The Legal Services Tribunal of New South Wales CITATION : Terence Dominic Maher [1990] NSWLST 6 PARTIES : Terence Dominic Maher FILE NUMBER(S) : of CORAM: CATCHWORDS: Professional Misconduct - fail to carry out instructions - Professional Misconduct - gross negligence and delay/gross delay/delay - Professional Misconduct - fail to act honestly :- Legal Profession Act 1987 Legal Practitioners' Act 1898 LEGISLATION CITED: Prior Act Real Property Act Local Government Act Maxwell v Murphy (1957) 96 CLR 261; Republic of Costa Rica v Erlanger~ (1976) 3CH; Wright v Hale (1860) 6H & N227; CASES CITED: Galvin v The Forests Commission of Victoria (1939) VLR 284; Freeman V Moyes (1834) lAd & El 338; Jackman v Dandenong Sewerage Authority (No 2) (1967) 20 LGRA 413; Realty Development & Mortgage Co Ltd v Londish (1967) 87 WN (Pt l) (NSW) 92 DATES OF HEARING: 30/11/89 - 07/06/90 DATE OF JUDGMENT: 06/07/1990 Mr P.R. Garling Miss R MacDougal LEGAL REPRESENTATIVES: Mr P Capelin QC Mr Graves Messrs Lloyd & Lloyd JUDGMENT: The Legal Profession Disciplinary Tribunal In the matter of Terence Dominic Maher Determination and Orders This complaint relating to the conduct of Terence Dominic Maher (the Solicitor) was made to the Legal Profession Disciplinary Tribunal by the Council of the Law Society (The Law Society and Complainant) under Section 135 of the Legal Profession Act 1987 (the Act) pursuant to resolutions of the Council of the Law Society made on 28th January and 11th February,1988. A copy of the Statement of Complaint together with particulars of the allegations against the Solicitor is annexed hereto and marked "A". The complaint was heard on 30th November and 1st December, 1989. Mr P Capelin QC with Mr Graves instructed by Messrs Lloyd & Lloyd appeared for the Solicitor and Mr P.R. Garling instructed by Miss R MacDougal appeared for the Law Society. The original Statement of Complaint raised 7 allegations of professional misconduct in respect of 22 matters which related to contributory investments of clients' funds as follows: Paragraphs 1,2 and 3 - wilful breaches of Section 41(1) of the Legal Practitioners Act 1898 (the Prior Act) and failure properly and adequately to secure clients' moneys invested by the Solicitor or his partners. The particulars detailed 15 transactions involving moneys of more than 60 clients. Paragraphs 4 and 5 - wilful breaches of Section 42 (2) of the Prior Act in relation to 3 matters. Paragraph 6 - dishonesty and reckless disregard in conducting 3 matters in relation to 9 clients; and Paragraph 7 - gross neglect, delay or inattention in conducting some 17 matters involving about 50 clients. At the beginning of the hearing Counsel for the Law Society informed the Tribunal that a number of matters alleged in the complaint were not being pursued because further material had come to light. As a result paragraphs 1,2 and 3 were reduced from 15 to 4 matters; paragraphs 4 and 5 were deleted from the complaint; in paragraph 6 the allegation of dishonesty and 2 of the 3 matters were deleted leaving only the Atha Pty Limited matter. In paragraph 7 five matters remained out of about 20. Four of these were the same matters as were the subject of particulars in paragraphs 1,2 and 3. The matters relating to the estate of C.B. Thompson was withdrawn half way through the first hearing day. Ultimately the matters remaining for consideration by the Tribunal were as follows: Atha Pty Limited in relation to paragraphs 1,2,3,6 and 7; S.G. and E. Davias in relation to paragraphs 1,2,3 and 7; C.Mann in relation to paragraphs 1,2,3 and 7 J. & P. Harvey in relation to paragraphs 1,2,3 and 7 and Tempconame No 5 Pty Limited in relation to paragraph 7. The Complainant sought a finding of professional misconduct against the Solicitor. The evidence before the Tribunal consisted of: 1. The Statutory Declaration of John R. Hunt dated 4th March, 1988 to which were annexed the Statement of Complaint and copies of 2 reports of Jean Sayer dated 16th December 1985 and 6th February 1986. It was agreed that only those parts of the report which related to the 5 matters which were the subject of the complaint as amended at the hearing would form part of the evidence; 2. the Statutory Declaration of the Solicitor dated 6th October,1989; 3. Statutory Declarations regarding character from Michael John Walsh, Barrister, a former partner of the Solicitor and David James Lockhart, a partner of the firm of solicitors who since 1st July, 1987 had employed the Solicitor and from 27 solicitors in the Newcastle area who had professional contact with him, for the most part between 10 and 16 years; 4. oral evidence of : (a) Jean Sayer (b) the Solicitor (c) Michael John Walsh; and (d) David James Lockhart. At the conclusion of the hearing the Tribunal reserved its decision. The following references are used herein: Statutory Declaration statement of Complaint ranscript Background The Solicitor was born in Sydney on 17th April, 1948 and was at the time of the hearing married and had 3 children aged 9,7 and 5 years. He was admitted as a solicitor on 24th November, 1972 having served Articles of Clerkship with Messrs F.A. Finn Roache & Co. He was employed by Messrs Hugh McHugh & McHugh of Moruya for about 6 months and on 9th March, 1973 commenced employment at Newcastle with Messrs Bruce O'Sullivan Fox & Walsh. This firm changed its name on 1st November, 1976 and on 1st July, 1985 when it became Fox Maher & Partners and several changes in partnership occurred between March 1973 and January 1986. The Solicitor became a partner on 1st January, 1978. When he joined the firm the partners were Maxwell Ronald Fox, Michael John Walsh and Eric Richard Butler. Fox retired on 1st January 1980 was consultant for about 2 years and was admitted to the bar on 6th November, 1981. Walsh retired on 30th June, 1985 and was admitted to the bar and Butler retired in 1974. When the Solicitor became a partner the other members of the firm were Fox, Walsh, Francis John Maher and Brian Abington Doyle. After commencing employment in 1973 the Solicitor worked under the direction of Eric Butler and was primarily involved with conveyancing and estate work. After a few months he took on in addition Petty Sessions work and attending Courts in the Newcastle area. Between 1973 and April 1976 when he went overseas for about 8 months the allocation of work of the other solicitors in the firm was largely: (a) Mr Fox - a large liquor licensing practice, mortgage work, conveyancing, estates and Supreme Court litigation; (b) Mr Walsh - almost exclusively conveyancing and commercial work. His clients included several large finance companies in Newcastle and some large real estate developing companies; (c) Mr Frank Maher - (no relation to the Solicitor) family law; (d) Mr Doyle - Local Court, District court and Supreme Court work; (e) Mr Butler - until departure in July 1974 conveyancing and some Court appearances. On 12th December, 1985 Jean Sayer was appointed investigator of Fox Maher & Partners pursuant to 5. 