct of which he was found guilty. It will be necessary to refer in some detail to the plaintiffs health problems but before I do that I should examine the nature of the misconduct which led to the order of the solicitors Statutory Committee That misconduct fell into two broad categories which overlapped to some extent. The first category comprised a number of breaches of the Legal Practitioner's Act and the Trust Account Regulations relating to the handling of trust funds on behalf of clients. These breaches fell into distinct classes the first of which concerned debit balances in the Trust Account of the firm in which the plaintiff was a partner. Six examples of these breaches were quoted in the report of the investigator, appointed by the Law Society of New South Wales, and repeated in the decision of the Solicitor's Statutory Committee. It is, I think, fair to say that most of those involved relatively small debits outstanding for only a few days. There was one exceptional debit balance and in view of the importance accorded to this particular matter by the Statutory Committee it is necessary to pay it special attention. The investigator established that there was a debit balance of $105,993.75 for a period of about four weeks in the trust account of a client named Mrs K Suchenia. In 1977 she lodged moneys with the firm for investment and on | June 1977 the sum of $106,000 was advanced on her behalf to two borrowers for a period of two years at 12 per cent per annum. One loan, which was for $31,000, was due for repayment on | April 1979 and the other for $75,000, was due for repayment on 24 May 1979. At the end of the two year period Mrs Suchenia requested the repayment of her funds. Notwithstanding her instructions both of the loans had been extended and were still current in January 1980. Despite this fact and the consequent lack of funds in Mrs Suchenia's trust account on 30 July 1979 trust cheque, numbered 388700, in the sum of $106,000 payable to Mrs Suchenia was drawn and presented against the trust bank account. The effect of this transaction was immediately to create a deficiency in the trust account of approximately $106,000.00. In the weeks following the plaintiff arranged for other funds to be placed to the credit of Mrs Suchenia's account. The largest single credit entry during that period in that account occurred on 17 August 1979 and read as follows: "Loan to Suchenia R/031 - 17/8/79 - Major Credits P/L - $65,500." Major Credits Pty Ltd ("the Company") was an investment company controlled until the end of June 1979 by the plaintiff and his partner and thereafter by the plaintiff alone. The plaintiff's involvement in it was the subject of the second category of matters adverted to in the judgment of the Solicitors' Statutory Committee and it will therefore be necessary to return to that matter later in these reasons. The cheque drawn by the company was dishonoured on 21 August and it was not until 29 August that a bank cheque was received from the company and paid into the trust account. This cheque which supplemented earlier credits eliminated the deficiency. The plaintiff had no explanation for the creation of the deficiency nor for allowing it to continue for so long. However, he did seek to proffer an excuse for allowing it to continue for four weeks. That excuse amounted to no more than a claim of inadvertence and did nothing to diminish the seriousness of this particular conduct. URJ NASH v THE LAW SOCIETY OF NEW SOUTH WALES (Clarke JA) 3 What is of more importance is that the plaintiff personally drew the cheque for $106,000 at a time when he must have known that once the cheque was met there would be a deficiency in the trust account. In order to meet Mrs Suchenia's request he deliberately drew a cheque on his trust account when there were no funds in Mrs Suchenia's account to cover the cheque. This particular incident itself provides powerful evidence of the plaintiff's unfitness in 1979 to be a solicitor. But that is not all. His wrongdoing was even worse. The cheque for $106,000.00 was drawn by the solicitor out of sequence. It was the last cheque in the book and was drawn at a time when there were other cheque forms available for use. In all the circumstances the drawing of the last cheque left open the inference, which was drawn by the Solicitors Statutory Committee, that he had attempted to conceal his action by using the last cheque. While he could have hoped to conceal the drawing of the funds only for a short period he obviously anticipated being able to transfer sufficient funds to cover the deficiency before the bookkeeper learnt that he had drawn the cheque. The other class of breaches of the Legal Practitioners Act and Regulations concerned shortages in the trust account which occurred when cheques were drawn against amounts which had not yet been deposited in the account. The periods involved were short. The investigator reported that in most cases the outstanding deposits related to receipts issued in respect of moneys receivable from the company and the withdrawal of funds from building society accounts to cover advances made by clients to other trust clients. It is not presently necessary to set out the details of these particular