The Legal Services Tribunal of New South Wales CITATION : James Lloyd Hutchison [1992] NSWLST 8 PARTIES : James Lloyd Hutchison FILE NUMBER(S) : of CORAM: Mr G Williams (Presiding Member) - Mr A Martin - Mr D Mahon CATCHWORDS: Professional Misconduct - gross negligence and delay/gross delay/delay - Professional Misconduct - breach of s. 61 of the Legal Profession Act - Professional Misconduct - fail to act honestly - Professional Misconduct - misappropriate trust moneys/moneys :- LEGISLATION CITED: Legal Profession Act 1987 CASES CITED: DATES OF HEARING: 26/05/92 - 22/09/92 DATE OF JUDGMENT: 09/22/1992 Mr P.R. Garling LEGAL REPRESENTATIVES: Mr F. Smith Mr P.M. Jacobson Messrs Allen Allen & Hemsley JUDGMENT: The Legal Profession Disciplinary Tribunal In the matter of James Lloyd Hutchison Reasons for Determination and Orders Before: Mr G.L. Williams (Presiding Member), Mr A.T. Martin and Mr D. Mahon This complaint against the conduct of James Lloyd Hutchison ("the Solicitor") was made to the Legal Profession Disciplinary Tribunal ("the Tribunal") pursuant to the provisions of Section 135 of the Legal Profession Act 1987 by the Council of the Law Society of New South Wales ("the Society"). The complaint is dated 15 August 1991 and in it the Society seeks such orders as to the Tribunal shall seem appropriate (and an order relating to costs) upon the following grounds: 1. The Solicitor has wilfully breached Section 61 of the Legal Profession Act 1987. 2. The Solicitor has wilfully breached Section 62 of the Legal Profession Act 1987. 3. The Solicitor has been guilty of gross negligence. 4. The Solicitor has breached Clause 21 of the Legal Profession Regulation 1987. 5. The Solicitor with Brian Douglas Abbott participated in arrangements, which he knew or ought to have known would evade income tax. The matter was heard by the Tribunal on 26 May, 1992 when Mr P.R. Garling instructed by Mr F. Smith appeared on behalf of the Society and Mr P.M. Jacobson instructed by Messrs Allen Allen & Hemsley appeared on behalf of the Solicitor. The written evidence before the Tribunal consisted of: 1. Statutory Declaration of John Richard Hunt dated 16 August 1991 to which were attached copies of reports and letters from Jean Sayer to the Society, the said Jean Sayer having been appointed firstly by the Society to investigate the affairs of the Solicitor and his former partner Brian Douglas Abbott and secondly by the Supreme Court of New South Wales as receiver of the property of the said Brian Douglas Abbott. 2. Statutory Declaration of the Solicitor dated 26 May 1992. 3. Statutory Declarations by Brian Edmond Thornton dated 11 May 1992, Geoffrey Mark Roberson dated 8 May 1992, Hubertus Bobbert dated 18 May 1992, Daniel James Brezniak dated 13 May 1992, John Michael Lyons dated 11 May 1992, John Hugh Robertson dated 14 May 1992, Stephen John Rugendyke dated 18 May 1992, Allan William Stockman dated 15 May 1992, Dominic John Williams dated 14 May 1992, Neville Clarence Young dated 18 May 1992 and Statement (undated) of Gregory Alexander Walsh. Oral evidence was given by the Solicitor and Brian Edmond Thornton and Geoffrey Mark Roberson. The complaint against the Solicitor arose out of his partnership with Brian Douglas Abbott ("Abbott"). The Solicitor commenced to work for Abbott in Armidale in February 1985 and they entered into partnership under the name of Abbott & Co on 1 July 1987. On 21 June 1990 on the Society's complaint the Tribunal ordered that Abbott's name be removed from the Roll of Solicitors and in those proceedings Jean Sayer gave evidence that the common thread in all the matters the subject of the complaint was that Abbott received cheques from clients to cover stamp duty and these cheques were, with one exception, not deposited to the trust account of the firm but were either deposited into the office account of the firm or to a personal account of Abbott. In cases where the cheques were paid into the office account cheques were then drawn on the office account partly for Abbott's personal expenses. In all cases the accounting records showed that the cheques were drawn in favour of the Office of State Revenue and did not disclose the real payees. The misappropriation was to the order of $275,000.00. The evidence supporting the Society's case is to be found in the reports and letters from Jean Sayer to the Society copies of which were annexed to Mr Hunt's declaration. With few exceptions the Solicitor generally accepted the facts set out in Jean Sayer's reports and his Counsel did not require to cross-examine Miss Sayer. In relation to the five grounds the Society alleged: 1. Wilful breach of Section 61 - that the Solicitor during 1988 and 1989 knew that Abbott caused to be banked in the firm's general account and not the firm's trust account moneys received from clients on account of stamp duty and knew or ought to have known that such conduct was a breach of Section 61. 2. Wilful breach of Section 62 - that the Solicitor during 1988 and 1989 knew that Abbott caused a handwritten trust account receipt book to be maintained and used to record receipts of moneys intended for deposit into the firm's trust account and knew that such book was not a component part of the computer based trust account records maintained by the firm and that accordingly the trust account records did not disclose the true position in relation to trust moneys received by the firm. 3. Gross negligence - that the Solicitor failed to take steps to ensure that Abbott complied with the provisions of the Act by depositing the funds received for stamp duty into the firm's trust account and to make any enquiries to satisfy himself that the moneys received for stamp duty were dealt with in accordance with the instructions of the various clients and failed to ensure that the details in the handwritten trust receipt book were entered into the computer based accounting system and that the moneys received and recorded in that book were banked to the firm's trust account. 