82A of the Prior Act and on 14th March, 1986 she was appointed Receiver. At that time the practising certificates of all partners were cancelled by the Law Society. Subsequently these were restored unrestricted to all except the Solicitor, whose certificate was restricted allowing him to practise only as an employee. On 30th June, 1987 the partnership was dissolved and the firm was taken over by Braye Cragg who since that date employed the Solicitor. Three of the former partners of Fox Maher & Partners are partners of Braye Cragg. This firm does not undertake work in respect of contributory mortgages and the Solicitor is engaged in routine conveyancing, estate work, commercial leasing and general commercial work. His mortgage transactions are only those involving loans to clients from financial institutions. After returning to work early in 1977 the Solicitor worked under the direction of Mr Fox in liquor licensing matters including licensing Court appearances in many country towns in New South Wales. Mr Fox completed all preparatory work and the Solicitor received the files a day or so before the hearing of transfers of licence. He became aware of loans made available by the firm's lender clients to purchaser clients for the acquisition of freehold or leasehold hotels. Quite frequently the security for the loans was not a first mortgage over real estate. On occasions there were unsecured personal loans only. The Solicitor took no part in arranging the provision of clients' funds to borrowers in respect of liquor transactions. This was done by Mr Fox and a managing clerk, Mr Dennis, who supervised the accounts staff, the trust account and mortgage records. Mr Dennis controlled 3 to 4 full time employees and some casual staff and had a separate section in the office. In 1977 Messrs Fox and Walsh allocated to the Solicitor some of their work involving real estate developer clients. Almost invariably clients of the firm were lending money to the developer clients. Contributory loans were made by clients who deposited money with the firm which used Belmont Heights Developments Pty Limited (BHD) as corporate trustee. All partners were directors of this company and Mr Dennis its secretary. Declarations of Trust were to be made with respect to lender clients, usually by Dennis and sometimes by partners of the firm, including the Solicitor after 1978. Although the Solicitor acted in these matters he had no contact with the lender clients and had no part in the decisions regarding the making of the loans. The usual procedure was for Mr Fox to allocate the borrower client to the Solicitor. The client then informed him of the loan required and the security available, often something other than a first mortgage. The Solicitor informed Mr Fox and he made decisions regarding approval and directed the Solicitor to Mr Dennis who within a few days informed him of the names of the lenders and amounts to be advanced to them. Acting on this information the Solicitor prepared the mortgage, declaration of trust and epitome of mortgage. Quite frequently the borrower clients approached the Solicitor direct regarding subsequent transactions. The Solicitor then approached Mr Dennis to ascertain availability of funds. In early 1977 the Solicitor was informed by Mr Fox that security for clients did not necessarily need to be a first mortgage because certain lenders had deposited their money with the firm with instructions that their funds were to be advanced at the discretion of the partners (Solicitor's SD 23). Mr Walsh also confirmed this to the Solicitor. The practice subsequently adopted by the Solicitor was to rely on Mr Dennis to allocate the investments in accordance with the instructions held by the firm. The Solicitor did not knowingly commit investor clients' funds to be advanced on other than first mortgage security contrary to their instructions. The Solicitor's evidence regarding the contributory mortgage practice of the firm and the dealings outlined above was confirmed by the evidence of his former partner Mr Michael John Walsh. The modus operandi was in place in 1964 except for the fact that the nominal lender was then a partner of the firm. BHD, a shelf company, became the lender sometime thereafter. It did not trade in any way or have any other function than to be corporate trustee for lender clients. The clients left the matter of security for their investments to the firm except for a few clients who specified that they required first mortgage security. Mr Dennis kept a record of these requirements. The Atha matter This matter is raised in paragraph 1,2,3,6 and 7. Paragraphs 1,2 and 3 allege that in breach of S.41(1) the Solicitor in June/July 1984, after default had been made by Atha as borrower and without disclosing such default, advanced clients' moneys to Atha knowing that the security was inadequate and further that on distribution of proceeds of sale he preferred the interests of some contributors to those of others. Paragraph 6 alleges on the same facts that he acted with reckless disregard of his clients' affairs. Paragraph 7 raises gross neglect and delay regarding the registration of the mortgage and the non-registration of the variation. Atha Pty Limited was a client of the firm. Advances were made to it progressively from 1978 for real estate development from lender clients. As at 20 January, 1984 the amount owing was $672,450.00. This was subsequently reduced by proceeds of mortgagee sales to $404,500.00 which represented funds of 55 contributories. The security for the initial advance was a mortgage to BHD dated 8 August, 1979 over 28 lots at Bolwarra in the sum of $237,250.00 repayable on demand. It expressly secured, in addition to the principal sum all other moneys owing at any time on any account by the mortgagor to the mortgagee. The mortgage was registered on 25 March, 1983 No. T398389 and a variation was executed on 24 June, 1983 when the principal sum was shown to be increased to $757,450.00 and the interest rate increased from 14% to 17.75% per annum. The variation was stamped but not registered. Guarantees were given to BHD by Mr and Mrs Westbury and by their company Melboy Pty Limited which also gave to BHD a second and third mortgage to secure its guarantee. On 10 August, 1983 a Notice of Demand under Section 57 (2) (b) of the Real Property Act was issued by the Solicitor to Atha Pty Limited. The outstanding interest as stated therein was $78,582.97. On 20 January, 1984 the Solicitor prepared a memorandum in which he set out in full details of the state of the loan and interest, the security and the names of the lender clients. He detailed sales made by BHD as mortgagee exercising power of sale on 15 October 1983 and since that date and also of lots remaining unsold which were listed for sale and their estimated realisation value. He specified the amount secured by and date of the original mortgage, the variation then stamped but not registered and the guarantees given. He gave particulars of assets of the guarantors, Mr and Mrs Westbury and Melboy Pty Limited, of which they were Directors. He then continued: "What concerns me now is that if all the assets of Atha Pty Limited and Melboy Pty Limited were now realised the proceeds would be insufficient to cover the debt to BHD and I think it crucial that we now determine the proper course of action so far as investor clients are concerned. Peter Taylor has been already briefed in relation to the drafting of Section 57 (2) (b) Notices, Statement of Claim against the guarantors and advice generally as briefed. There is no immediate problem in so far as demands of investor clients are concerned as these have been met more or less as made from proceeds of sale and it is my intention to continue this course of action. Ultimately, the day of reckoning