CITATION: Law Society of NSW v Lukas [2004] NSWADT 231 revised - 9/11/2004 DIVISION: Legal Services Division APPLICANT PARTIES: The Council of the Law Society of New South Wales RESPONDENT John Sebastian Lukas FILE NUMBER: 032030 HEARING DATES: 01/04/2004 SUBMISSIONS CLOSED: 04/01/2004 DATE OF DECISION: 10/13/2004 BEFORE: Vass CB -Judicial Member; Gailey C - Judicial Member; Bubniuk L - Non Judicial Member APPLICATION: Professional Misconduct - fail to lodge accountant's report with Law Society MATTER FOR DECISION: Principal matter LEGISLATION CITED : Legal Profession Act 1987 Legal Profession Regulation 2002 CASES CITED: Re: Hodgekiss 1962 (NSW) SR340 Re: Vickery (1931) CH 572 APPLICANT REPRESENTATION: P Boyd, solicitor RESPONDENT In person ORDERS: The information is dismissed. 1 The Council of the Law Society of New South Wales (the Law Society) filed an Information in the Tribunal on 24 December 2003 alleging that John Sebastian Lukas (the Solicitor), within the meaning of S.128 of the Legal Profession Act 1987 (the Act), was guilty of professional misconduct on the ground that: "The Solicitor has wilfully failed to comply with the requirements of clause 94(1) of the Legal Profession Regulation 2002." 2 The particulars of the alleged breach were contained in the schedule to the Information as follows: 1. Clause 48 of the Legal Profession Regulation 1994 provided as follows: (1) If a Solicitor received, held or disbursed money to which section 61 (1) of the Act applies at any time during the year ending on 31 March that last preceded an application by the Solicitor for the issue or renewal of a practising certificate, the Solicitor must ensure that, on or before the making of the application, there is lodged with the Law Society an accountant's report in respect of: (a) each practice conducted by the solicitor as a sole practitioner, and (b) each firm of which the solicitor was a partner, at any time during that year, and (2) The accountant's report is to be in or to the effect of Form 5, and is to be prepared by a registered company auditor within the meaning of the Corporations Law. (3) If the Law Society Council so requires, a Solicitor must: (a) obtain, and pay for, another report that complies with subclause (2), and (b) forthwith, on its receipt, lodge the report with the Law Society. (4) The Law Society Council may require the report under subclause (3) to be made by a registered company auditor nominated by the Law Society Council. (5) It is a sufficient compliance with this clause by a Solicitor practising in partnership if one accountant's report is lodged for the partnership. 2. Clause 94(1) of the Legal Profession Regulation 2002 provide as follows: (1) If a solicitor received, held or disbursed money to which section 61(1) of the Act applies at any time during the year ending on 31 March that last preceded an application by the solicitor for the issue or renewal of a practising certificate, the solicitor must ensure that, on or before the making of the application, there is lodged with the Law Society an accountant's report in respect of: (a) each practice conducted by the solicitor as a sole practitioner, and (b) each firm of which the solicitor was a partner, at any time during that year, and (c) each incorporated legal practice of which the solicitor was a solicitor director, at any time during that year. (2) The accountant's report is to be in or to the effect of Form 6, and is to be prepared by a registered company auditor within the meaning of the Corporations Act 2001 of the Commonwealth. (3) If the Law Society Council so required, a solicitor must (a) obtain, and pay for another report that complies with subclause (2), and (b) forthwith, on its receipt, lodge the report with the Law Society. (4) The Law Society Council may required the report under subclause (3) to be made by a registered company auditor nominated by the Law Society Council (5) It is a sufficient compliance with this clause by a solicitor practising in partnership if one accountant's report is lodged for the partnership. (6) It is a sufficient compliance with this clause by a Solicitor practising as a Solicitor director of an incorporated legal practice if one accountant's report is lodged for the incorporated legal practice. 3 The Legal Profession Regulation 1994 was repealed on 1 September 2002 and on that date the Legal Profession Regulation 2002 commenced. 4 Mr John Sebastian Lukas had, for the year ending 31 March 2002, failed to comply with the requirements of Clause 48 of the Legal Profession Regulation 1994. 5 By letter dated 2 August 2002 from Mr Ray Collins ("Mr Collins"), the Manager of the Professional Standards Department of the Law Society of New South Wales ("the Society"). The solicitor was advised as follows: "Recent correspondence forwarded to you by the Law Society drew your attention to the necessity to lodge an Accountant's Report in accordance with Clause 48(1) of the Legal Profession Regulation 1994. Your 2002 Accountant's Report was not received in accordance with the Act and Regulation. It was lodged only after your failure was brought to your attention. At the meeting of the Council of the Law Society held on Thursday, 18 July 2002 it was resolved, inter alia, that you be advised that the Council considered your failure to be serious and that you be warned against similar failure in the future. Council further determined to record the fact that this warning has been given. No further action is to be taken regarding your failure to provide the 2002 Accountant's Report, but any failure to provide the same in accordance with the Act and Regulation in future may lead to the refusal to issue you with a Practising Certificate." 