Law Society of New South Wales -v- Murphy [2002] NSWADT 118

CITATION: Law Society of New South Wales -v- Murphy [2002] NSWADT 118 revised - 31-Dec-2002 DIVISION: Legal Services Division APPLICANT PARTIES: Council of the Law Society of New South Wales RESPONDENT Colin James Murphy FILE NUMBER: 012028 HEARING DATES: 28/03/2002 SUBMISSIONS CLOSED: 06/18/2002 DATE OF DECISION: 07/10/2002

BEFORE: Fox R - Judicial Member; Hale S - Judicial Member; Dyster B - Member APPLICATION: Professional Misconduct - breach of s. 61 of the Legal Profession Act MATTER FOR DECISION: Principal matter LEGISLATION CITED : Legal Profession Act 1987 CASES CITED: APPLICANT REPRESENTATION: P Boyd, solicitor RESPONDENT J Warburton, solicitor ORDERS: 1. The solicitor is reprimanded.; 2. Law Society to conduct three special limited trust account inspections at 6 monthly intervals to establish propriety and regularity of all transfers from the solicitor's trust account to his general account, first inspection to take place in three months time. ; 3. Solicitor to pay costs of the Society in these proceedings, being $2,000.00, within 28 days.; 4. Solicitor to pay to the Law Society, within 28 days of the trust account inspector's certifying satisfactory inspection, the cost of each such inspection.; 5. Solicitor's practising certificate to be suspended if costs orders not complied with.; 6. Both parties have liberty to apply on 14 days notice.

