DUPAL v THE LAW SOCIETY OF NEW SOUTH WALES SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KIRBY P, PRIESTLEY and HANDLEY JJA 28, 29 March 1990, 26 April 1990 [1990] NSWCA 56 LEGAL PRACTITIONERS — solicitor — pecuniary dishonesty — solicitor active in local and political affairs in country town — practice faces financial difficulties — mortgagee unexpectedly requires payment — solicitor pays moneys from funds entrusted to him for investment by his sister — use of funds breaches conditions for investment agreed with sister — sister calls for repayment of her funds — solicitor uses trust fund of which he is trustee to repay sister Disciplinary Tribunal finds misappropriation of funds of sister and Trust and wilful breaches of s41(1) and $42(2) Legal Practitioner's Act 1898 — appeal — held: (dismissing appeal) (1) (by the Court) The conduct of the solicitor involved pecuniary dishonesty in respect of funds entrusted to him and required the removal of his name from the roll of solicitors. Re Colin Walter Peck, unreported, Solicitor's Statutory Committee, 23 April 1981 referred to; (2) However, the solicitor might in due course seek readmission. WORDS and PHRASES — "fraudulent misappropriation". Ex parte Lenehan (1948) 77 CLR 403, 422; Re Miles; Ex parte Law Society of New South Wales (1966) 84 WN (NSW) (part I) 163, 176; Dawson v Law Society of New South Wales, Court of Appeal, unreported, 21 December 1989; (1989) NSW JB 232 referred to; (3) Discussion by Handley JA of whether the conduct of the solicitor was fraudulent misappropriation under the Crimes Act 1900, s178A and of the trust obligations imposed upon the solicitor in the circumstances. Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41, 125 considered. Crimes Act 1900, s178A. Legal Practitioner's Act 1898, s41(1), S42(2). Legal Profession Act 1987, s164. Supreme Court Act 1970, s48. Kirby P It is necessary to evaluate the ingenious arguments of counsel for theappellant (set out in the reasons for judgment of Handley JA), never for a moment forgetting that the purpose of the jurisdiction being exercised by the Court is the protection of the public. A case of wilful misuse of the funds of others In this sense, the response of the Court to the facts as found by Handley JA (which I also accept) necessarily expresses and reflects the standards which the Court requires of legal practitioners in this State. In an appeal such as the present, the Court disposes of the case before it by reference to criteria of general application. These should be clear and simple. They should be such as to leave no doubt in the mind of a practitioner in financial difficulties, exposed to the temptation of using without clear authority the funds of another, the consequences that will flow for the right to practise when such misuse of funds is discovered. Like Handley JA, I am prepare to accept that the very close relationship between the appellant and his sister might possibly have given rise to an implied or tacit understanding about the use by him of the funds which she entrusted to 2 UNREPORTED JUDGMENTS him upon conditions of which he was left in no doubt. But it is a feature of the case that when the appellant was confronted with an unexpected financial predicament by the decision of his mortgagee, he did not candidly disclose his urgent needs to his sister, to whom he was so close. He simply went ahead and raided her fund for his own purpose. He did so without disclosure to her. His subsequent actions, far from reflecting his stated assumption of her implied or tacit approval for what he did, demonstrate the pains he took to try to cover his tracks and keep his actions from her notice until it became absolutely necessary to disclose them. This conduct may be explained by sibling pride. But it suggests to my mind the appellant's own assessment of what his sister would have thought of his actions had they been disclosed to her. If they were truly within her implied or tacit authority to him, there would not have been such a need to pretend at first that he had regularly invested her moneys in accordance with their agreement. The use by the appellant of funds of the Turnbull Trust to permit him to meet his sister's call for repayment of her moneys was quite improper. The belated attempt to justify it as being within the powers conferred upon him as trustee of those funds is quite unconvincing. The funds were not invested by him as the trust instrument contemplated. They were simply purloined to meet a sudden liquidity emergency with which the appellant was confronted. He did not act in relation to them as a trustee would have done, without an interest of his own to serve. The result is that in both of the cases complained of, the Society has shown misuse by the appellant of the moneys received by him on behalf of other persons. What follows? The answer to that question takes me back to the observations with which I began these reasons. Such a finding ordinarily requires removal from the roll The research of neither counsel before the Court could produce a single case in which, following a finding of misappropriation of trust funds or wilful contravention of s41(1) of the Act, the Court had not proceeded to remove the name of the practitioner concerned from the roll of practitioners. Properly, after judgment was reserved, counsel for the Law Society, following further enquiries, drew to the notice of the Court a decision of the Solicitor's Statutory Committee in the case of Colin Water Peck, unreported, 23 April 1981. That was a case where a solicitor, who inherited his father's practise on his retirement, experienced severe financial difficulties when, for want of new instructions, the outgoings