6 The Solicitor lodged Application for a Practising Certificate for the year ending 30 June 2004 and same was received by the Society on 30 June 2003. 7 By letter dated 23 June 2003 from Mr John Mitchell, the Chief Trust Account Inspector of the Society, the Solicitor was advised as follows: "The Society's records disclose that for the period of 1 April 2002 to 31 March 2003, your firm maintained a trust account and/or controlled money account. As a consequence an Account (sic) Report is required to be lodged with your application for renewal of your practising certificate for 2003/2004. An Accountant's Report has not been received for the firm. The Accountant's Report is required to be lodged in accordance with clause 94(1) of the Legal Profession Regulation 2002. The Law Society Council in accordance with Section 30 of the Legal Profession Act is unable to issue a practicing certificate until the required information as prescribed by the regulation has been received. Will you please forward the Accountant's Report as a matter of urgency. In the event that the report is not received, the matter will be considered by the Law Society Council at the Council meeting to be held on 17 July 2003. …." 8 By letter dated 8 July 2003 from Mr Collins, the Solicitor was advised as follows: "I refer to the Chief Trust Account Inspector's letter dated 23 June 2003 regarding the necessity to lodge an Accountant's Report as required by Clause 94 of the Legal Profession Regulation 2002. The Accountant's Report is required as part of the process for renewal of your practising certificate. Section 30 of the Legal Profession Act 1987 provides, inter alia, that the Council of the Law Society must refuse to issue a practicing certificate in the event of either a failure to lodge an Accountant's Report or such a Report not containing the prescribed information. The Chief Trust Accountant Inspector has advised that you have not yet complied with your obligation in regard to the lodgement of an Accountant's Report. I also note that your 2002 Accountant's Report was received after 30 June 2002 and I attach a copy of my letter dated 2 August 2002 for your information. The Council of the Law Society will be asked to consider your entitlement to renew your practicing certificate and the need to appoint a manager to your practice pursuant to Section 114B of the Act at its meeting of 17 July 2003. Would you please comply with one of the following options prior to 5 p.m. Thursday 16 July 2003: In the event of your having already forwarded the report please send me a copy so that further action is stayed; OR Submit a properly completed Accountant's Report together with a full and frank explanation for its delay; OR Provide such written submissions as you may wish as to why the application for renewal of your practicing certificate should not be refused and a manager appointed to your practice. In the event that you lodge the Accountant's Report prior to 5pm 16 July 2003, please provide such written submissions as you may wish as to why the Council should not appoint an investigator to your affairs, pursuant to Section 55 Legal Profession Act. Please note that the Regulation does not provide for an extension of time in which an Accountant's Report is to be lodged." 9 The Accountant's Report is required by clause 94 above is dated 7 July 2003. 10 The Solicitor failed to comply with the directions given by the Tribunal prior to the hearing date in that he had not filed a Reply, nor did he file and serve any evidence in response to the Information. 11 At the Hearing, Mr Lukas gave evidence and during that evidence, the Solicitor: (a) conceded that he had failed to supply the Accountant's Report on or before 30 June 2003 to support the application for a practicing certificate which was received by the Law Society on 30 June 2003; (b) that he had kept all the appropriate records so that an Accountant's Report to comply with the regulation could be completed. He however, needed to supply all the records to his Accountant in April 2003 having completed a reconciliation of his Trust Account records by that time; (c) one of the bank statements that the Solicitor had received contained an error. The Solicitor therefore could not do the reconciliation and complete a trial balance during April 2003; (d) he concedes that he then did not get in touch with the bank in order to have the error corrected, other than to attend the bank on a number of occasions but found the queue was too long so he did not stay; (e) the Solicitor admits that he could have resolved the problem with the error in the statement if he had made a greater effort prior to the time when it was resolved which was in late June 2003; (f) the Accountant's statement was therefore not completed until 7 July 2003 and it was sent to the Law Society by courier on 8 July 2003. 