deficiencies. The solicitor sought to explain them upon the basis of inadvertence and contended that his breaches of the Act and Regulations were not wilful. The finding of the Statutory Committee, which was clearly based on solid grounds, was to the effect that the occurrences were too frequent and the out of order postings too convenient for them to be inadvertent. The committee accordingly held that the breaches were wilful. It cannot be gainsaid that the proven breaches were serious and served to call into question the plaintiff's fitness to practice. Two observations should however be made about them. In the first place, while the debits appear to have arisen from the plaintiff's attempts to transfer funds from one client to another, or to and from the company, there does not appear to have been any indication of misappropriation. Rather it would seem that in most instances the plaintiff was prone to drawing cheques in favour of his clients or the company before that funds were properly available to meet them and, on occasion, compounded his delinquency by taking steps to conceal precisely what had occurred. In the second place most of the debits occurred in 1978 and 1979 when the plaintiff's health had deteriorated to a marked extent. The second category of misconduct concerned the company which was a finance company which was controlled by the plaintiff and his partner, Mr Brown, until the dissolution of the partnership on 30 June 1979 and thereafter was controlled by the plaintiff himself. Initially all the issued capital of the company was held by the wives of the two partners although the plaintiff admitted that control lay in his, and Mr Brown's, hands. Clients of the firm invested moneys with the company and were paid rates of interest ranging from 8 per cent to 12 per cent. the company in turn advanced moneys to other clients at rates of interest between 12 and 15 per cent. There was usually a margin of about 3 per cent between the company's borrowing and lending rate of interest to cover overheads. Money was received from clients "at 4 UNREPORTED JUDGMENTS call" and unsecured although in some cases a letter was sent to the client stating that the firm guaranteed the investment of their funds. The plaintiff and his partner seemed to have been quite unaware of the problems associated with operating a finance company in association with their professional practice until they received a blue bulletin from the Law Society of New South Wales shortly after 12 April 1979. Following the receipt of this bulletin they changed the shareholding of the company by replacing their wives with Mrs Sanecki, the plaintiffs mother-in-law and Mr Austin, his accountant. A short time later the accountant was replaced by the plaintiff's nephew Mr Inkster. These changes were obviously cosmetic and served only to emphasise the plaintiff's lack of appreciation of the principles expressed in Law Society v Harvey, [1976] 2 NSWLR 154, and summarised in the blue bulletin. The details of the conflicts of interest which arose from the plaintiff's involvement in the company and the failure to protect the interests of clients appear in the judgment of the Statutory Committee and little purpose would be served by repeating them here. However, it is pertinent to point out that as at 30 June 1979 the company's accumulated losses totalled $378,567.00 and there were unsecured loans, that is moneys owing to depositors, amounting to $606,391. In March 1980, that is after the Law Society investigation, the company borrowed an amount of $280,000 which enabled it to repay all investors and eventually the company was able to repay this further borrowing. At the time of the hearing before the Solicitor's Statutory Committee the company's only creditors were Mr Brown's wife, the plaintiff and his former wife. The Committee found that: Although Major Credits Pty Ltd has in effect 'weathered the storm', it is clear that for a number of years investors' funds were at risk as the company was accepting money on deposit on call and making mortgage advances for fixed periods so that it was in fact borrowing 'short' and lending 'long'. This was a situation fraught with danger and in no way could it be said that the investors' funds were properly protected. Later, in answering the questions which had been submitted for determination, the committee found that the plaintiff improperly intermingled his own affairs, or the affairs of the Company, with the affairs of his clients; failed adequately and properly to protect the interests of those clients whose funds were invested in the company and other clients; and failed to disclose to clients, in circumstances amounting to professional misconduct, that the company to which their moneys were being loaned was controlled by him and his partner and the shares of which were held by the partners' wives or close relatives. In summary the findings made by the committee in respect of this second category of misconduct also demonstrated grave departures from the required standards. Before concluding my reference to the reasons for judgment of the Statutory Committee I should advert to their finding in favour of the plaintiff that the plaintiff did not fail adequately to protect the interests