came to exceed the income. To "keep functioning" he withdrew various amounts from his trust account which he was unable to make good from his own resources. There was a deficiency in his trust account of almost $2,750. He himself drew this to the notice of the Law Society. He disclosed a number of health problems and had numerous character witnesses. The Solicitor's Statutory Committee found breach of s41(1) of the Legal Practitioner's Act 1898. But in the circumstances it reprimanded the solicitor and suspended from from practise for two years. It did so "having regard to his frankness with the Law Society and [the] Committee and his contrite approach" and its finding that "he will be a fit and proper person to practise as an employed solicitor'. I regard to the decision in Peck, which is not a decision of this Court, as wholly exceptional. True, each case must depend upon its unique facts. But for the reasons which I have stated, the normal consequence of the misuse of entrusted funds by a solicitor, and a finding of wilful breaches of the statutory prohibition in that regard, is removal of the name of the solicitor from the roll. There is no URJ DUPAL v THE LAW SOCIETY OF NEW SOUTH WALES (Priestley JA) 3 reason why that consequence should not follow in the present case. To the extent that Peck suggests otherwise, I dissent from its holding. In Ex parte Macaulay (1930) 30 SR (NSW) 193 it was said that where a solicitor has been proved guilty of misappropriation of client funds he should not, unless in very exceptional circumstances ever be allowed again to be held out to the public as a solicitor in whom confidence might be reposed. In this regard, the Full Court was reflecting a long line of English authority. See eg Willes J in Re Poole (1869) 4 CP 350, 353. See also Incorporated Law Institute of New South Wales v Meagher (1909) 9 CLR 655. Those decisions must now be read in the light of the remarks of the majority of the High Court of Australia in Ex parte Lenehan (1948) 77 CLR 403, 422: "[They]... properly emphasise the great importance of financial integrity in a solicitor, but they should not be regarded as laying down a rule of law that a solicitor who has been struck off the roll for pecuniary dishonesty cannot be reinstated and that an applicant for admission who has been guilty of a similar act cannot be allowed to proceed unless it is shown that there were some exceptional circumstances in the original offence." Restoration is difficult but not impossible In a number of recent cases this Court has demonstrated the difficulty facing a practitioner whose name is removed from the roll for pecuniary dishonesty in thereafter having his name restored. See eg Kotowicz v Law Society of New South Wales, Court of Appeal, unreported, 7 August 1987; (1987) NSWJB 146 and Dawson v Law Society of New South Wales, Court of Appeal, unreported, 21 December 1989; (1989) NSWJB 232. Ex parte Lenehan continues to stand for the proposition that: "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." (emphasis added). If a court is of the opinion that a practitioner is not probably permanently unfit to practise again, it should pause before ordering removal of that practitioner's name from the roll. It should consider the appropriateness of suspension. But for the reasons which I have stated, suspension in this case is not appropriate. Removal must follow. By the same token, like the other members of the Court, I can contemplate circumstances in which, in the future, this appellant's name might be restored to the roll upon proof of satisfactory conduct in the meantime and the good opinion of his professional colleagues to whom full details of the facts as found by this Court have been made known. As Handley JA has demonstrated, there are a number of matters which stand to the appellant's credit. But that is not uncommon in this melancholy class of case. And those facts do not justify a different result in the circumstances proved. Priestley JA In his reasons, Handley JA sets out the facts of this appeal and analyses the legal complexion to be put upon those facts. I agree with his statement of the facts, but do not find it necessary for deciding the appeal to consider the precise way in which the appellant's conduct should be characterised as a matter of legal labelling. It is sufficient, as I see the appeal, to say that the appellant's actions, as a solicitor, in regard to his sister and the Turnbull Trust were dishonest and indefensible to a degree requiring that his name be struck off the roll of solicitors. 4 UNREPORTED JUDGMENTS There was some discussion before the court of the question whether the appellant might hope for readmission at some later time. This discussion turned on the fact that, on the material before the court, the appellant's misconduct was in a limited area, and restitution was eventually made, so that, differently from what happens in some other cases, the lives and fortunes of people other than himself were not significantly damaged. It turned further on the assumption that he might, at a later time be able to put before the court persuasive evidence that it would then be for the benefit of, and create no appreciable danger to the community, if the appellant were to be allowed to resume practice. On this aspect of the case I agree and wish to associate myself fully with that part of Handley JA's concluding observations that begins with the reference to ex parte Lenehan (1948) 77 CLR 403. In my opinion the appeal should be dismissed with costs. Handley JA The appellant was born in France in 1942, migrated to this country with his parents in 1949 and was admitted as a solicitor of this Court on 14 February, 1969. He appeals