4. Breach of Clause 21 of the Legal Profession Regulation 1987 - that the Solicitor knew that Abbott's practice in 1988 and 1989 of banking into the firm's general account moneys received from clients on account of stamp duty was an irregularity within the meaning of Clause 21 but did not as soon as practicable notify the President of the Law Society of such facts and circumstances. 5. The Solicitor with Abbott participated in arrangements which he knew or ought to have known would evade income tax - that the Solicitor with Abbott received payment of costs without a bill being rendered and without any record of receipts being made in the firm's accounts and he was aware that Abbott received costs and disbursements where no bills were issued but the amounts were recorded in documents referred to as internal accounts and he was aware and acquiesced in the firm's trust account being used to record receipts and payments for the company Dronborn Pty Limited of which company the Solicitor was a director. In his evidence the Solicitor admitted that within a few months after he became a partner he became aware, from looking at the office account cash book, that Abbott had adopted a practice of paying into the office account funds received on account of stamp duty and that cheques in the same amount appeared to be then paid almost immediately to the Office of State Revenue. He discussed this practice with Abbott who explained that it enabled a firm cheque, which was acceptable to the Office of State Revenue for the purposes of the immediate stamping of documents, to be drawn immediately. Had the client's cheque been paid into the trust account it would have had to have been cleared in due course of banking before there could be a drawing against it. Also the Office of State Revenue would not accept, for the purposes of immediate stamping of documents, the client's cheque itself. The Solicitor accepted Abbott's explanation but did not follow the practice himself. He said he could not see any detriment which was likely to follow from the practice but did realise the practice was "irregular" but not suspicious. With the benefit of hindsight he realised and acknowledged that he should have alerted the Law Society to the practice. Subjoined are some questions put to the Solicitor by Mr Garling in cross-examination and the Solicitor's answers to those questions: Question: What I am putting to you is this, Mr Hutchinson. You were confident so far as moneys that you received were concerned, that they were being dealt with appropriately? Answer: Yes. Question: You made no spot check with regard to moneys being received by Abbott? Answer: Correct. Question: Insofar as you were concerned, you were content to rely upon the inbuilt checks and balances within the system to ensure that so far as the trust account was operating for moneys deposited by Abbott, that it was working correctly? Answer: Yes. Question: You knew, although you were relying upon the general system, that in one respect, namely the receipt of stamp duty, that the trust account requirements, the act and regulations, were not being followed? Answer: Correct. Question: In those circumstances, I suggest to you, as a very minimum you should have checked yourself on other matters to see if the trust account was being properly operated? Answer: That wasn't the view I took. The Solicitor became a councillor of the Law Society in November 1988 and a member of its Complaints Committee for about one year and the Tribunal finds it difficult to understand why, exposed as he would have been to other solicitors' trust account breaches and irregularities as such a member, he did not re-examine his partner's "practice" and recommend its abolition. In answer to questions from a member of the Tribunal he conceded that the "practice" could have been to the detriment of the particular client as the funds were placed in an account which was more or less outside the purview of the Society and the Act and might not have been insulated from creditors of the firm or its partners. Mr Thornton, a former President of the Society, gave evidence in support of the Solicitor and explained that he had transacted a number of matters with Abbott and had found him difficult and uncooperative and antagonistic. He, Mr Thornton, considered the Solicitor to be very trustworthy and very trusting and considered it would have been very difficult to investigate or challenge the practices of someone as dominant and forceful as Abbott. He also drew the Tribunal's attention to a great deal of confusion in the profession at the material time as to when a solicitor was entitled to draw money out of his general account. He said the practice in question was fairly prevalent at the time and it was not uncommon for solicitors to draw money out of their general account to pay stamp duty once they had their client's cheque. He was quick to add that he was not endorsing that practice as correct. Whilst there are some mitigating features the Tribunal is comfortably satisfied that Ground 1 has been made out and it finds accordingly. As to the second ground the Solicitor's evidence was that he knew of the existence and use of the handwritten trust account receipt book, that it should have been integrated into the computerised trust account system, that he did not realise this was not being done and that he had not made any checks at all as to whether the manual receipt book particulars were being integrated into the computerised system. It follows then