The Legal Services Tribunal of New South Wales CITATION : The Law Society of New South Wales v Foreman [1991] NSWLST 9 PARTIES : The Law Society of New South Wales v Foreman FILE NUMBER(S) : of CORAM: JA Samuels - JA Mahoney - JA Meagher CATCHWORDS: Professional Misconduct - fail to keep accounts - Professional Misconduct - misappropriate trust moneys/moneys :- LEGISLATION CITED: Legal Practitioners' Act 1898 O'Reilly v Law Society of New South Wales, Court of Appeal, 23 December 1988, unreported; Bridges v The Law Society of New South Wales (1983) 2 NSWLR 361; CASES CITED: Law Society of New South Wales v Harvey (1976) 2 NSWLR 154 at 171; Law Society of New South Wales v Moulton (1981) 2 NSWLR 736; Hodgekiss (1962) SR (NSW) 340 at 343; Law Society of New South Wales v McNamara (Court of Appeal, 7 March 1980, unreported DATES OF HEARING: 09/09/91 DATE OF JUDGMENT: 09/09/1991 G.C. Lindsay LEGAL REPRESENTATIVES: The Law Society (L.W. Pierotti) N.R. Burns Murray, Backhouse & Turner JUDGMENT: Supreme Court of New South Wales Court of Appeal The Law Society of New South Wales v Foreman Judgment Appeal from Solicitors' Statutory Committee Coram: Samuels JA, Mahoney JA and Meagher JA delivered on 9 September 1991 Counsel: Appellant: G.C. Lindsay Respondent: N.R. Burns Solicitors: Appellant: The Law Society (L.W. Pierotti) Respondent: Murray, Backhouse & Turner Appeal dismissed Samuels JA I have had the advantage of reading in draft the judgment prepared by Mahoney JA. It sets out the facts in some detail and I need not recapitulate them. I agree generally with his conclusions, save for the order for costs. But my view of the matter, which I can shortly explain, depends upon considerations somewhat different from those which Mahoney JA expresses. Question 9 in the schedule put before the Statutory Committee asserted that the Solicitor had failed to ensure that Mr Harding, the clerk, did not "intermingle" his affairs with the affairs of the Solicitor's clients. The particulars of this allegation were that on two occasions clients of the firm lent money to one Bartter, a close friend of Mr Harding, who then lent it, or part of it, to companies in which Mrs Harding, the clerk's wife (the clerk himself then being an undischarged bankrupt) had a substantial interest. On a third occasion clients of the Solicitor lent money to such a company without the employment of an intermediary; and on a fourth occasion such a company lent money through the Solicitor's trust account to persons who were business associates of Mr and Mrs Harding. It appears that the Solicitor was aware of these transactions and did not intervene to prevent them, or to explain their incidents to his clients. The Statutory Committee, in their general observations about this question, noted that: "These lending transactions occurred after the Solicitor had first been put on notice that all might not be well with the clerk", and concluded "that a reasonable degree of supervision should have been exercised and if exercised, would have ascertained what was going on". It is not clear whether, as I earlier said, the Solicitor did know what was going on but saw nothing improper in these affairs, or whether he did not know at all. It really does not matter which of these possibilities represents the case. If he thought that there was nothing wrong and nothing which required some intervention on his part, he was at fault; he was equally at fault if he did not, by reason of inadequate supervision, know at all what was happening. Mr Burns of counsel, who appeared before us for the Solicitor, told us that the equivocal passages in the Statutory Committee's findings on this point ought to have indicated that the Solicitor's state of mind was rather one of ignorance than of approbation. The Statutory Committee considered the Solicitor's conduct in these respects "to be clearly wrongful", substantially because of his failure to supervise the activities of his clerk. In what the Committee described as their "summation of the Solicitor's performance" they reiterated their view that he should have exercised closer supervision over the clerk's work and, although they considered that the Solicitor "by no means totally abrogated" his responsibilities (as was submitted by the Law Society) he did not "face up" to them and was on that account guilty of professional misconduct. It seems to me that this finding depends partly upon an express conclusion that these lending transactions were improper and should, of course, have been stopped had the Solicitor adequately discharged his duty to supervise, and partly upon what was described as his "overall inadequate supervision". At all events, the Statutory Committee found that the Solicitor had been guilty of professional misconduct for failure to supervise the activities of an unqualified clerk who was throughout their professional association in the firm of which the Solicitor was proprietor an undischarged bankrupt. In my view this is a strong finding. I mean by that that it is dependent upon a finding of inadequate supervision sufficiently grave to support what is itself the most severe indictment that the Statutory Committee can make of a