to this Court from the findings and orders of the Disciplinary Tribunal established pursuant to Ptl0 of the Legal Profession Act 1987. By majority the Tribunal ordered that the appellant's name be struck off the roll of solicitors. The dissenting member of the Tribunal would have ordered that the appellant be suspended from practice. The appeal, which is the first under the provisions of the Legal Profession Act 1987, lies to this Court pursuant to s164 of that Act and s48 of the Supreme Court Act. The appeal is by way of a new hearing, and further evidence may be received. In this case an affidavit by the appellant deposing to events which have occurred since the Tribunal made its orders was received without objection. In the end however it was accepted by Counsel for the appellant that nothing turned on this additional evidence and the appeal was argued on the basis of the material which was before the Tribunal. The majority found that the solicitor had misappropriated funds of his sister Mrs Dash and of the Turnbull Trust of which he was sole trustee and as a result of these transactions he was also guilty of wilful breaches of s41(1) and s42(2) of the Legal Practitioners Act 1898 which was in force at the relevant times. The Tribunal also found unanimously that the solicitor was guilty of making knowingly false statements to the Law Society and to a client and had been guilty of serious neglect, delay and inattention to the affairs of certain clients. The appellant did not challenge the findings of breach of fiduciary duty in relation to the transactions involving the Turnbull Trust or the findings that he had made knowingly false statements to the Law Society and a client and had been guilty of serious neglect, delay and inattention to the affairs of certain clients. The appellant however did challenge the findings of misappropriation and wilful breaches of s41(1) and s42(2) in relation to both the Dash and Turnbull Trust monies and that he had been guilty of breaches of his fiduciary duty in relation to his handling of the Dash monies. It will be convenient to first examine the Dash transactions. Mrs Irene Georgette Dash was the sister of the appellant. They were born some fourteen months apart and on the evidence had a very close relationship. At the material times Mrs Dash lived in France where she conducted a ski clothing business. However she visited Australia with some frequency to see her parents who lived in Canberra and in one way or another was in regular contact with the appellant. URJ DUPAL v THE LAW SOCIETY OF NEW SOUTH WALES (Handley JA) 5 Following the break-up of her marriage Mrs Dash and her husband sold their former matrimonial home in Darling Point some time late in 1981 or early 1982. Messrs. Meagher and de Coek, solicitors of Sydney acted for Mrs Dash in relation to the sale and received her share of the nett proceeds which came to approximately $83,000. At the time Mrs Dash was in Australia and she visited the appellant in Muswellbrook where he carried on practice. While she was there she and the appellant visited the local branch of what is now the National Australia Bank and opened an interest bearing account in her name in which she deposited the $83,000. The appellant was given authority to operate on this account. Evidence was given by both Mrs Dash and the appellant as to the terms of the informal instructions that she gave him as they walked to the bank to open this account. Mrs Dash swore a Statutory Declaration which was received in evidence without objection. However she did not give oral evidence and was not cross examined, no doubt because she was in France at the time. The appellant on the other hand did give oral evidence and was cross examined. The appellant's recollection of his sister's instructions was that she wanted $25,000 of the money kept at short call, and the balance at three months call. She wanted the money placed in safe investments at appropriate rates of interest. The interest was to remain in Australia until she asked for it to be remitted. Mrs Dash stated in her declaration that she told her brother that he could borrow part or all of the funds so long as they would be available to her on about three month's notice and that she was not surprised later on when she found out that he had used the funds for his own purposes. In my view this Court should act on the appellant's own evidence as to how he understood the informal verbal instructions from his sister. It should do so because he gave oral evidence and was cross examined before the Tribunal but also because it is entirely appropriate to assess the honesty and propriety of his conduct in relation to the funds in question by reference to his own understanding of his instructions. Moreover the appellant did not disclose to his sister at this time that he was in some financial difficulties or would have any need to use the money himself for investment or other purposes. In the absence of such disclosure the probabilities strongly favour the appellant's version of his instructions which did not include any reference to his being authorised to use the monies for his own purposes. Moreover if Mrs Dash had mentioned to the appellant that he was authorised to use the money for his own purposes if he needed to do so it would be extraordinary that he did not inform her either before doing so or shortly afterwards. It is guite clear that he did not do so. In these circumstances in my judgment the Court should evaluate the appellant's conduct and fitness against his own evidence as to how he understood his sister's instructions. The evidence does not disclose precisely when the sum of $83,000 was paid into the bank account at Muswellbrook