that Ground 2 has been made out and the Tribunal finds accordingly. For the reasons set out above the Tribunal also finds that Ground 3 has been made out. Clause 22 of the Solicitor' declaration is in the following terms: "22. I realised at the time that the practice that was followed by Abbott was an irregularity but, as stated above, I could see nothing suspicious in it. I now realise, with the benefit of hindsight, that I should have taken action to have alerted the Law Society to this practice." In the light of this the Tribunal is satisfied that Ground 4 has been made out and finds accordingly. In relation to the fifth ground Mr Garling in his opening conceded that in the wording of the ground the word "would" should have been "could"; he said it was not part of the Society's case that there was, in fact, an evasion of income tax but that the "arrangements" that were in place enabled that to be done. The evidence relied upon by the Society is to be found on pages 73, 74 and 75 of Jean Sayer's Report of 7 December 1989 and in cross-examination the Solicitor gave his explanation and denied the correctness of what Abbott had told Miss Sayer. The Tribunal considered the Solicitor to be a credible witness. The matter was taken no further and accordingly the Tribunal does not consider that the ground has been adequately made out and it finds accordingly. General The Tribunal having found wilful breaches of Sections 61 and 62, gross negligence and a breach of Legal Profession Regulation Clause 21 it is clear that the Solicitor has been guilty of professional misconduct and it remains only to determine the appropriate orders to be made: in so doing the Tribunal has had regard to the following matters: 1. The Solicitor was born in 1946 and completed his secondary education at Queensland Agricultural College where he received a Diploma in Agriculture (this being the equivalent for university admission purposes of the Higher School Certificate) and his tertiary education at the University of New England where he obtained a Degree in Agricultural Economics in 1968. For about the next ten years he worked as an Agricultural Economist and in allied positions before taking an administrative position with the Department of Continuing Education at the University of New England. Whilst at the University he undertook and completed the Solicitors' Admission Board course and was admitted to practise in December 1984 then aged 38. He commenced working for Abbott in February 1985 he having known Abbott for about 20 years as a member of a well known and respected and reliable family in the New England district. Abbott had been admitted to practise in 1970 and the Solicitor entered into partnership with Abbott in July 1987. Until the cessation of that partnership the Solicitor had never worked with or for any other solicitor. 2. Abbott was a man with a dominant personality and the Solicitor's referees in testifying as to his, the Solicitor's, character used such words as dignified, courteous, fair, competent, honest, modest, kind, reliable, trustworthy and trusting. The Tribunal believes that his personality was such that he trusted Abbott and believed Abbott's explanations and did not wish to have a confrontation or challenge about Abbott's practices. 3. Mr Garling freely conceded there was no suggestion that the Solicitor engaged in the conduct that Abbott engaged in and the Tribunal made the same observation in June 1990 when making the order that Abbott's name be removed from the Roll of Solicitors. 4. There was uncertainty in the profession generally at the time surrounding the practice of paying stamp duty from general account following receipt of a client's cheque. 5. Some eleven referees gave impressive evidence as to the character of the Solicitor and as to his present fitness to practice. Of these referees eight were solicitors (and two of them former Presidents of the Society), one a chartered accountant and two clients of the Solicitor. 6. The Solicitor served with distinction on the Regional North and North West Law Society (culminating in a term as its President) and the Law Society of New South Wales. 7. The Solicitor was an honest and forthright witness who left a clear impression with the Tribunal as to his contrition and as to his having learnt from his mistakes. The Tribunal is in no doubt as to the Solicitor's present fitness to practice and it is obvious that he would not have been before the Tribunal had it not been for Abbott's dishonesty. The Solicitor's conduct is on a low rung of the ladder of professional misconduct and does not warrant the making of a protective order. The Tribunal considers that a fine is appropriate and it is reflective of the Tribunal's views of the degree of seriousness of the misconduct that it has decided on a fine which is the maximum which could have been imposed had the Tribunal found unsatisfactory professional conduct and not professional misconduct. Orders The Tribunal therefore orders: 1. That the Solicitor pay a fine of Two thousand dollars ($2,000.00) within two months from the date hereof. 2. That in default of compliance with Order 1 hereof the Solicitor's practising certificate be cancelled and that a practising certificate not thereafter be issued to the Solicitor until he has complied with such Order. 3. That the Solicitor pay the costs of the Society such costs to be assessed on a solicitor and client basis as if taxed in the Supreme Court of New South Wales. 4. That if the parties cannot agree on the amount of costs to be paid by the Solicitor to the Society then either party have liberty to apply to the Tribunal for the amount of such costs to be determined. Dated 22 September 1992. 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.