1 In these proceedings Mr Boyd, Solicitor appeared for the Law Society ("the Society") and Mr Warburton, Solicitor appeared for Colin James Murphy ("the Solicitor"). The matters alleged against the Solicitor arose as a result of a trust account inspection carried out by Mr Quagliata, a Law Society trust account inspector. The Solicitor was a sole practitioner in suburban practice at the relevant time, assisted by his wife, who had accounting training (and apparently) one other employee. The inspection took 3 days and so we assume it was exhaustive. Apparently some 12 matters gave the inspector cause for serious adverse comment, but only 4 of these were eventually considered serious enough to bring to this Tribunal. On the day of the hearing the Society indicated that it did not consider that all of the "Barwick" requirements had been met in respect of one particular matter, and so only pressed 3. 2 In these 3 conveyancing matters, identified by the client names, Peide Yin, Chao Chen and George Wen Chang Lin, the Solicitor admitted that he had not complied with Section 61 and had in fact appropriated funds. The amounts in question were $320.00, $500.00 and $213.00. It should, of course, be said in the Solicitor's favour, that full restitution has been made in the first two matters; in the third matter the client could not be found, and the funds were paid to the Unclaimed Monies Fund. 3 The Solicitor claimed the failure to account not to have been wilful, and the appropriations to have been without mala fides, and so not to be misappropriations. 4 The Yin money, ($320.75), was in the trust account for 10 months. The retention resulted from a not unusual circumstance: - the solicitor acted on a purchase conveyance, at settlement adjusted the water rate figures on an unpaid basis, and then sought to pay the outstanding amount to Sydney Water. Unbeknownst to either solicitor, the vendor had made a payment to Sydney Water some days before completion, and so, Sydney Water returned the Solicitor's trust account cheque advising that there was a much smaller amount outstanding, possibly being the water usage account. The Solicitor then "re-banked" his cheque, and paid the smaller amount to Sydney Water, leaving the amount of $320.75 in his trust account. Of course, these funds should then and there have been sent to the vendor's solicitor, because it was the vendor's money. 5 The Lin matter involved a dispute over $213.00 arising out of a contract for the sale of a business, and in accordance within the usual provisions of that contract, the disputed matter was submitted to a Law Society committee for a ruling. The determination occurred in September of 1997, and the purchaser's solicitor submitted a cheque for $213.00 payable to " G Lin" to the Solicitor. The Solicitor then found that he could not contact Mr Lin because he had returned to China. The cheque was later in 1997 paid into the Solicitor's trust account and then "rested" there for some 16 months before it was transferred to the Solicitor's general account. 6 In the Chen matter in the Solicitor acted on a purchase conveyance, which was settled in March of 1999. There had apparently been a dispute in relation to the cost of removal of rubbish, and that had been resolved in the Solicitor's client's favour, and resulted in a payment to the Solicitor by the agent, some weeks before the matter was settled, of a sum of $500.00. This amount was then, in June 1999, transferred to the Solicitor's general account. 7 It was clear from the evidence that all 3 takings were as a result of transfers in what the trust account inspector described as "multi matter transfers". These amounted to a gathering, in one sweep, of many small amounts held in the trust account. The transfer in relation to Yin and Lin occurred on 24 February, 1999, in the one cheque which in fact swept holdings built up over a period of about 24 months, and Chen's money was gathered in a second "sweep" cheque 3 1/2 months later. 8 It was the Solicitor's practice to receive $250.00 from each client at the commencement of a matter, and to pay that into his trust account. When the particular matter was completed and the account rendered, the remainder of the funds owed by the client would then be received and would not be paid into the trust account, but would be paid direct into the Solicitor's general account. For reasons not disclosed to us, the Solicitor did not regularly "sweep" his trust account, and so brought about the situation in February 1999 when he gathered more than $54,000.00. On any view of the matter, although we were not given accurate figures in this regard, the transfer must have represented retentions relating to more than 150 individual matters. Similarly, the June 1999 transfer covered more than 50 matters. 9 The Solicitor used a computer based Law Society approved accounting package, and conceded that there was a monthly printout which established each individual matter trust account balance, and there was no reason why he could not more frequently have made the appropriate transfers from trust to general. 10 The Solicitor's affidavit evidence was that he had relied on entirely on his staff to make the appropriate arrangements. This was orally expanded to indicate that when he was given the relevant cheques to sign, he had before him a list of file numbers and amounts. A comment was made about the (not unheard of) difficulty of fitting all of the information on a sheet of paper, and conveniently attaching it to the chequebook cheque stub. It is clear that the Solicitor, in approving of the transfer and signing the cheque, did not have any way of ascertaining the propriety of the transfers. It is also clear that he had available an accounting system which would have allowed him to generate a full list of file numbers and names and amounts which would have given him some better indication of the propriety of the transfer. The Solicitor did not do so and so denied himself even the most rudimentary opportunity to identify those amounts which were his, and those amounts which were not his to claim. 11 We cannot envisage a more complete abrogation of the Solicitor's duty under Section 61. 12 More disturbingly, the oral responses elicited by us from the Solicitor established that he now had another employee who looked after the transfers from trust to general, and: "she seems to understand what my obligations there and only transfers money which are held on account of costs". On being pressed: "when you're handed a transfer, a trust to general or trust to office transfer now, do you have a list with it or do you just sign the cheque?" He replied: "I rely on my employee to do most of the checking, I don't have time". 13 The response led us to conclude that the complete abrogation of the Solicitor's responsibilities, as first identified in 1997, continued to the day of the hearing. 14 It is appropriate at this point to set out part of Section 61 as it applied at the time 61(1) "if a solicitor, in the course of practising as a solicitor, receives money on behalf of another person, the solicitor shall: (a) hold the money exclusively for the other person [and pay the money in accordance with that other person's direction into either a general trust account or a controlled money account] and, in any case, shall be disbursed as directed by the person on whose behalf it is held (7) a wilful contravention of sub section (1) is professional misconduct". 15 Mr Warburton adopted a commonly accepted view of the law as set forth by Hardy J in Hodgekiss (1962) 62SR (NSW) 340 in relation to similar words in an earlier version of the same section "I am of opinion that the Section deals with personal breaches of the statutory provisions in question on occasions when the solicitor knew or believed he was committing such breaches or was recklessly careless in that regard" 16 The clearest summary is by his Honour in May's case (1974) 1NSWLR19 "It is well settled law that there can be wilful failure within the meaning of the Section without any positive intention to breach the law: breaches committed over a period of time can, in the light of the relevant circumstances, be so substantial and reckless and show such complete indifference on the part of the solicitor to his important obligations to his clients and to the public, as to amount to wilful failure". 17 From that, Mr Warburton argued with some force, that the failure to comply with Section 61 was not wilful because it was merely careless, and not recklessly careless. He drew attention to the fact that there were only 2 improper transfers in a list of over 150, and only 1 improper transfer in a list of over 50, and suggested that the numbers spoke for themselves. We accept that proposition; considered alone, such numbers would not normally indicate a culpable level of recklessness. However, this does not answer the matters pressed against the Solicitor, because it was his failure to make regular transfers which led to the list being so unwieldy that even had he had a full set of names to identify the individual matters in the list, he would still not, in all probability, have been able to, relying merely on memory, identify those retentions which were the client's funds, and so should not have been made. It is the failure to bring about a system which ensured that such mistakes could not be made, which renders the Solicitor's actions recklessly careless, and so, wilful. For the purposes of Section 61, the longer the list, the longer the delays in transfers, the better should have been the checking system. Thus, had there been transfers every month or two, and had the same mistakes as are now brought against the Solicitor been made, his reliance on memory to check what his staff propose to him might well not have been reckless. However, allowing the list to stretch out to 23 months and then to rely merely on a list of numbers set opposite a list of amounts especially when there was within his system a readily available method of obtaining better and more useful information , renders the conduct culpably reckless. 18 In order to remove any doubt, we also observe that had the Solicitor based his approval of the transfers on a more comprehensive list which included names to identify matters, and still only relied on his memory, reaching back over 23 months, this conduct would still have been so recklessly careless as to be wilful. Having allowed the list to stretch to 23 months, the only proper course for the Solicitor would have been personal identification and inspection of the full ledger (and then, perhaps) file of each particular matter. 19 Mr Warburton argued just as forcefully, on the same fact of the number of matters and few errors, that the taking was not misappropriation. Having heard the Solicitor's evidence, and considered all the facts, we agree:- we are not comfortably satisfied that there was any dishonesty in the taking and so are prepared to make, in the solicitor's favour, the fine distinction between inappropriate appropriation and misappropriation. 20 Ours is a protective jurisdiction, and we, in the strongest possible terms, disapprove of the Solicitor's complete abrogation of his responsibility. We agree with the Society's demand for a reprimand. In the same vein, we agree with the Society's request that the Solicitor pay the Society's costs, but further say that because the conduct was not dishonest, we do not think it appropriate that there be a fine. However, in view of the Solicitor's proven failure to understand his responsibility up to the day of the hearing, we are satisfied that in order to protect the public, there must, for some time in the future, be regular special supervision of his trust account conduct. We direct that there be, at 6 monthly intervals, the 1st to take place in 3 months time, general limited inspections of his trust account, specifically to establish the propriety of all trust to general transfers. Such inspections are to be carried out by an experienced inspector of the Law Society. It is obviously not appropriate that the rest of the profession bear the cost of such oversight, and so we order that the Solicitor pay to the Law Society, within 28 days of the trust account inspector certifying that all is in order, the cost of each such inspection. We otherwise make the usual order that the failure to comply will enable the Society to suspend the Solicitor's Practising Certificate, and, for obvious reasons, also give the Law Society liberty to apply on 14 days notice. Decision revised on 31/12/02 - Order 2 revised by inserting "three" after the word "conduct"