and thus came under the control of the appellant. On the probabilities it was some time in the early months of 1982. In May 1981 the appellant had borrowed $80,000 from the Union Fidelity Trustee Company on first mortgage for a fixed term of twelve months. The mortgage was secured over the land at 54 Brook Street, Muswellbrook owned by the appellant's family company Yatimber Pty. Limited. The premises comprised a ground floor lock-up shop and the offices in which the appellant carried on his practice. The appellant understood that he would be able to extend the mortgage 6 UNREPORTED JUDGMENTS at the end of the twelve months term but he was told by the Trustee Company in May 1982 that it required repayment of the monies on the due date. The appellant had been neglecting his practice for some time because of his duties as a member of the Muswellbrook Shire Council and his active involvement in the affairs of the Australian Labor Party in the region. He had failed to lodge income tax returns for some years and this fact together with the poor financial returns from his practice meant that he was in no position in May 1982 to raise the $80,000 needed to discharge the mortgage to the Union Fidelity Trustee Company from his own resources or from the proceeds of a fresh loan obtained in the normal way. The temptation in these circumstances to use his sister's money sitting in the bank account at Muswellbrook proved irresistable and on 14 May 1982 $80,000 from his sister's bank account was paid to the Trustee Company and the mortgage was discharged. It is to be inferred that the appellant obtained a bank cheque from the Muswellbrook branch of the National Australia Bank in favour of the Union Fidelity Trustee Company and sent the cheque to Sydney to discharge the mortgage. It is clear that the funds did not pass through the appellant's trust account. The appellant did not disclose this use of her funds to his sister or seek her authority for the transaction. No documentation was brought into existence at that time, or until three years afterwards to record the "investment", no security was created for the protection of his sister, and the rate of interest was not fixed or agreed. Furthermore as a result of this use of the funds $25,000 of his sister's money was no longer available for her at short call and the balance was not available at three months call. The appellant frankly conceded in cross examination that at this time, and for some years afterwards, he could not have repaid his sister from his own resources or from the proceeds of a fresh loan had she wanted either the funds at short call or the funds at three months call. The appellant gave evidence that the Brook Street property remained unencumbered and that the Certificate of Title was held "frozen" in his strong-room, ear-marked for the benefit of his sister. In October 1983 Mrs Dash called for certain funds to be transferred to her in France. On 21 October, 1983 the appellant sent $A10,000 to his sister by telegraphic transfer and on 31 October there was a further transfer of $45,000. On 17 August, 1984 $A8,000 was sent and on 30 September, 1985 $A80,000 was sent. On 23 December, 1985 a final payment of $A10,201.28 was made representing the balance of the funds together with accrued interest at an average rate of seventeen per cent per annum with which the appellant charged himself. Counsel for the appellant submitted that the relationship between the appellant and Mrs Dash was that of brother and sister and that it was not intended to give rise to legal obligations. In that connection we were reminded of the decision in Balfour v Balfour [1919] 2 KB 571. Hence, it was submitted, the appellant owed no enforceable fiduciary duty to his sister, he did not misappropriate her monies, and could not be guilty of wilful breaches of s41(1) and s42(2) of the Legal Practitioners Act. I am prepared to assume for the purposes of this appeal that no enforceable contract of retainer was made between Mrs Dash as client and the appellant as her solicitor and that the relationship of solicitor and client did not come into existence between the appellant and his sister between 1982 and 1985 in relation to the investment and disposition of her funds deposited in the bank account at Muswellbrook. However even on this assumption, favourable to the appellant, URJ DUPAL v THE LAW SOCIETY OF NEW SOUTH WALES (Handley JA) 7 the undisputed facts disclose serious and wilful breaches of duty on the part of the appellant which were disgraceful and amount to professional misconduct. The relationship between the appellant and his sister was clearly a fiduciary one. The absence of any legally enforceable contract of retainer far from establishing the absence of a fiduciary duty owed to the sister in this case demonstrates the opposite. The appellant and his sister were not dealing with each other at arms length. She was trusting him to look after her money and her interests. There is in general no contract between trustee and beneficiary but the fiduciary relationship in such a case is clear and so it is in the present case, although of course the appellant was not a trustee of his sister's funds while they remained in the bank account. Mrs Dash did not make a gift of these monies to the appellant. On the contrary he was given clear instructions to manage these funds on her behalf and for her benefit. Instead of the funds being invested safely at interest for her they were used for his own purposes without authority and without the informed consent of his sister. On the evidence he must have spoken and written to his sister many times between 1982 and 1985 without ever disclosing this use of her funds. It is clear