12 The Solicitor admitted each of the particulars set out in schedule 1 to the Information but denied that he had wilfully failed to comply with the requirements of clause 94(1) of the Legal Profession Regulation 2002 (The Regulations). 13 When cross-examined by Mr Boyd, the Solicitor's evidence was that this particular appearance before the Tribunal was the fourth occasion that a complaint had been made against him. He has been found guilty of professional misconduct by the Tribunal in 1992 and in 1995 and on each occasion fined the sum of $10,000.00 and those proceedings related to failure to comply with a notice served upon him under the provisions of Section 152(1) of the Act. There was another matter before the Tribunal in 1997 and that complaint also related to delay. 14 Section 30(1) of the Act provides: "30(1) A council must refuse to issue a practicing certificate if the application for it: (a) is not accompanied by the appropriate fee; or (b) is not accompanied by, or does not contain, such information as may be prescribed by the Regulations." Clause 94(1) of the Regulations, inter alia, provides that a Solicitor who has held or dispersed money to which Section 61(1) of the Act applies, must on or before making the application for a renewal of a practicing certificate, lodge with the Law Society an Accountant's Report in the prescribed form. The sanction therefore for the failure of a Solicitor to comply with clause 94(1) of the Regulation, must be to refuse to issue a practicing certificate as required by Section 30(1) of the Act. 15 Professional misconduct and unsatisfactory professional conduct is defined in Section 127 of the Act and that section provides as follows: 127(1) For the purposes of this Part, "professional misconduct" includes: (a) unsatisfactory professional conduct, where the conduct is such that it involves a substantial or consistent failure to reach reasonable standards of competence and diligence; or (b) conduct (whether consisting of an act or omission) occurring otherwise than in connection with the practice of law which, if established, would justify a finding that a legal practitioner is not of good fame and character or is not a fit and proper person to remain on the roll of legal practitioners; or (c) conduct that is declared to be professional misconduct by any provision of this Act. (2) For the purposes of this Part: "Unsatisfactory professional conduct" includes conduct (whether consisting of an act or omission) occurring in connection with the practice of law that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent legal practitioner or interstate legal practitioner. 16 The Tribunal is satisfied that the Solicitor failed to comply with clause 94(1) of the Regulation in that when making the application for a practicing certificate for the year ending 30 June 2004, it was not accompanied by nor was there lodged before, an Accountant's report which complied with the regulation. However, there is no statutory provision that such failure constitutes professional misconduct. (Contrast S152 of the Act). What in fact is provided in Section 30 of the Act, inter alia, is that the Council of the Law Society must refuse to issue a practicing certificate. 17 The Tribunal therefore must determine whether there are circumstances in which the Solicitor's failure to comply with the subject regulation might be so disgraceful or dishonourable as to amount to professional misconduct. 18 The Law Society referred the Tribunal to the Decision of the New South Wales Court of Appeal in Re: Hodgekiss 1962 (NSW) SR340 in support of its argument that the failure of the Solicitor to comply with the Regulation was "wilful". Hardie J in his Judgment at P352, dealt with the meaning of the phrase "wilful failure" as follows: "The meaning of the phrase "wilful failure" in Section 43 does not appear hitherto to have been dealt with in any decision of this Court. Assistance is provided, however, by reported decisions dealing with similar phrases and particularly by the decision of Romer J. and the Court of Appeal in re City Equitable Fire Insurance Co. Ltd (1925) 1 Ch. 407. In that case the question for decision was the meaning of the phrase "wilful neglect or default" in a provision in the articles of association of the company limiting the liability of directors for loss suffered by the company by reason of the exercise of their powers and duties. Romer J. reviewed a number of earlier decisions dealing with the phrases "wilful default" and "wilful misconduct" in contracts of sale and other instruments, and then proceeded Ibid, at p. 434: "…the difficulty is not so much in ascertaining the meaning of the adjective "wilful", as in ascertaining precisely what is the noun to which the adjective is to be applied. An act…is wilful where the person…knows what he is doing and intends to do what he is doing. But if that act or omission