may come. Ben Westbury is heading for the hills so far as the BHD debt is concerned making no attempt to service the interest, not that he has the capacity to do so, but exhibits total lack of good faith when pressed on a possible deficiency. He has, of course, guaranteed the debt but as to what his assets are is anyone's guess but I feel sure that apart from one asset he is "of straw". That asset is his units in the Eleebana Unit Trust of which W S Waterhouse Investments Pty Limited is the corporate trustee... These units are valuable and if Ben chose to realise them could well cover the BHD debt. " The Solicitor expressed his view of what action should be taken. He gave a copy of this memorandum to each of his then partners and they held a meeting at which the problems raised in it were discussed . In 1984 the Solicitor and Mr Walsh had numerous meetings with Mr Westbury who on their insistence gave additional security to cover the existing indebtedness of Atha Pty Limited and to secure a further advance of $40,800.00 made in June/July 1984. The documentation for this further security was prepared by Mr Walsh. it included security over the Eleebana land. Shortly after the Section 57 notice was issued by the Solicitor Atha instructed independent solicitors, Messrs Turnbull, Hill & Doyle. In June 1984 Mr Westbury was independently advised by this firm. The other partners of Fox Walsh Maher Doyle were kept informed and approved of the further advance and the security taken. The Solicitor believed that the Eleebana equity had a value of at least $400,000.00 and that this was adequate security for the moneys owing to BHD. He did not advise the lender clients of the default of Atha. At the time of the further advance of $40,800.00 the interest outstanding in August 1983 had been paid without recourse to the further advance but recently accrued interest of $3,661.00 was unpaid. In assessing the value of the equity at $400,000.00 the Solicitor relied on a valuation of Mr Roy White, Registered Real Estate Valuer who in March 1982 had valued stage 1 of the land at $1,512,000.00 and an estimate by Mr Westbury's Co-Director, Mr Blackley, Surveyor and Town Planner, in the sum of $3,000,000.00. By June 1984 the plan of subdivision had been registered and sales had taken place for amounts in excess of White's valuation. The residuary lots of Atha at Bolwarra were the subject of two valuations, one by Stewart Hicks for $428,500.00 described by the Solicitor in the memorandum as "wildly unrealistic" and the other by Brian O'Loughlin & Associates for $210,000.00 which he thought may have been on the high side. In his evidence the Solicitor stated that at the time of making the further advance of $40,800.00 he believed that the security was adequate and that Mr Westbury's proposals for the further payment of interest and repayment of principal were genuine and realistic. He also stated that he realised later that the assessment made by him in 1984 was incorrect because the estimates of value of the Eleebana land at that time ultimately proved incorrect. He acknowledged his error in making further advances of principal without the consent of the existing contributors and without making full disclosure of the position to the new lenders. It did not occur to him in 1984 that he should do so and his judgment was affected by the erroneous belief that the existing and new contributors were fully protected by the security including additional security provided. He acknowledged that it was wrong to make repayments to some only of the contributors and that all repayments should have been made on a pro-rata basis. The Tribunal finds that in so far as the Solicitor made repayments after default had occurred to some contributors and not to all of them he preferred the interests of some and such actions were not consistent with his duties to the whole group of contributors. The Tribunal will address separately the question whether or not this and the making of the advance amounted to a breach of Section 41(1) of the Prior Act. As from January 1984 the Solicitor was aware of the shortfall. At that point he took steps to obtain further security and this was given in respect of the Eleebana land in June 1984. Notwithstanding the earlier default and some outstanding interest the funds of new contributors were advanced to Atha in July 1984. However the actions of the Solicitor resulted from an error of judgment as he believed - wrongly in the event - but on reasonable grounds having regard to the valuations on which he relied, that there was adequate security to cover all existing and new contributors. When in June 1984 the additional security was obtained the Solicitor and his partners believed the lender clients were fully secured. Mr Walsh who assisted the Solicitor with the preparation of the documents relating to the further security stated in his Declaration that when the Eleebana transaction was settled there was very considerable relief on the part of the partners as it was believed that the problem in regard to the loan to Atha Pty Limited had been resolved. In these circumstances the Tribunal is not satisfied that the solicitor failed to ensure that the money invested on behalf of clients was properly and adequately secured. It finds that at the time of the advance the Solicitor had no knowledge that the security was inadequate. It follows that he did not act with reckless disregard of his clients' affairs as alleged in paragraph 6. Delay in registration of mortgage dated 8.8.1979 until 25.3.1983. Non-registration of variation dated 24.6.1983 (paragraph 7). On 5 June 1978 a Certificate of Title Volume 13626 Folio 222 known as a dual entitlement qualified Certificate of Title was issued by the Registrar General showing Atha Pty Limited as proprietor of one parcel (the "F" parcel) and W Tobin & Sons Pty Limited as proprietor of the other parcel (the "X" parcel). The "X" parcel, formerly old system title, had been purchased by Atha from Tobin and part of the purchase money was secured by deed of mortgage given by Atha to Tobin. The Certificate of Title showed that the "X" parcel was the subject of a caution pursuant to Section 28A of the Real Property ACt and a Registrar General's caveat pursuant to Section 28F(2) of that Act in respect of the interest of Atha as mortgagor. The Title Deed was retained by the Registrar General. The Solicitor became aware of the combining of the two parcels in one title in about July, 1978. Advances to Atha by clients of the firm were secured by a second unregistered mortgage to BHD dated 21.7.1978. The Solicitor prepared a caveat which was entered on the Title on 8.3.1979, Number Q980591. The Atha/Tobin mortgage was discharged in 1979. On 8 August, 1979 Atha executed a first mortgage over the "X" parcel in favour of BHD. This mortgage replaced the earlier second mortgage which was protected by the caveat. It secured advances totalling $237,250.00 and was repayable on demand (65SD). The Solicitor made an error in the description of the land comprised in the mortgage which he described by reference to the old system title. This contravened Section 327AA of the Local Government Act which prevented registration of a dealing in respect of part of the unsubdivided title comprised in the dual entitlement qualified Certificate of Title issued in June, 1978. The Solicitor suggested the Registrar General may have registered the