that the appellant committed a gross breache of his fiduciary duty when he withdrew the $80,000 from his sister's bank account and used it for his own purposes. Mr Slattery, Counsel for the appellant, however submitted that the appellant had not misappropriated the funds. In developing this submission he made it clear that he was not relying upon any technicality of the criminal law but was submitting that the nature of the relationship between the appellant and his sister, and the width of his authority, express, implied and tacit, to deal with the funds were such that the appellant was entitled to act as he did and did not act dishonestly in doing so. Iam quite unable to accept this submission. The appellant was given clear and specific instructions to manage and invest the funds on his sister's behalf and for her benefit. She trusted her brother to exercise his authority to withdraw the funds from the bank for her benefit. Accordingly when he withdrew the funds and used them for his own purposes and benefit he misappropriated them and acted dishonestly in doing so. If it matters it seems to me that the appellant was guilty of the offence of fraudulent misappropriation created by s178A of the Crimes Act originally enacted as a result of the decision of the High Court in Slattery v The King (1906) 2 CLR 546 and amended following the decision in R v McDonald 30 SR (NSW) 73. Of course the appellant was not a trustee of the funds in the bank account and until he operated on the account he had not collected or received any part of the funds. However when he did operate on the account and withdrew the sum of $80,000 in the form of a bank cheque he received money or a valuable security on terms which required him to account for the same to his sister. Thereafter he fraudulently misappropriated the cheque and its proceeds to his own use. Prima facie therefore the appellant was guilty of the crime created by s178A. In any event I am clearly of the view that the appellant was guilty of a dishonest act in using his sister's money in this way and that his conduct in that regard can properly be viewed as a misappropriation of the funds for purposes relevant to disciplinary proceedings for professional misconduct. In Midland Bank Limited v Reckitt [1933] AC 1 at 12 Lord Atkin had no difficulty in describing the acts of a solicitor who had used a power of attorney to withdraw funds from the bank 8 UNREPORTED JUDGMENTS account of his principal to pay off his own overdraft in a context where the technicalities of the criminal law were not in issue as amounting "in simple language" to stealing the money. In my judgment the same comment can be made in the present case. The fact that the appellant did not misappropriate the money as a solicitor makes no difference for present purposes. See In re Daly (1896) 17 NSWLR(L) 169. Although the appellant was not a trustee of his sister's funds while they remained in the bank account in her name he became a constructive trustee of the funds which he withdrew and then of the bank cheque purchased with those funds. The relevant principle of equity was that stated by Deane J. in Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 125 as follows: "... a constructive trust may be imposed as the appropriate form of equitable relief in circumstances where a person could not in good conscience retain for himself a benefit, or the proceeds of a benefit, which he has appropriated to himself in breach of his... equitable obligations to another." See also the fuller statement of principle and the citation of authority in the judgment of Mason J. (as he then was) in the same case at pages 107 to 110. Clearly the appellant's sister could have obtained equitable relief against him in respect of the bank cheque while it remained in his possession or control and could have traced her funds into that cheque. See In Re Hallett's Estate [1879] 13 Ch D 696 at 708-711 per Jessel MR. It is necessary to approach the appellant's challenges to the findings by the Tribunal that he contravened s41(1) and s42(2) in relation to the withdrawal of his sister's funds for the purchase of the bank cheque on this basis. S41(1) provided, so far as relevant, as follows: "All moneys received... for or on behalf of any person by any solicitor shall be held by him exclusively for such person, to be paid to such person, or to be disbursed as he directs, and until so paid or disbursed the monies shall be paid into a bank... to a trust account...". S3 defined "moneys" as including an instrument for the payment of money in any case where the instrument may be paid into a bank. The purchase of the bank cheque by the appellant would have involved in the first instance a withdrawal of the relevant funds from his sister's account, the notional receipt of those funds by the appellant and their notional payment to the bank to acquire the bank cheque. Regardless of the form of the bank cheque the appellant therefore received moneys from the bank for and on behalf of his sister because he became a constructive trustee of those funds for her. If the bank cheque was payable to the Trustee Company or bearer the appellant as the bearer acquired the legal title to the cheque on issue and equity would treat him as a constructive trustee of the cheque. If, on the other hand, the cheque was payable to order the appellant would not have become the holder of the cheque or its legal owner but it would have been in his possession as agent and bailee for his sister and the contract on the bank cheque between the bank and the Trustee Company would have been inchoate and incomplete until delivery of the cheque to the Trustee Company. See Bills of Exchange Act s26. Accordingly, the