solicitor, that is to say, that he has been guilty of professional misconduct. It must also be borne in mind when considering the nature of this case that there was a particular relationship between the Solicitor and his clerk which must have rendered the Solicitor vulnerable to pressure, even of no more than a psychological kind, which ought never to be a factor in the relationship of solicitor and employed clerk, whether qualified or not. It arose because the Solicitor borrowed from Mrs Harding the sum of $10,000.00 which was necessary for him to have in order to complete the purchase of the practice from the firm of H. Hamilton Moore & Co which had previously conducted it. This loan was never documented and, according to the Solicitor, it was repaid "in a piecemeal fashion when funds became available" over about two to two and a half years and without interest. However, it appeared that the loan was subject to the understanding, to say the least, that Mr Harding would remain employed by the new practice. This was, of course, very much to the Solicitor's advantage as well, because the clerk, who was undoubtedly efficient and well liked by clients, was the professional linchpin of the practice's goodwill and probably essential to the Solicitor's survival. Mr Harding, I should make it plain, was bankrupt in January 1979 when the purchase was made. I appreciate that the matter before the Statutory Committee was the issue of whether or not the Solicitor had been guilty of professional misconduct in the respects assigned. There was nothing before them which required them to consider whether there might be some apprehension of impropriety in the minds of those dealing with the firm, had they known the facts which I have just briefly summarised. Nevertheless, the obligation to supervise the clerk's activities ought to have been influenced by the Solicitor's appreciation that standing as he did in a position of obligation to the clerk's wife, and given the clerk's poor financial situation which his bankruptcy manifested, it was essential to see that nothing was done that might suggest that the Solicitor, in order to secure his own financial advantage, had abdicated to his clerk any element of ultimate control. It was in fact put before the Statutory Committee, in cross-examination of the Solicitor, that Mr Bartter did play the role of a "front" to enable Mrs Harding's companies to obtain funds from clients of the firm. This suggestion was denied and, although Mr Bartter did not give evidence, there does not seem to me to be any material which establishes the fact. But the increased obligation, in my opinion, remained. Accepting to the full the proposition that it is not every transaction between a solicitor and his or her client that is improper, let alone amounts to professional misconduct (O'Reilly v Law Society of New South Wales, Court of Appeal, 23 December 1988, unreported), what had occurred here was, in the view of the Statutory Committee, professional misconduct. It did not involve personal dishonesty or incompetence in the Solicitor but stemmed, it would appear, from his want of understanding of what his professional obligations were, notwithstanding that he had been admitted in 1966 and had been in practice for some seventeen years or thereabouts when the transactions to which I have particularly referred commenced. The order that the Committee made was designed to provide the Solicitor with the further instruction of which he stood in need. Hence, he was suspended from practice on his own account or in partnership for eighteen months from the date of the order, that is to say, until about the end of February 1991. That order for suspension was, however, reducible to nine months if the events set out in para 2 of the order were satisfied. It seems that the Solicitor did serve in employment as was contemplated and we were told from the bar table that since 8 July he has been in private practice with an unrestricted practising certificate. In all strictness, of course, the conditions of the order have not really been carried out because the provision that continuous employment (as specified) for nine months would satisfy the suspension was conditional upon the fine of $2,000.00 having first been paid. But it has not been paid. It was said early in the argument that $600.00 of it had been paid; later, we were merely told by counsel for the Law Society that "the fine has not yet been paid". This may mean that all of it has not been paid or that none of it has been paid. Which of these possibilities is correct does not seem to me to matter; and no evidence was offered as to why it had not been paid. The filing of the cross-appeal would not have operated as a stay and so far as I am aware, no other stay of the Committee's order has been obtained. If that were so, and the fine has not been paid, I would take a serious view of it. However, I simply do not know and the Law Society seems not to have taken any steps to enforce payment. Although I am in favour of making a peremptory order for the payment of the fine, I do not see that the circumstances justify any further step. It will be evident from what I have said that I