mortgage had the description been similar to that in the caveat Q980951 registered on 8 March, 1979. The Solicitor sent the August mortgage to his law stationers on 18 December, 1979 but the Registrar General refused registration by reason of the contravention of Section 327AA. No effective steps were taken by the Solicitor between 23 May, 1980 when he made written submissions to the Registrar General which were unsuccessful and some time prior to 25 March, 1983 when he amended the description to refer to the whole of the land in the Title. The mortgage was duly registered on 25 March, 1983. The matter was complex but there is no adequate explanation for the delay. The initial delay of 4 months from 8 August to 18 December, 1979 when the mortgage was sent to the law stationers is unexplained as is the very substantial delay from July, 1980 when the mortgage was returned unregistered until some 2 1/2 years later when on 6 January, 1983 the Solicitor put the document into registrable form. The Tribunal finds the delay gross and excessive even having regard to the difficulties which arose but having regard to the circumstances of the matter does not consider that the Solicitor was guilty of professional misconduct. Also particularised in paragraph 7 of the complaint is the Solicitor's failure to register the variation of the Atha mortgage. After the mortgage itself was registered he decided to record the change in the principal and interest rate which had progressively occurred since 1979. On 24 June, 1983 he arranged for Atha to execute a variation of the mortgage showing the principal sum of $757,450.00 and interest of 17% per annum. The document was duly stamped but never registered. The Solicitor's explanation for this was that he considered it unnecessary to register the document because the mortgage contained a covenant whereby it was security for the principal sum therein specified and also for all other moneys at any time owing to the mortgagee by the mortgagor on any account. The variation according to the Solicitor did not create any rights not already created by the mortgage. It came into existence for evidentiary purposes only. In June 1983 Atha was in arrears with interest payments and he considered it prudent to obtain a written acknowledgement of the amount then owing to the client contributors by having Atha execute the variation. The Tribunal finds that having regard to the terms of the mortgage the Solicitor's action in not registering the variation does not amount either to gross neglect or to inattention in the conduct of his clients' affairs as set out in paragraph 7 of the Complaint. The Davias matter The Complaint regarding this matter appears in paragraphs 1,2,3 and 7. Paragraph 1,2 and 3 allege a breach of Section 41(1) of the Prior Act and the failure to ensure that money invested on behalf of clients was properly and adequately secured. The transaction particularised is a third mortgage advance from contributor clients in July 1981 when a mortgage to a trustee for contributors should have been a first mortgage and failure to obtain instructions from contributors for approval to the increase of the first mortgage debt. The same facts are alleged to base the complaint of gross neglect delay or inattention to clients' affairs in paragraph 7. In 1981 Mr and Mrs Davias who were long standing clients of Mr Fox required a loan of $21,000.00. Due to the ill health of Mr Fox after a heart attack the Solicitor acted for the clients in the transaction. In accordance with the practice previously described the Solicitor informed Mr Dennis of the loan required and the security offered, a third mortgage over a property at Bar Beach known to the Solicitor and his partners, one of whom had acted on the purchase in 1975. Mr Dennis informed the Solicitor that the contributors would be the clients Bennett, Lynch, Kennedy, Myles, Day and Donohue for the total of $21,000.00. The Solicitor had no contact with the lender clients and relied solely on Mr Dennis to allocate funds from clients who had given instructions to the firm that their moneys could be advanced at the discretion of the partners and not necessarily on first mortgage securities. The advance was made through BHD. Mr Davias informed the Solicitor in July, 1981 that the Bar Beach property had a value of approximately $200,000.00. (895D) The Solicitor accepted this estimate without further enquiry because of his personal knowledge of the property. At that time it was encumbered by a first mortgage to Newcastle Permanent Building Society securing a loan of $35,000.00 and a second mortgage to Westpac Banking Corporation Limited securing $70,000.00. The BHD loan brought the total encumbrances to $126,000.00. When Westpac would not consent to the registration of the third mortgage the Solicitor caused a caveat to be entered on the Title on 24 August, 1981 to protect the third mortgage. In July and August, 1981 epitomes were sent by the Solicitor to the 6 contributors specifying, inter alia, the names of the borrowers and that the security was a third mortgage over a dwelling house at 24 Memorial Drive, Bar Beach. There was evidence before the Tribunal that 3 of the contributors Bennett, Day and Donohue had received these epitomes. They had signed and returned copies on which they acknowledged receipt of the originals. The Solicitor gave evidence that whilst epitomes were sent to investors with the request that they return the copies signed by them not all investors did so and it was not his practice to pursue the return further. The epitomes are evidence that the information that their moneys were lent on third mortgage security was received by at least the clients Bennett, Day and Donohue. There was also evidence that the clients Bennett, Myles and Lynch had prior to 1981 lent moneys on securities other than first registered mortgage. There was no evidence that any lender client of the Solicitor mentioned in the Complaint required his moneys secured on first mortgage. Against this there is the evidence of the Solicitor and of Mr Walsh, his former partner, that most clients left it to the firm to determine securities, that where any client specified a particular security requirement Mr Dennis kept a record of such requirement in his mortgage register and that he was very competent. It was the practice of the Solicitor and of his partners to rely on Mr Dennis to make the allocation of lenders in accordance with instructions held by the firm and appropriate to the borrower and the security offered. There was no evidence that any client who was a contributor in the Davias loan was dissatisfied with or complained about the security. The evidence indicated that the security was not inadequate. In the light of this evidence the Tribunal finds that the complaint that the mortgage should have been a first mortgage is not established. In May 1983 the Newcastle Permanent Building Society wrote to the Solicitor about a proposal to increase the loan secured by its first mortgage from Davias by $60,060.00 to a total of $94,331.00. It sought consent from BHD to increase the debt and an acknowledgement that the new total amount would have priority under the first mortgage. The reply to this letter giving consent on behalf of BHD was written by Mr Walsh who did not speak to the Solicitor about the contents of his letter. It follows from this evidence that the Solicitor was not involved