appellant retained control of the bank cheque and its proceeds until it was delivered to the Trustee Company and in my view his legal title as bailee was sufficient to support a constructive trust of the cheque for his sister. S41(1) is not limited to cases where the solicitor receives the moneys for or on behalf of any client. On the contrary the section applies when the solicitor receives moneys for or on behalf of any person. Accordingly the absence of any URJ DUPAL v THE LAW SOCIETY OF NEW SOUTH WALES (Handley JA) 9 relationship of solicitor and client between the appellant and his sister did not prevent the section applying to the funds which he withdrew from his sister's bank account. In my judgment therefore the appellant did contravene s41(1) when he operated on his sister's bank account, used the funds withdrawn to purchase the bank cheque, and caused that cheque to be delivered to the Trustee Company to discharge the mortgage given by his family company. It necessarily follows that the solicitor also contravened s42(2) when he failed to record the transaction in his trust account records. Having previously concluded that the solicitor had fraudulently misappropriated the funds which he withdrew from his sister's bank account the further findings that in doing so he contravened s41(1) and s42(2) of the Legal Practitioners Act add little or nothing to the culpability of the appellant's conduct in the transaction. In January 1985 the appellant prepared a draft mortgage between Yatimbar Pty. Limited and his sister which purported to secure repayment of the sum of $80,000 which he had previously used to discharge the Trustee Company's mortgage. The document was executed under the common seal of the company and the appellant signed the mortgage on behalf of his sister as her solicitor. The appellant conceded in his oral evidence in chief to the Tribunal that the major purpose for creating this document "was to try to put off the Law Society". The document is incomplete on its face and the Schedule referred to in it was never executed or attached. Moreover it was never stamped and accordingly was not "good, useful or available in law or equity for any purpose whatsoever" Stamp Duties Act s29(1). In my judgment the creation of this document in the circumstances prevailing in January 1985 does not assist the case for the appellant in any way. When in October 1983 the appellant's sister asked him to transfer $15,000 to her in France, the appellant was again in difficulties. His financial position had not improved in the meantime and because of his continuing failure to prepare and lodge income tax returns his overall position if anything was worse. On this occasion the appellant made use of the funds of the Turnbull Trust to meet his sister's call. On 20 October, 1983 $15,000 was withdrawn from the EJ. Turnbull account in the appellant's Trust Account and paid into his sister's account at the National Australia Bank. These funds were then remitted to France by telegraphic transfers. On 17 August, 1984 the balance of the capital of the Trust which had been on deposit with the Newcastle Permanent Building Society in the appellant's name as Trustee of the EJ. Turnbull Trust was withdrawn and credited to the account of his sister in his Trust Account. On the same day this amount was remitted to the sister in France. The appellant was the sole Trustee of the Trust which has been created on 14 August, 1980 by Ellen Josephine Turnbull. The beneficiaries were certain nephews and nieces of the settlor and their descendents. The Tribunal found that the appellant misappropriated monies of the Trust when he used them to make payments to his sister. The Tribunal also found that these transactions contravened s41(1) and s42(2) and involved breaches of fiduciary duty. 10 UNREPORTED JUDGMENTS The appellant submitted that because of his wide powers of investment under the Trust Deed there had been no misappropriation. The relevant clause is CL61 which provided as follows: "The Trustee shall have the following absolute powers and discretions... 6.1 Notwithstanding that the Trust Fund consists of Trust moneys, to invest the same and deal with and manage and transpose and realise such investments entirely as it thinks fit and with such powers in all respects as if the Trustee were the sole absolute owner thereof and the Trustee shall not be accountable in any way whatsoever for any loss arising out of the making of any investment or out of the failure to realise any investment or out of its management of any investment." In addition CL65 gave power to the Trustee to lend any part of the Trust Fund on such terms and conditions with or without interest and with or without security as the Trustee thinks fit to any company or person including any beneficiary. The transactions in question did not involve any loan by the appellant to his sister. His sister had simply called for repayments of money invested on her behalf. She did not apply for a loan and the appellant did not attempt to enter into a real loan on her behalf with himself as Trustee of the Turnbull Trust. While the appellant held a power of attorney from his sister which gave him very wide powers he could not exercise those powers to make a contract of loan with himself as Trustee. Any such transaction would have been a fraud on the power. The transaction cannot be characterised as a loan by the Trustee to himself. Such a loan is an impossibility because a person cannot sue himself. See Rye v Rye [1962] AC 496. S72 of the Conveyancing Act does not validate such a transaction because it has no application to situations where the only covenantor is the the only covenantee. Any attempt by the appellant