feel a certain degree of discomfort about the Statutory Committee's order. I would certainly not like it to be thought that this can be regarded as a minor example of professional misconduct, if indeed any such category exists. But two years have now elapsed since the Statutory Committee's order was made. Why this delay occurred, I do not know. There is, from time to time, greater delay in the lists of this Court than we would like, but the expiration of two years in a matter of this sort from the order of the Statutory Committee until the hearing of the appeal is quite remarkable and is not entailed by any problems with our listing system. In the circumstances, I do not think that it would be fair to impose upon Mr Foreman any greater restriction than that which the Statutory Committee determined. I would, however, order that the fine be paid within seven (7) days of this judgment. As to the costs I entirely agree with Mahoney JA that it was proper for the Law Society to bring the appeal. The appeal must be dismissed, largely, in my view, because of the lapse of time. In my opinion, this is a proper case, despite the dismissal of the appeal, in which to order the Solicitor to pay the Law Society's costs of the appeal. I would dismiss the cross-appeal with no order for costs. Accordingly, the orders that I would propose are: 1. The appeal and cross-appeal are each dismissed. 2. The Solicitor, Keith Charles Foreman, must pay to the Law Society of New South Wales within seven (7) days of the date of this judgment the sum of $2,000.00 being the fine imposed upon him by the Solicitors' Statutory Committee in its order of 25 August, 1989 or the balance of that sum over and above any part-payment which may have already been made. 3. The Solicitor, Keith Charles Foreman, must pay the Law Society's costs of the appeal. 4. There will be no order for the costs of the cross-appeal. Mahoney JA On 25 August 1989 the Statutory Committee, acting under the Legal Practitioners Act 1898, made orders against Mr Keith Charles Foreman, a solicitor of the Supreme Court of New South Wales. It imposed a fine of $2,000 and a suspension of eighteen months. Appeals have been brought to this Court by the Law Society and by Mr Foreman against the orders which were made. The orders were made by the Statutory Committee consequent upon a reference made to it of certain matters pursuant to s.76 of that Act. The matters referred to it related to the conduct of the solicitor essentially during the period when he had carried on the practice styled H. Hamilton Moore & Co. He acquired the practice in January 1979 and sold it in June 1985. During that period various acts were done by a clerk employed in the practice, Mr Philip Hasset Harding. A number of issues were raised in relation to what the solicitor did or failed to do. Some of these were found in favour of the solicitor by the Statutory Committee. Those that were found against him arise essentially from two contentions made against him: that he failed to supervise the work of Mr Harding, to the extent that he was guilty of professional misconduct; and that he permitted or failed to supervise transactions involving, as it was described, an "intermingling" of the affairs of clients of the practice with the affairs of the wife of Mr Harding and companies in which she and he had interests. The Statutory Committee made findings in relation to each of these matters and, on the basis of those findings, made the orders here in question. Before this Court it has been accepted for both parties that the basic findings of fact made by the Statutory Committee are correct. It is the inferences to be drawn from and the implications of those findings of fact which are in dispute. In order to deal with the submissions which have been made to this Court, it is necessary to refer in some detail to the matters in issue before the Statutory Committee which remain relevant in this appeal. I shall refer to them in general terms sufficient to indicate the nature of the submissions and the conclusions which I have formed in relation to them. Mr Foreman was admitted as a solicitor in 1966. He practised on his own behalf until January 1979. He then acquired the practice H. Hamilton Moore & Co and carried on that practice as a sole practitioner. Mr Harding had been employed by the solicitor who previously had carried on the practice: his employment had commenced towards the end of 1977. Mr Harding apparently took a substantial part in the running of the practice: it was said in evidence that the previous owner of it had not been well or otherwise had not vigorously pursued the practice. The evidence suggested that it was Mr Harding who effectively brought Mr Foreman into the practice. Mr Foreman had agreed to pay some $30,000 or more for the practice. For reasons to which he referred in evidence, he paid in fact only $10,000. That $10,000 was provided to him by way of loan through Mr Harding's wife. The loan was not formally documented. The Law Society suggested there was no evidence of repayment. Mr Foreman said it was repaid. The Statutory Committee made no finding on the matter. In 1979 Mr Harding became bankrupt due to