in the consent to the increased first mortgage loan. So far as the Davias matter is concerned paragraphs 1,2,3 and 7 of the Complaint are not established against the Solicitor. The Mann matter The Complaint (paragraph 1,2,3, and 7) in this transaction was that between July 1978 and March 1984 the Solicitor invested funds of some 30 contributor clients on a first mortgage to Mann and this mortgage was unregistered from 23 December, 1978 until 18 December, 1981 (during this time there not being adequate security) and two declarations of trust, one prepared in 1978 and one prepared in 1985 were not executed by 8 January, 1986. A loan of $15,000.00 from various contributor clients was made to Mr C Mann on 10 July, 1978 and was secured by a first mortgage to BHD dated 23 December, 1978 registered on 18 December, 1981 (Sayer 242). A declaration of trust prepared in 1978 for signature by B W Dennis as Secretary of BHD was never signed. The contributors to the loan changed over the years. A further declaration of trust was prepared as at 17 December, 1985 for signature by the Solicitor. This also was not signed. In May 1978, Mr Fox asked the Solicitor to act for Atha Pty Limited on the sale of property owned by it at 61 Josephson Street, Swansea. The Solicitor ordered a title search and ascertained that the registered proprietor of the land was a Mr Costa and registered on the title was a first mortgage to A E Hawkins Pty Limited and a caveat protecting a second mortgage to a Mr Carter. The Solicitor then ascertained from Mr Fox that Costa had sold to Haslam and although all moneys had been paid in November 1975 the transfer had not been registered by reason of the caveat. The mortgage to A E Hawkins was discharged but that discharge also was unregistered as was a mortgage from Haslam to BHD to secure $13,750.00. In 1978 Haslam defaulted and Mr Fox obtained vacant possession of the security. Atha Pty Limited was then to take over the property and the mortgage. In June/July 1978 Mr Westbury instructed the Solicitor to act on the sale of the property by Atha to Mann for $15,850.00. The Solicitor also acted for Mann. He discussed the problem of the title with Mr Fox who advised him to prepare a contract for sale to Mann by A E Hawkins Pty Limited as mortgagee exercising power of sale. This company signed the contract and the transfer but the Solicitor had no contact with Mr Hawkins or his company. Either Mr Fox or Mr Walsh arranged for the signing of the documents. Mr Mann required a mortgage loan of $15,000.00. Mr Fox arranged to increase the existing BHD loan of $13,750.00 to this amount by introducing an additional contributory mortgagee, Mr Alex, for $1,000.00 and advancing $250.00 from the general office account of the firm. The purchase was completed about December 1978. On 5 March 1979 the Solicitor sent to his law stationers the mortgage Costa/Hawkins the transfer Hawkins/Mann, the mortgage Mann/BHD and the Certificate of Title. The Registrar General refused registration because of the Carter caveat. The Solicitor and Mr Fox were unable to resolve the matter until November 1981 when the dealings including the Mann/BHD mortgage were registered after the Solicitor obtained a withdrawal of the Carter caveat and Mr Fox apparently caused a further caveat entered in 1980 for unpaid land tax to be withdrawn by the State Crown Solicitor on payment of the outstanding land tax. so far as the declarations of trust are concerned, the Solicitor was unaware that Mr Dennis had not signed his declaration. In 1985 he prepared a further declaration to reflect the changes in contributors and omitted to sign it. He did sign it in March 1986. His failure to follow up the signing of the declarations when they were prepared is not in accordance with his duty to his lender clients. It evidences some inattention to these clients' matters. The Solicitor gave evidence (96T) that at the time of the sale to Mann he believed that the caveat would not prevent the registration of a transfer by a mortgagee exercising power of sale and once that transfer was registered, the mortgage to BHD could also be registered. He was in error. His error was shared by Mr Fox, his senior partner, who advised him to proceed by way of mortgagee's sale. The Solicitor ultimately succeeded in registering the transfer and the mortgage when in August 1981 he persuaded Carter's solicitor to withdraw the caveat. No explanation was given why this did not happen early in 1979 nor why the documents were sent for registration 3 months after completion. The Solicitor was asked about the delay between March 1979 and November 1981 and all he could offer was: "I was a bit perplexed as to what I would do. I had discussions with Mr Fox and ultimately I pursued obtaining a withdrawal of caveat. Q When you say ultimately, it appears in paragraph 127 that that was done during 1981, was it? A That is correct. Q Is there any explanation for that period of delay other than that the matter was in the too hard basket? A I have to say not really to that." It is clear from the evidence quoted that the Solicitor could have done in 1979 what he left undone until 1981. The Tribunal finds this delay gross and excessive. During the time when the mortgage remained unregistered the lender clients were not secured. The Harvey matter This matter appears in paragraphs 1,2,3 and 7. It arises in respect of a BHD mortgage using funds of contributors advanced to J and P Harvey on a second mortgage. It is alleged that as a mortgage to the trustee for contributors, it should have been a first mortgage. Germain, Joseph Michel and Jay were contributors to a $50,000.00 advance by BHD to Mr and Mrs J Harvey SECURED by second mortgage registered on 29 October 1982. The Solicitor's evidence, was that he did not act on this matter in 1982. The Tribunal accepts this and accordingly the allegations in paragraph 1,2 and 3 of the complaint are not established in relation to Harvey. Harvey and Tempconame No 5 Pty Limited Regarding paragraph 7 gross neglect delay or inattention, the complaint is that both in relation to Harvey and Tempconame the Solicitor accepted instructions from E Lee by letters dated 15 July, 1985 while there was no apparent authority for E Lee to act on behalf of the contributors. In the Harvey matter the letter signed "E Lee for the lenders" directed the Solicitor to advise the Harveys of a variation of interest. Acting on these instructions the Solicitor wrote to the Harveys enclosing a copy of the letter and stating that if they agreed they should reflect the increase in their next cheque whilst they should otherwise treat the letter as a demand for repayment of the loan. In the Tempconame matter there was a similar letter, also signed "E Lee for the lender." The Solicitor's evidence was that a loan of $50,000.00 had been made to Harvey in October, 1982. He did not act in the matter but ascertained from the trust records of the firm that the lenders were Germain Joseph Michel and Jay and that the moneys were deposited on behalf of the investors by a Mr Kennedy. A loan of $60,000.00 had been made also in October, 1982 to Tempconame. A declaration of trust relating to this transaction showed the lender as Brian William Dennis as trustee for Mesdames Murphy Callaghan Smith & Corbett. The Solicitor did not act in connection with this advance either. Mr Kennedy was a longstanding client and personal friend of