to effect a loan to himself would be nugatory and meaningless because the funds would remain in his hands as Trustee impressed with the Trust. Compare Jacobs' Law of Trusts 5th ed. 1986 at page 424. CL65 of the Trust Deed did not purport to authorise a loan of Trust Funds by the Trustee to himself. Such a clause commonly appears in settlements where the Trustee is a bank but in such a case no true loan comes into existence and the position is as explained in Space Investments Limited v Canadian Imperial Bank of Commerce [1986] | WLR 1072 (PC). Moreover the appellant as Trustee did not purport to enter into a contract of loan with his family company Yatimbar Pty. Limited, and there is no evidence that he ever understood that he had made any such contract. The appellant conceded in cross examination that he misappropriated these funds to satisfy a demand made by his sister and that he did not direct his mind to the nature of what he was doing apart from looking at CL6 of the Trust Deed. When he came to construct false documents and entries to conceal his misappropriation from the Law Society he documented the transaction as a loan to his sister. Doubtless the appellant appreciated that he would not be assisted in his dealings with the Law Society if he documented the transaction as a loan to his own family company. On this basis the power of investment conferred by CL61 and the power to lend conferred by CL65 are simply not relevant. This was no "investment" of trust funds because the transaction was not entered into for the purpose of producing income. Compare In re Power [1947] Ch 572 at 575. Nor does it matter that the power of investment is expressed in wide terms and "as if [the URJ DUPAL v THE LAW SOCIETY OF NEW SOUTH WALES (Handley JA) 11 Trustee] were the sole beneficial owner", see In re Power (above). Such a clause does not authorise the Trustee to misappropriate the Trust Funds for his own benefit. In my judgment therefore the majority of the Tribunal were correct in holding that the appellant misappropriated the funds of the Turnbull Trust. Counsel for the appellant further submitted that even so the solicitor had not contravened s41(1) and s42(2) in the course of these transactions. In particular he submitted that there was no contravention of s41(1) because the person for and on whose behalf the Turnbull Trust Funds were received was the appellant himself as the Trustee of that Trust. The section provides, so far as material, as follows: "A11 moneys received... for or on behalf of any person by any solicitor shall be held by him exclusively for such person, to be paid to such person, or to be disbursed as he directs...". Where the moneys in question are vested in a Trustee he or she is the person referred to in the section and not the beneficiaries under the Trust. The appellant therefore did not receive the Turnbull Trust funds "for or on behalf of any person" and did not contravene either section in the course of misappropriating those funds. A trustee is of course bound both to maintain proper accounts for the trust, and to keep the funds of the trust separate from his own funds or the funds of any other trust. See Jacobs' Law of Trusts in Australia (above) at 391, 396. In acting as he did the appellant breached both of these trust obligations. In the result the appellant has succeeded in displacing the findings by the Tribunal of contraventions of s41(1) and s42(2) in relation to the Turnbull Trust monies but in my judgment this can avail him little in the light of the finding of fraudulent misappropriation of those funds which must be affirmed. APPROPRIATE ORDER Counsel for the appellant submitted that the appropriate order in all the circumstances was suspension rather than removal from the roll of solicitors. Mr Slattery drew attention to a number of favourable aspects of the appellant's conduct. He submitted that the appellant has been completely frank and candid in his evidence before the Tribunal and in his dealings with the Law Society since the letter from Messrs. Phillips Fox to the Law Society dated 19 June, 1986. He further submitted that the appellant not only expressed but genuinely felt contrition and remorse for what he had done, that full restitution had been made to all parties concerned, and that the shock and shame of his exposure were such that he would never offend again. He also relied upon a considerable body of impressive character evidence from practitioners of good standing and eminence who had personal knowledge of, and contact with the appellant while he was in active practice at Muswellbrook. Unfortunately, these favourable aspects cannot possibly obliterate the sad but fundamental fact that the appellant has been found guilty of misappropriation first of funds entrusted to him by his sister and then of trust funds. Moreover these misappropriations were associated with or in due course resulted in the production of false records, and attempts to deceive the Law Society which succeeded for a time in putting off the inevitable day. Those attempts at deception involved deliberate lies by the appellant in correspondence with the Society. Again and again when the appellant was put to the test between May 1982 and October 1988 he preferred his interest to his duty and the lie and the cover-up to frank and honest disclosure. While the appellant is entitled to point to the 12 UNREPORTED JUDGMENTS frankness and candour of his dealings with the Law Society after 19 June, 1986 his preference for his interest over his duty continued for some considerable time thereafter. Complete restitution to the Turnbull Trust was not made until October 1988 some five years after the misappropriation of the funds of that