obligations arising from land transactions. Mr Foreman was relevantly aware of Mr Harding's status. The Law Society, before the Statutory Committee, adduced evidence in respect of a number of transactions. I shall refer to those which are of importance in relation to the issues of supervision or intermingling. In March 1983 a client of the firm Mr Alcaine gave $100,000 to the firm for investment on mortgage security. He did so "through the agency of" Mr Harding and upon the basis that the investment of the sum by the firm "will be secured by a mortgage" and "fully secured". In fact the money was lent in a manner which did not provide security for it. Mr Harding handled the transactions involved and did so with a serious lack of care. Mr Foreman admitted that he was "aware generally" that the Alcaine transactions were being undertaken but he said that, as the Statutory Committee found, "he had no reason to doubt that it was being attended to properly until he was asked to sign a caveat on 30 September". He then became aware of the inadequate nature of the security and took steps to rectify the position. In the end, only some $20,000 was recovered from the persons to whom money was lent. Mr Alcaine, through other solicitors, claimed against Mr Foreman and Mr Foreman discharged his liability to Mr Alcaine. It was the conclusion of the Statutory Committee that the Alcaine matter was "the first problem involving possible negligence or misconduct on the part of Harding to come to Foreman's notice". In November 1983 Mr and Mrs Alcaine lent $40,000 to a Mr Punch upon the basis that they would have security for the loan by way of a second mortgage over properties at Chiswick and Dural. Mr Harding was guilty of serious default in relation to two matters arising from this loan. First, the security was not properly arranged. A second mortgage was apparently prepared but, because Mr Harding, at best, merely relied upon assurances from the first mortgagee that the second mortgage could be registered, registration was not achieved. A caveat was lodged without undue delay, on 11 November 1983, in respect of the Chiswick property to protect Mr and Mrs Alcaine but no steps were taken in relation to the exercise by the first mortgagee of his power of sale on 22 March 1984. On 11 September 1984, some ten months after the advance was made, a caveat was lodged in respect of the Dural property. Although, as the Statutory Committee found, "it seems likely that no loss to the Alcaines ensued from the delay in registering the caveat on the Dural property..." it is clear that Mr Harding was guilty of serious default in what he did. The Statutory Committee noted that Mr Foreman said in evidence that "he recalled the clerk, Harding, telling him the first mortgagee had withdrawn his consent to the registration of the second mortgage but otherwise did not recall any of the circumstances surrounding the withdrawal of the caveat". He had, in effect, left the conduct of the matter to Mr Harding without any appropriate supervision. The accounting to Mr Punch, the mortgagee, appears to have involved serious irregularity. Mr Punch claimed that of the $40,000 borrowed he received only approximately $23,000 and that some $14,000 was not paid to him or with his authority to anyone else. The suggestion was that the money had been improperly taken by Mr Harding. However, whatever was done was done by Mr Harding without the knowledge of Mr Foreman and the present appeal has proceeded upon the assumption that such default as has occurred on Mr Harding's part was not to be held against Mr Foreman, at least in relation to the matters of supervision and intermingling which now have been primarily under consideration. It is not necessary to pursue this aspect of the matter further or to make a determination in respect of it. In or about March 1984 Mr Harding was concerned with payments to another client of the firm, Mr John Van Houten. Mr Van Houten had settled his claim for personal injury for $120,000 inclusive of costs on 21 February 1984. The matter had been handled essentially by Mr Harding. In March 1984 Mr Van Houten asked Mr Harding whether he could then have $5,000 "out of" these moneys. He was told by Mr Harding "that will be all right if you are willing to pay me $5,000 cash to cover all your legal fees". This amount was to cover Mr Van Houten's legal costs "including medicals and barrister's fees" except the fees due to Mr Larbalestier QC: Mr Van Houten was to pay Mr Larbalester's fees himself. Two cheques were drawn, presumably at the instance of Mr Harding, each payable to Mr Van Houten and each for $5,000. Mr Van Houten received the proceeds of one of the cheques: he claimed that the proceeds of the other were handed to and retained by Mr Harding. It was, it would appear, Mr Harding's contention that the $5,000 he received was paid to Mr Larbalestier QC in cash; that claim was denied. Mr Van Houten subsequently claimed reimbursement of the $5,000. In relation to this matter the Statutory Committee found that Mr Foreman had "first become aware of the problems in" it and the Punch matter "about September 1984, some six months after the failure to account