of borrowers from the company. This finding seems to have been associated with another one in which the committee said that it "does not believe that borrowers from Major Credits Pty Limited need necessarily have been advised to seek separate and independent advice". The correctness of these findings did not arise for consideration during this hearing but I should say that I find it difficult to accept that a solicitor whose company lends moneys to a client does not, because of the high risk of conflicts of interest, owe a duty to that client to make a full disclosure of his interest in the URJ NASH v THE LAW SOCIETY OF NEW SOUTH WALES (Clarke JA) 5 company and to advise the client to seek independent legal advice. There may be circumstances in which this duty would not arise although in the light of the possible conflicts of interest I find it difficult to envisage them. The plaintiff at no stage during the hearing before the Solicitors Statutory Committee sought to explain his conduct on the basis of his illness. Indeed the committee observed that, although the plaintiff had become depressed towards the end of 1979 and remained as an in-patient at the Evesham Clinic at Cremorne under the supervision of Dr Gottlieb between 20 November 1979 and 4 March 1980, no medical evidence had been adduced. The plaintiff, who was represented by senior counsel, sought to explain the deficiencies and debits and, in addition, relied on evidence of good character. Before this court the plaintiff did not challenge the seriousness of the misconduct which led to his striking off but argued, through his counsel, that that conduct represented a departure from the standards which had hitherto been maintained by the plaintiff and was explicable, in part at least, upon the basis of his affective disorder. The evidence concerning the plaintiff's medical condition was contained, in the main, in affidavits sworn by Dr Gottlieb, his past treating doctor, Dr Roberts, his present treating doctor, and two letters from Dr William Barclay to the Law Society of New South Wales in response to a request that he examine the plaintiff on behalf of the Law Society. In the various reports it was suggested that the plaintiff had first sought treatment for his affective disorder in 1976 but in his evidence the plaintiff said that he had first sought treatment for a depressive condition from Dr Wechsler in 1961 or 1962. His condition was then diagnosed simply as depression and was treated with medication. He had occasion again to see Dr Wechsler in 1969 or 1970 and on this occasion he was treated with electro-convulsive therapy There is no reason to reject this evidence which serves to demonstrate that his illness is of long standing. In his affidavit Dr Gottlieb said that he treated the plaintiff from 1976 to 1979 for bi-polar affective disorder which he described in these terms: "The illness is characterised by extremes of deep depression and excessive elation. The condition is such that during a period of depression the sufferer lacks energy and drive. On the other hand, during periods of elation the sufferer becomes excessively optimistic and exhibits an inability to be consistent in matters involving an exercise of judgment. As well there is often a failure to carry out individual matters through to their proper conclusion because of a continuous intrusion into his mind of new matters which he perceived as requiring immediate attention." Drs Barclay and Roberts, both of whom had no doubt that the plaintiff suffered from bi-polar affective disorder, gave evidence to similar effect highlighting the extent to which a sufferer's judgment is affected during a period of elation (described as a hypomanic state) Let me quote a small portion of Dr Barclay's report of 4 November 1987: "He is grandiosely confident about his business ventures or whatever he takes on. He is careless of application to detail and this is particularly true where the management of money is concerned, where he is likely to go on spending sprees involving sums of money which he cannot in fact afford. Judgment with respect to personal, family, business and financial matters is seriously impaired..... The hypomanic is a difficult patient to manage because he has no insight into his condition, believes that he is perfectly well, believes he is quite capable of managing his own affairs and making sound judgments." 6 UNREPORTED JUDGMENTS If therefore the plaintiff was in a hypomanic state during periods in 1977-1979 his conduct then, to the extent that it was inconsistent with his earlier character and behaviour, is capable of being explained by the hypomania. After so many years there is considerable difficulty involved in determining his condition from time to time during those years. Dr Gottlieb, who was his treating doctor at the time said that: .. around April 1977 the plaintiff, while under severe stress on account of marital difficulties, which later led to divorce, decompensated. In a state of despair he did not comply with his medication and his illness entered a new cycle. An initial depressive phase was followed by hypomania and later in 1979 another depressive bout led to his hospitalisation at the Evesham clinic. The medication to which