Trust commenced. No doubt immediate restitution to the Trust after June 1986 would have been inconvenient if not painful, expensive and on any view, difficult. In the result the appellant continued to enjoy the use of Trust Funds as bridging finance for a further two years and four months after he made proper disclosure to the Law Society through his solicitor's letter of 19 June, 1986. When a solicitor gets into financial difficulties, the temptation to use funds under his control whether in his Trust Account or otherwise, as a source of bridging finance or working capital must be extremely strong. However the problem in this case, as in so many others which have reached this Court, arose in two stages. The appellant was living beyond his means and attempting to build up capital assets in a rising market at a rate faster than he could honestly or prudently sustain. When he ran into financial difficulties he was not prepared to take the hard but honest way out involving disclosure to and informed consent by his sister, or the sale of assets. He chose the soft option of dishonesty involving misappropriation of the funds of others to maintain appearances and retain living standards and capital assets. In my judgment this Court cannot possibly be satisfied at this early stage that the appellant's candour and contrition are any more than a virtue borne of present necessity and the inevitability of close scrutiny. Nor can it be satisfied that the appellant's character has undergone a dramatic and irreversible change for the better since the sad and unhappy events covering the period between 1982 and 1988 disclosed in the evidence. This Court would be departing from a long course of authority if it were to allow the appeal and substitute a period of suspension for the order of the Tribunal removing the appellant from the roll. Counsel were not able to refer us to any case where a solicitor found guilty of misappropriation or wilful contraventions of s41(1) has not been struck off the roll. Any decision to the contrary would signal to the profession and the community that this Court was no longer insisting on solicitors maintaining the highest standards of personal honesty and integrity in their dealings with clients and the public and in the handling of monies entrusted to their charge. The maintenance of those standards and the public interest require, in my judgment, that this appeal be dismissed. It is well established that the jurisdiction being exercised in this case is not penal but disciplinary and that it must be exercised for the benefit of the public. Sympathy for the appellant and for the tragedy that he has brought on himself and his family by his inability to live up to the high standards which this Court and the profession demand of solicitors cannot be allowed to deflect this Court from doing its duty. The decision in Ex parte Lenehan (1948) 77 CLR 403 stands as continuing authority for the proposition that an order removing the name of a solicitor from the roll is not final and is not, in the graphic language of James QC in Jauncey v Law Society (Court of Appeal - unreported - 1 February, 1989) a sentence of "professional death". Indeed in that case Clarke JA, with the concurrence of Hope JA said: "There have been recent instances of re-admission of struck-off solicitors to the roll and, provided the appellant is able to demonstrate a sufficient URJ DUPAL v THE LAW SOCIETY OF NEW SOUTH WALES (Handley JA) 13 period of commendable conduct demonstrating his rehabilitation and fitness, no reason would appear why in due course the appellant should not be successful in obtaining re-admission". The evidence discloses that the appellant, during his period of practice in Muswellbrook, was the only solicitor in the Upper Hunter Region who practised with any frequency in Family Law and had any expertise in this important area of legal practice. Indeed Counsel for the appellant submitted that this fact provided an important reason, in the public interest, for not ordering the appellant's name to be struck from the roll. It is clear however that this fact alone cannot possibly justify an order of suspension where otherwise the appropriate order would be one for removal from the roll. However one of the firms in the region may be willing to employ the appellant as a Managing Clerk to take advantage of his expertise in this area and to satisfy the demand from the public for access to solicitors willing and able to accept instructions in Family Law matters. In such a case the solicitor or solicitors in questions could seek the leave of the Law Society Council to employ the appellant as a Managing Clerk pursuant to s121 of the Legal Profession Act 1987. Such employment, if it were available to the appellant may help him to rehabilitate himself and to demonstrate the reality and permanence of such rehabilitation. In due course it may be possible for the appellant to secure re-admission, perhaps, at least initially subject to the issue of a restricted practising certificate. Compare Re Miles [1966] 84 WN (NSW) Pt1163 at 176. In some cases of this type it may be appropriate for the practising certificate of the re-admitted solicitor to remain permanently subject to conditions which would prevent him practising otherwise than as either an employee or a partner. At the present time, however, these are matters for the future to be decided on their merits if and when an appropriate application is made. The appeal should be dismissed with costs. Appeal dismissed with costs. Counsel for Appellant: MJ SLATTERY and DA SMALLBONE Solicitor for Appellant: PHILLIPS FOX Counsel for Respondent: PR GARLING and R GAMBI Solicitor for Respondent. ROSEMARY MACDOUGALL