for the $5,000 in the Van Houten matter". The Statutory Committee said: "For similar reasons to those already expressed in relation to Punch, the Committee feels that the Solicitor was in no way responsible (through lack of supervision or otherwise) for the failure to account to Van Houten for the $5,000. In the Van Houten matter even more than in the Punch matter, there was no way the Solicitor could have anticipated the course of events. As appears from paragraph 7 of the Van Houten Statutory Declaration, Van Houten freely handed over the cash to Harding, never intending to receive it back but expecting it to be paid to doctors and barristers. It was the ultimate method of accounting as set out in the H. Hamilton Moore & Co letter to Mr Van Houten of 16 March 1984 written by the Clerk...which brought about Van Houten's complaint. As with Punch, the trust account entries were in order and the problem arose solely from an oral arrangement made privately between the respective clients and the Clerk (voluntarily in the case of Van Houten but involuntarily in the case of Punch)." Between May and November 1984, the firm received moneys from clients which it paid into its trust account. Those moneys were to be invested on behalf of the clients. In fact, amounts totalling some $236,000 were drawn from the trust account and were purportedly lent to a Mr D. Bartter "on the security of an unregistered mortgage described by Miss Sayer...as `an incomplete mortgage signed by Mr Harding under power of attorney granted to him by D.T. Bartter'". The Committee found that until the solicitor sold the practice in June 1985, "there was no registered security to protect the substantial interests of the individual contributory mortgagees for a minimum period of some seven months". Thereafter, the purchaser of the practice, Mr Cooper, "lodged a caveat to protect the unregistered mortgage when he ascertained that it had not been registered". In due course, it would appear, the clients in question were repaid but, as the Statutory Committee found, there was serious default in the manner in which the transactions were handled. It was put during cross-examination of Mr Foreman that Mr Bartter had, in effect, been interposed in order to procure the result that some of the moneys lent to him should be, as it was described, "on lent" to companies in which Mrs Harding was interested. There was in evidence before the Statutory Committee a report of the investigator Miss Sayer which suggested that substantial sums drawn from the trust account and lent to Mr Bartter were shortly afterwards lent by him to such companies. It is not necessary to pursue in detail all of these transactions. The Statutory Committee noted that there was a close personal relationship between Mr Harding and Mr Bartter and therefore did not consider the "execution by the clerk as Mr Bartter's Attorney of the mortgage in favour of the lender clients" had relevance in relation to the issue of negligence. It noted also that no part of the lending to Mr Bartter involved "a use of the client's trust funds which was unauthorised by the respective clients". It concluded that there was "no evidence that the parties to the lending transaction were other than at arm's length (albeit that there was a common solicitor for all parties involved)". And, it was said by Mr Foreman, "Bartter has never complained to me about any dealings he had with Harding and Harding's wife and associated companies and nor has he ever sought my advice or opinion". However, Mr Foreman conceded that he took no steps in particular to satisfy himself that the moneys lent out to Mr Bartter were secured: he "just assumed in the normal course of business that it would be properly secured. I had no reason to believe otherwise". The Statutory Committee considered that that assumption was significant having regard to what the solicitor had ascertained in respect of the inadequate handling by Mr Harding of the Alcaine transaction. It considered "that specific supervision should have been exercised in the Bartter matter, particularly as the checking on due registration of a mortgage to secure the substantial sum of $236,000 was important and well capable of being carried out within the normal functioning of his practice." It is not necessary to detail the amounts "on lent" by Mr Bartter to the companies in which Mrs Harding was interested. These amounts, as set forth in the first report made by Miss Sayer, were accepted as accurate for present purposes. Substantial sums were dealt with in that way. However, the Statutory Committee did not apparently feel it necessary to pursue the aspects of the matter relating to such "on lending" and, it would appear, did not form firm conclusions against Mr Foreman in relation to them, except to the extent to which I shall refer. Reference was made by them, in relation to transactions with the Harding companies, to conflicts of interest, e.g., in relation to a loan made on 12 November 1984 to Anidoa Pty Ltd. But, subject to what I shall say, I do not think that it is necessary for the purposes of this appeal to analyse the loans made by Mr Bartter to the Harding companies or the loan