his partner Mr Fox. The Solicitor did not meet him until late 1984. Either late 84 or early 85 Kennedy informed the Solicitor that he represented Mesdames Murphy Callaghan Corbett and Smith and Messrs Germain Joseph Michel and Jay. He was proposing to go overseas and during his absence instructions were to be taken from Mr Eric Lee in relation to various matters including the advances of these two sets of lenders. The Solicitor had some misgivings about Kennedy and queried his authority to represent the lenders. Kennedy told him that he was a publican, which the Solicitor knew to be the case, and that he represented former employees and associates of his which these were. The Solicitor accepted this and did not seek further evidence. He acted on Mr Kennedy's instructions to communicate with Mr Lee and accepted this as an orthodox instruction. He believed Lee to be a real person. He enquired about Mr Kennedy from Mr Fox who told him "he had known him for thirty years and had met some of the ladies that Mr Kennedy speaks about, and I can say they are nothing more than, it would seem to me, to be business people." In October 1985, the Solicitor wrote to Mr Lee in connection with a letter received from the solicitors for Tempconame. In October 1987 an authority purportedly signed by Mesdames Callaghan Murphy Corbett and Smith was sent by their then solicitors, Messrs Trisley & Kilmurray to the Solicitor's firm requesting delivery of all documents relating to the Tempconame loan. Subsequently, in September 1988 these documents were released to Mr Kennedy by the Solicitor with the consent and approval of Miss Sayer, Mr Kennedy having admitted to her that the $60,000.00 advanced to Tempconame was his property. The Harvey loan was discharged in September 1986, and the Solicitor forwarded a cheque signed by Miss Sayer, as Receiver to Germain Joseph Michel and Jay to the postbox which was used by Mr Kennedy. Both the Tempconame and Harvey advances were in place when the Solicitor commenced acting in them. He had nothing to do with the transactions at their inception. At the time of the hearing the Solicitor believed that the names Germain Joseph Michel and Jay and Lee were pseudonyms for Mr Kennedy although Mr Kennedy never admitted this to him. He knew in 1988 that the names Callaghan Murphy Corbett and Smith were pseudonyms. However, at the time when he acted on Mr Kennedy's instructions he did not know this. He gave evidence that he believed that Mr Lee was a real person. He had some suspicion regarding Mr Kennedy and he questioned him. He received an answer which allayed his suspicions. During conversations he had from time to time with Mr Kennedy the latter referred to Mr Lee as a real person and he discussed the matter with Mr Fox, who said to him that he was aware of Mr Lee and that Mr Kennedy referred to Mr Lee as a real person in conversations with him. Taking all this into account together with the fact that Mr Kennedy was known to his former senior partner for 30 years the Solicitor's actions in accepting instructions of Mr Kennedy and consequently of Mr Lee do not amount to gross neglect delay or inattention as charged in the complaint. With hindsight it can be said that he should not have been satisfied with Mr Kennedy's explanation but the fact is that he saw that Mr Fox who knew Mr Kennedy well was apparently satisfied and no doubt this influenced the Solicitor. The Tribunal is not satisfied that he was guilty of inattention to the conduct of his clients' affairs in these two matters. Summary Paragraphs 1,2 and 3 Wilful failure to hold and apply money in accordance with the provisions of s.41(1) of the Prior Act is alleged in respect of the Atha and Davias matters. The Tribunal found in favour of the Solicitor in Davias and therefore needs to consider only the Atha loan in relation to s.41(1). The allegation is that there was a breach of this section by reason of the failure by the Solicitor to hold and apply money received for investment from clients in a manner authorised by them or which would have been authorised by them had they been properly advised, in that the money was invested without authority or without being adequately secured. The further advance of $40,800.00 was made to Atha in June/July 1984 without the Solicitor disclosing prior default to his lender clients. The Tribunal has made the finding that the Solicitor in making repayments after default to some contributors and not to all preferred the interests of the former to those who did not receive repayment. The question arises whether this and the whole transaction amounts to a breach of s.41(1) of the Prior Act. S.41(1) provides as follows: "All moneys received in New South Wales 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 moneys shall be paid into a bank in New South Wales to a trust account, whether general or separate." The Solicitor's evidence was that clients of the firm deposited moneys with instructions that funds be advanced mostly at the discretion of the partners and in some cases on first mortgage security and the further advance of $40.800.00 was within the terms of the authorities of the lender clients. This evidence was accepted by the Tribunal. Accordingly, insofar as the $40,800.00 received from clients for investment was disbursed by way of advance to Atha, there was no breach of S.41(1) by reason of the fact that such moneys were disbursed in accordance with the authority of the clients. Insofar as the advance was not adequately secured, no breach of S.41(1) arises by reason of the advance having been made in accordance with the clients' authorities. The provisions of S.41(1) are satisfied when the funds are disbursed as authorised. The subsequent repayment of loan moneys to some contributors thereby preferring their interests, while wrong in itself, is not a breach of S.41(1). Particulars of failure to ensure that money invested on behalf of clients was properly and adequately secured arise on the same Atha advance on the basis that the Solicitor invested the funds knowing that the security was inadequate. The Tribunal has accepted the evidence of the Solicitor which was supported by that of Mr Walsh, that at the time of the making of the advance they believed the security to be adequate for the existing and further indebtedness. Accordingly, as regards the Atha matter the Tribunal finds in favour of the Solicitor on paragraphs 1,2 and Inadequate security is also particularised in respect of the Davias third mortgage. The Tribunal has made the finding that it is not established that the loan should have been secured by 1st mortgage nor that the security was inadequate and in this matter also the Tribunal finds in favour of the Solicitor on paragraphs 1,2 and 3. The Mann matter is similarly particularised as failure to ensure adequate security because of delay in registering the mortgage and failure to sign declarations of trust. The Tribunal finds that here the Solicitor's delay amounted to failure properly and adequately to secure the moneys invested by his clients pending the registration of the mortgage and the signing of the declarations of trust. Having regard to the circumstances of the delay the Tribunal is satisfied that the failure does not amount to professional misconduct. The last matter under the same particulars is Harvey and the Tribunal has made the finding that the Solicitor did not act in this matter. Paragraph 