amounts to a breach of his duty, and therefore to negligence, is the person guilty of wilful negligence? In my opinion that question must be answered in the negative unless he knows he is committing, and intends to commit, a breach of his duty, or is recklessly careless in the sense of not caring whether his act or omission is or is not a breach of duty". In the Court of Appeal Pollock M.R. (Ibid at p. 517), adopted as the definition of wilful misconduct that given by Lord Alverstone some years earlier, and based upon an extract from a judgment in an Irish case, to this effect: "Wilful misconduct, means misconduct to which the will is party as contradistinguished from accident and is far beyond any negligence, even gross or culpable negligence, and involves that a person wilfully misconducts himself who knows and appreciates that it is wrong conduct on his part in the existing circumstances to do, or to fail or omit to do (as the case may be), a particular thing, and yet intentionally does, or fails or omits to do it, or persists in the act, failure or omission regardless of consequences, or acts with reckless carelessness not caring what the results of his carelessness may be." Warrington L.J. (Ibid at p 525) and Sargant L.J. (Ibid at p. 529) adopted the test laid down and applied by Romer J. In re Vickery (1931) 1 Ch 572 Maugham J. (as he then was) treated the definition of "wilful neglect or default" as laid down by Romer J and the Court of Appeal in the case abovementioned as applicable to the determination of the meaning of that phrase in certain provisions of the Trustee Act, 1925; in his judgment Maugham J. (Ibid at p. 583) restated the principle thus: "a person is not guilty of wilful neglect or default unless he is conscious that, in doing the act which is complained of or in omitting to do the act which it is said he ought to have done, he is committing a breach of his duty, or is recklessly careless whether it is a breach of his duty or not". See also Transport Commission (Tas) v Neal Edwards Pty Ltd (1954) 92, C.L.R. 214 at p. 228, Royal Victorian Aero Club v The Commonwealth (1954) 92 C.L.R. 236 at pp245, 243, Dalrymple v Melville (1932) 32 SR(NSW) 596 at pp 601-602." 19 His Honour went on to indicate that it was essential in an inquiry as to whether or not there have been wilful breaches by a Solicitor of the provisions of the Act to examine the facts and circumstances relevant to his state of mind, knowledge and intention at the material dates. 20 Further, because of the seriousness of the charge of professional misconduct, the Tribunal has to be comfortably or confidently satisfied that the charge has been made out (Briginshaw v Briginshaw (1938 60 CLR at 368). 21 The evidence of the Solicitor is that: (a) he received a bank statement in April that contained a wrong entry and therefore could not complete a trial balance; (b) that he did not put enough energy into attending the bank and having the mistake corrected until mid June 2003; (c) that the bank statement, when corrected, was passed to his accountant to complete the accountant's certificate as required by clause 94(1) of the Regulation; (d) the Accountant's Report was sent to the Law Society of 8 July 2003 which is in effect 8 days late. 22 Considering all the evidence, the Tribunal does find that the Solicitor has breached regulation 94(1) of the Act. However, as previously stated, there is no statutory provision that such failure constitutes professional misconduct. 23 The question for the Tribunal to determine is whether the failure "is far beyond any negligence, even gross or culpable negligence, and involves that a person wilfully misconducts himself who knows and appreciates that it is wrong conduct on his part in the existing circumstances to do or to fail or omit to do (as the case may be), a particular thing, and yet intentionally does, or fails or omits to do, or persists in the Act, failure or omission regardless of consequences…or acts with reckless carelessness, not caring what the results of his carelessness may be." (In Re: Hodgekiss Supra) 24 In the opinion of the Tribunal, the question must be answered in the negative. The Solicitor by leaving the correction of the bank statement until mid June 2003 and therefore not supplying the Accountant's certificate until 8 July 2003, shows that his state of mind, knowledge and intention prior to 30 June 2003 was to comply with clause 94(1) of the Regulation. 25 The Tribunal has considered whether the Solicitor may be found guilty of unsatisfactory professional conduct. Unsatisfactory professional conduct is defined in Section 127 of the Legal Profession Act (supra). There is no evidence to the effect that the Solicitor's conduct amounts to a substantial and consistent failure to reach reasonable standards of competence and diligence in the practice of law. The Tribunal does not find that the Solicitor has been guilty of unsatisfactory professional conduct. 26 The Tribunal makes the following order: ORDER The Information is dismissed. 9 November 2004 - Decision revised: Paragraph 13 amended to correct date DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.