Dr Gottlieb referred was Lithium which, according to the evidence, is capable of controlling affective disorder in some people. Dr Barclay, who provided a comprehensive report which I have found particularly helpful, said: Further questioning of Mr Nash indicated that during this period of time from 1975 to 1979 Mr Nash was suffering a prolonged bout of manic depressive illness. He had quite serious depression which was treated by Dr Gottlieb. During this time his depression alternated with hypomania. In his hypomanic state he had no insight into his condition. He mistakenly believed that his judgment during this time was sound. He displayed irritability and over-activity and was not amenable to accepting advice from his wife or his father or anyone else for that matter and it was during this phase that his behaviour was such that his marriage broke down and eventually he and his wife divorced. His judgment was such that he believed that he did not need to comply with the medication prescribed by Dr Gottlieb. He stopped taking the medication and subsequently had another episode of depression illness, followed by a period of hypomania and then a further depression which led to hospitalization and further treatment. From that time on Dr Gottlieb says that he was cooperative and compliant with treatment. Dr Roberts, whose evidence focused in the main on the period during which he has treated the plaintiff, generally supported these views. While the evidence does not establish the specific periods during which the plaintiff was afflicted with hypomania during 1975-1979 it establishes, to my satisfaction, that during that period the plaintiff was suffering from increasingly severe attacks of depression and hypomania. I am also satisfied that his failure to continue with his medication and the pressure which flowed from the stresses he was experiencing caused an exacerbation of his condition in 1979. In August 1982 he consulted Dr Roberts for the first time and has been under his care ever since. While he was initially treated with a combination of anti-depressant and Lithium, and even had further electro therapy, his condition progressively improved so that by 2 November 1983 his health was maintained at a satisfactory level by daily doses of Lithium. He has continued regularly to take Lithium and Dr Roberts, who is still treating him, has found no evidence of any reappearance of the disturbances which featured his bi-polar affective disorder. Indeed both Dr Roberts and Dr Barclay consider, that in view of the history since 1982 and provided he takes the Lithium prescribed, there is a high probability that he will not have another episode of illness during the period that, in the event he is re-admitted, he would be likely to continue to practice as a solicitor. URJ NASH v THE LAW SOCIETY OF NEW SOUTH WALES (Clarke JA) 7 In summary, therefore, the medical evidence supports the conclusion that the plaintiff's bi-polar affective disorder was a major contributing factor to his misconduct and other personal problems in the years 1978 and 1979. It also satisfies me that his illness has been brought under control by the ingestion of regular doses of Lithium and there is a high degree of probability that if re-admitted he will be unlikely to transgress again. In the light of this medical evidence Mr Porter relied upon the decisions of this court in Robinson v The Law Society of New South Wales, (17 June 1977, 28 May 1979, unreported). In the first of those cases the finding of the Statutory Committee that Robinson was guilty of professional misconduct was set aside upon the basis of his manic depression. However, because of his medical condition, the court did not at that time make an order restoring his name to the Roll of Solicitors. This was because the medical evidence tendered suggested that he may be mentally unfit to practice as a solicitor. At the later hearing Robinson led evidence to show that his condition could be controlled and was successful in having his name restored to the Roll upon his giving an undertaking that he would not apply for an unqualified practicing certificate. There are, however, significant differences between Robinson and the present case although the illness suffered by both solicitors was apparently the same. In Robinson the solicitor made unjustified withdrawals from his trust account in an amount of just over $7,000 during a three month period between October 1974 and January 1975. The Court found that during the latter half of 1974 he lapsed into a manic state and suffered the delusional belief that he was entitled to draw the money in question. This belief, the Court found, was not based on reasonable grounds but resulted from the impairment of his judgment due to his illness. In the present case, while certain of the debits and drawings could be explained as occurring during an episode of hypomania in 1979, there is clear evidence that he was guilty of misconduct in relation to the affairs of the company which continued over a lengthy period and could not, in my opinion, be explained by his illness. In this respect I agree with Dr Barclay who said there were aspects of the affairs of the company which were a matter of deliberate practice from 1975 