6 This also alleges the Solicitor's knowledge of the inadequacy of the security for the Atha advance. It is answered in favour of the Solicitor. Paragraph 7 This relates to the delay in registration of the Atha mortgage on which the Tribunal has found against the Solicitor and to the non-registration of the variation on which it has found in his favour. In the Mann matter the Tribunal has made a finding against the Solicitor and in the matters of Davias Harvey and Tempconame the findings are in his favour. The result is that the only findings against the Solicitor are regarding the allegations in paragraph 7 in respect of the Atha and Mann matters where there was excessive and gross delay in registering dealings. The Tribunal having carefully considered the circumstances finds that the Solicitor's conduct does not amount to professional misconduct. Character reference The Solicitor adduced a large number of character references from solicitors in the Newcastle and Maitland area. These had known him personally and professionally, mostly for 10-16 years and a few for lesser periods. They had acted as his opposite number in conveyancing matters. All considered him honest and capable and zealous in protecting his clients' interests. They spoke of his high moral and ethical standards and good repute. While many of the declarations are in similar language this does not detract from the truth of the contents of each declaration sworn by the solicitor concerned. The demeanour of the Solicitor before the Tribunal was that of a man who was an honest and cooperative witness. He was subjected to thorough cross-examination which tested his evidence without revealing any inconsistencies. The Tribunal had no difficulty in accepting his evidence. Mr Lockhart, the senior partner of Braye Cragg, the firm with whom the Solicitor was employed since 1st July, 1987 who was present during the hearing and had read the reports of Miss Sayer, told the Tribunal that he had the highest personal regard for the Solicitor. Subject to the order of the Tribunal there is an invitation for him to become a partner of the firm. Over the past 2 1/2 years he had had close contact with the Solicitor and had had the opportunity of close inspection of his matters and his high regard for him had been enhanced in that period. The Solicitor on his own evidence and that of Mr Walsh and Mr Lockhart had as a young solicitor in 1973 come into the practice (then known as Bruce O'Sullivan Fox & Walsh) which had a sizable mortgage practice. Loans were made by client contributors and administered by the managing clerk, Mr Dennis, until 1984. Records inspected by the Solicitor showed that procedures adopted by him in respect of loans had been in use in the firm since at least 1968. In 1978 the mortgage practice was about $6 million. From about 1981 this declined rapidly. After Mr Dennis left the Solicitor was not involved in any new mortgage advance other than changes in existing contributory mortgages. In his evidence he declared his intention of never again engaging in the practice of lending clients' money on contributory mortgages. Mr Lockhart stated that his firm has no mortgage practice other than that of acting for institutions. Although at the time of the hearing the Solicitor no longer acted in a private mortgage practice he recognised that at the relevant times he should have exercised independent professionalism and should not have adopted established practices. It was noted by the Tribunal that he stated he had carefully appraised the obligations cast upon a solicitor and resolved to be vigilant to maintain the high standards which are required of him as a solicitor. Order Counsel for the Solicitor submitted that there should be findings in favour of the Solicitor on each complaint and that under no circumstances could it be said that he was guilty of professional misconduct in the terms of the facts and complaint. (145T). He further submitted that there were special circumstances as referred to in S.163(6A) of the Act and invited the Tribunal to make an order for payment of 50% of the Solicitor's costs from the Statutory Interest Account. In the alternative, if the Tribunal did not find special circumstances, he sought an order that each party pay its own costs. He also sought a recommendation in relation to the qualification currently on the Solicitor's right to practice. In the two matters where the Tribunal has found against the Solicitor there were circumstances of complexity and difficulty which go some way towards explaining but not excusing the delay. However in both cases the Solicitor showed concern to put the matters in order and ultimately succeeded in bringing about registration. The Tribunal does not condone the delay but in all the circumstances determines that it does not constitute professional misconduct. The material on which the Statement of Complaint was based appeared in two reports of Jean Sayer, Chartered Accountant, dated respectively 16 December 1985 and 6 February 1986. Miss Sayer was on 12 December 1985 appointed Investigator of and on 14 March 1986 appointed Receiver of the practice in which the Solicitor was partner. At the time of the hearing before the Tribunal almost 4 years had elapsed since Miss Sayer's first report and almost two years since the Council of the Law Society had resolved that a complaint be referred to the Tribunal. No explanation was offered why so long a period elapsed between the time when the Council first dealt with it and the time of hearing the complaint. Of 22 matters alleged in the original complaint served in March 1988 only 5 proceeded to be the subject of the hearing. The delay whatever its cause, was not the fault of the Solicitor. While no explanation was offered of this delay and Counsel for the Solicitor expressly made no charge of delay against the Law Society, it is clear that the longer the interval between acts and hearing, the greater the difficulty of accurate recollections, of finding records and documents and of answering the allegations. It is a longer and more costly exercise when impeded by a delay of up to 10 years. (The Davias matter occurred in July 1981 and the Atha mortgage was signed in August 1979.) There is also the burden of the unresolved proceedings hanging over any plans the Solicitor might make regarding his professional future. His partners had gone either to the bar or into the Braye Cragg partnership. The Solicitor had been invited to and wished to join that partnership. The Tribunal finds that special circumstances within the meaning of S.163(6A) are established. On the question of the power of the Tribunal to order costs both Counsel for the Law Society and Counsel for the Solicitor made submissions that the Tribunal was so empowered. S.163(6A) provides as follows: "If, after it has completed a hearing into a complaint against a Legal Practitioner, the Tribunal is satisfied that the practitioner is not guilty of professional misconduct, the Tribunal may (but only if it considers that special circumstances so warrant) order payment from the Statutory Interest Account to the practitioner of such amount, by way of costs, as it may determine." Subsection 6A was added to the Act by the Legal Profession (Amendment) Act 1989 (the amending Act) which came into force on 6 November 1989. Schedule 8 of the Act dealing with provisions consequent on the enactment of the amending Act provides in S.27. "Any proceedings that have been begun, but have not been determined, by ... the Legal Profession Disciplinary Tribunal as constituted immediately before the commencement of the amending Act in relation to the provisions under which the relevant body is constituted are to be continued and completed by those bodies, as so constituted, as if those amendments had not been enacted." This section 27 refers to the constitution of the Tribunal and must be confined in its application to matters affecting only such constitution. The section is not to be interpreted as preventing the operation of S.163(6A) in relation to proceedings begun but not determined at the commencement of the amending Act. The question arises whether section 27 apart, the Tribunal may have regard to sub-section 6A in the instant proceedings. In order to answer this question the Tribunal must consider the law relating to retrospective effect of amending acts. It is well established that the general rule that statutes are not to be given retrospective operation does not apply to statutes which are procedural only. The leading authority is Maxwell v Murphy (1957) 96 CLR 261. Dixon C J at 267 stated: "The general rule of the common law is that a statute changing the law ought not, unless the intention appears with reasonable certainty, to be understood as applying to facts or events that have already occurred in such a way as to confer or impose or otherwise affect rights or liabilities which the law had defined by reference to the past events. But, given rights and liabilities fixed by reference to past facts, matters or events, the law appointing or regulating the manner in which they are to be enforced or their enjoyment is to be secured by judicial remedy is not within the application of such a presumption. Changes made in practice and procedure are applied to proceedings to enforce rights and liabilities, or for that matter to indicate an immunity or privilege, notwithstanding that before the change in the law was made the accrual or establishment of the rights, liabilities, immunity or privilege was complete and rested on events or transactions that were otherwise past and closed. The basis of the distinction was stated by Mellish L J in Republic of Costa Rica v Erlanger~ (1976) 3CH. D.62 "No suitor has any vested interest in the course of procedure, nor any right to complain, if during the litigation the procedure is changed, provided, of course, that no injustice is done." In Maxwell's case at 286 Fullagar J quoted from Wright v Hale (1860) 6H & N227. "In dealing with Acts of Parliament which have the effect of taking away rights of action, we ought not to construe them as having a retrospective operation, unless it appears clearly that such was the intention of the legislature; but the case is different where the Act merely regulates practice and procedure." His Honour went on to say: "A consideration of the cases generally cited in this connection has led me to think that the distinction is probably best stated by saying that it is between statutes which create or modify or abolish substantive rights or liabilities on the one hand and statutes which deal with the pursuit of remedies on the other hand. In the former class of case there is a presumption against retrospective operation in the sense explained above. In the latter class of case there is no such presumption; on the contrary, the presumption is that the enactment applies in all proceedings commenced after it became law and it may be right to construe it as applying even in proceedings commenced before it became law." The effect of this is that if a statute is concerned only with procedural matters it will operate retrospectively. The next matter to consider is whether a statute dealing with costs is a procedural statute. This question was considered in Galvin v The Forests Commission of Victoria (1939) VLR 284. In that case the power to award costs was granted to the Workers' Compensation Board during the course of the case and it was held by Lowe J that the amendment was procedural and therefore costs could be awarded notwithstanding that the proceedings were pending at the time of the amendment. His Honour said at 297: "Two cases of high authority decide that legislation giving or regulating a power to award costs is retrospective, in that it affects not substantive rights but merely procedure (Freeman V Moyes (1834) lAd & El 338 and Wright v Hale (1860) 30LJ (Ex) 40. The distinction is well established. We think we should follow these decisions." In Jackman v Dandenong Sewerage Authority (No 2) (1967) 20 LGRA 413 the removal of the discretion whether or not to award costs was held to be procedural and therefore applicable to a part heard case. In this matter it was stated on page 415: "Where the general rule is that a statute changing the law will not be given retrospective effect in the absence of the clearest language demanding such an interpretation, there is a well recognised exception in regard to statutes affecting procedure or costs merely, which are always retrospective unless the opposite effect is clearly stated. See Craies on Statute Law 6th Ed (1963) Page 400. In Maxwell v Murphy Fullagar J restates the rule in the clearest terms and discusses all the important authorities to that date. The weight of authority is so great that it is impossible at this stage to question the rule, and I am satisfied that the Section does have the retrospective effect which Mr Phillips contends." In Realty Development & Mortgage Co Ltd v Londish (1967) 87 WN (Pt l) (NSW) 92 it was held that the extension of the court's jurisdiction during the course of a hearing by permitting it to grant a new remedy was procedural and therefore the remedy could be applied in the case. It is clear from the above authorities that in the present case Section 163 (6A) empowers the Tribunal to order costs in favour of the Solicitor. The sub-section itself is directed to the point in time when the Tribunal has completed a hearing into a complaint. When this Tribunal completed the hearing the Section was in force. Accordingly the Tribunal takes the view that it has power to make an order in terms of Section 163(6A) in the present complaint. The costs of the Solicitor for the preparation and answering the complaint were stated by him to~ about $40,000.00. In addition to this his contribution to the costs of Miss Sayer, the Receiver, was about $20,000.00. The Tribunal has carefully considered the matter and finds that an order for payment of $20,000.00 towards the Solicitor's costs from the Statutory Interest Account would be appropriate. The Tribunal therefore orders: THAT payment be made to Terence Dominic Maher from the Statutory Interest Account in the sum of $20,000.00 by way of costs. Recommendation The Tribunal having determined that the Solicitor is not guilty of professional misconduct and having regard to the impressive character evidence put before it including evidence from the solicitor with whom he is presently employed finds that he is a fit and proper person to be issued with an unrestricted practising certificate. While having no power to make any order in this regard the Tribunal recommends to the Council of the Law Society that the Solicitor be issued with an unrestricted practising certificate. Dated the seventh day of June 1990. 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.