onwards and which were most unlikely to have been the product of any mental disorder. In these circumstances the plaintiff could not, unlike Robinson, have escaped a finding of professional misconduct on the basis of his illness. Nonetheless that illness, which probably rendered him mentally unfit to practice as a solicitor during 1979, and possibly 1978, is an important consideration in the present application. One of its characteristics is that during a period of hypomania the judgment of a sufferer is markedly affected. Most, if not all, of the serious trust account transgressed in this case occurred during 1978 and 1978 when it is probable that the plaintiff was hypomanic. Although there are some examples of debit balances in the preceding years they were relatively insignificant and stand in stark contrast to the incidents in the latter years which alone constituted serious misconduct. Upon this basis the illness stands in mitigation, and in partial explanation, of those breaches. Although its impact upon the misconduct associated with the Company is considerably less the affective disorder which afflicted the plaintiff in the years immediately following the decision in Harvey almost certainly affected the plaintiff's ability to recognise the problems associated with continuing to operate the company. Accordingly any judgment as to the seriousness of his misconduct in this particular respect needs to be tempered by an appreciation of the impact of the severe attacks of hypomania upon his judgment. 8 UNREPORTED JUDGMENTS In considering his present application there are a number of other factors which seem to me to be of importance In the first place, he has sought to be restored to the Roll only to practice as an employed solicitor. In other words he will undertake not to seek a full practicing certificate. In the second place the Law Society of New South Wales has appeared only to present relevant material to the court and has neither consented nor objected to his application The attitude of the Law Society has always been regarded as an important consideration (In re Thom; Ex parte The Prothonotary, 80 WN 968, per Herron CJ, 971; Re Veron; Ex parte Law Society of New South Wales, 84 WN, (Pt1) 136, at 147). Whilst the responsibility for determining a solicitor's fitness to practice is solely that of the court the views of the Law Society should be accorded great weight. In the present case the fact that the Law Society does not oppose the application is not unimportant. In the third place the medical condition which served to explain, to a significant degree, the plaintiff's departures from the required standard has now been brought under control with the result that there is a high degree of probability that he will not suffer from the condition which caused, or contributed to, many of the transgressions which occurred in 1978 and 1979. In the fourth place, while investors' funds were clearly in jeopardy during 1979 the plaintiff in fact took appropriate steps which ensured that no funds were lost. These steps were taken in 1980 after the plaintiff had been discharged from the clinic. While his misconduct must still be regarded as serious his actions in 1980 demonstrate that, having recovered from the serious depression, he adopted a responsible attitude as a consequence of which no clients lost money. In the fifth place, evidence has been adduced to the effect that he has conducted himself without blemish since his name was removed from the Roll. This evidence was supplemented by an affidavit and oral evidence by a solicitor, Mr. Williams, who wishes to employ the plaintiff Mr. Williams first met the plaintiff in 1966 and, apart from a period between 1976 and 1981 when their paths crossed only occasionally, has been in regular contact with him until the present time. He has said that if this application is successful there will be a position immediately available for the plaintiff in his firm. All these factors serve to persuade me that it is highly unlikely that the plaintiff will transgress in the future and that he has established the solid and substantial grounds which are necessary to ground an order for re-admission. In my opinion the plaintiff's name should be restored to the Roll of Solicitors of this court upon his undertaking to the Court that he will not apply to the council of the Law Society for a Practicing Certificate other than a certificate subject to a condition limiting him to a right to practice as an employed solicitor. The plaintiff should pay the costs of the Law Society of this Notice of Motion. Upon Alexander Nash undertaking to the Court that he will not apply to the Council of the Law Society for a practicing certificate other than a certificate subject to a condition limiting him to a right to practice as an employed solicitor, order that he be restored to the Roll of Solicitors of this court. Order Alexander Nash to pay the costs of the Law Society of this Notice of Motion. Counsel for the Appellant: C PORTER QC & G ELLIS Counsel for the Respondent: G C LINDSAY URJ NASH v THE LAW SOCIETY OF NEW SOUTH WALES (Clarke JA) 9 Solicitors for the Appellant: ROSENBLUM & PARTNERS Solicitors for the Respondent: ROSEMARY MacDOUGAL (LAW SOCIETY OF NSW)