to Anidoa Pty Ltd in further detail. On 11 July 1985, shortly after Mr Foreman sold the firm and practised separately on his own account, Miss Jean Sayer was, pursuant to s.80A of the Act, appointed to examine the position. On 10 March 1986 her first report was made. That report has been accepted in evidence. On 26 March 1986 she was appointed receiver in respect of the practice. On 14 August 1986 her second report was made. That also is part of the evidence now before this Court. On 27 May 1987 the Law Society resolved to refer the matter to the Statutory Committee. On 25 August 1989 the Statutory Committee made the following orders: "1. That the Solicitor Keith Charles Foreman be fined the sum of $2,000 (two thousand dollars) and that he be allowed a period of thirty (30) days from the date of this Order within which to pay that amount. 2. That the said Keith Charles Foreman be suspended from practice as a solicitor on his own account or in partnership for the period of eighteen months from the date of this Order provided that if during the said period and after the above mentioned fine shall have been paid the said Keith Charles Foreman shall for a continuous period of not less than nine months become employed full-time as an employee of a solicitor engaged in practice on his own account or of two or more solicitors practising in partnership on their own account, then at the expiration of such period of nine months this Order for Suspension shall cease. 3. That the costs of the Law Society of and incidental to the Reference be taxed by the proper officer of the Supreme Court of New South Wales as between solicitor and client and when so taxed and allowed be paid by the said Keith Charles Foreman to the Law Society or its Solicitor Miss Rosemary MacDougal." The judgment of the Statutory Committee extended over some sixty pages and more. The details of the findings have been canvassed before this Court. Mr Foreman, before this Court, has relied, as he is entitled to do, upon the fact that in relation to a number of the matters raised before the Statutory Committee, findings were made in his favour; he has relied also upon the finding that there was, on his part, "no personal dishonesty or incompetence". It is proper, in fairness to him, that I set out the "Summation of the Solicitor's Performance" as made by the Statutory Committee. The Committee, at the end of its judgment, said: "There is no personal dishonesty or incompetence shown on the part of the Solicitor; the only two matters which involved him directly as a practitioner are the two matters of Lancaster and Doyle and the Committee has found in relation to these matters that the Solicitor was not guilty of any wilful breach of Section 41. "The Solicitor has been in practice since 1966, for a large part of that time on his own account; he is no novice in practice. His range of experience is quite wide (T99). He is experienced and prefers litigation work and commercial work. He dislikes matters involving great detail (what he describes as `finicky type of work...probates and those sorts of things'). "His acquisition of the firm of H. Hamilton Moore & Co involved him extricably with the Clerk, Harding, whom he had known since 1973. The Clerk was the last link with the Hamilton Moores and the old clients of that firm. He was an experienced and astute businessman and was prominent in the old firm's mortgage practice. He was thus an integral part of the goodwill of the old firm. On the one hand, he was of great help to the Solicitor in organising the mortgage practice and relieving him from involvement in the `finicky' part of that practice. On the other hand he was a problem, basically because there were limitations on what he could do because of his lack of qualification. In the result, the Clerk was, at best, a mixed blessing. "The Committee accepts that the Solicitor had a genuine respect for the Clerk and belief in his ability as an unqualified managing clerk. It also accepts that the Solicitor did not go about his practice in `a vacuum', that he did make some (but an inadequate) effort to supervise the entire operation of the small firm of which he became the sole proprietor. He did supervise incoming mail, he was familiar with the matters going through the office and he did discuss things with the Clerk (but only at the latter's request). He let the Clerk have his head and sought `not to interfere unduly'. The Committee finds that, generally speaking, he did not leave the Clerk to his own devices in any area where he might have doubted the Clerk's ability to cope with matters competently. Moreover the Committee finds that, initially, the Solicitor had a reasonable basis for believing that, within the areas of work entrusted to him, the Clerk was reliable and competent. "The situation was not made any easier by the fact that the Clerk had become bankrupt in 1977 and his bankruptcy remained undischarged throughout the Solicitor's ownership of H. Hamilton Moore & Co. However, there is no evidence to suggest that this was in any way concealed from clients of the firm by the Solicitor. The Committee also finds that the Solicitor did not in any way imply to clients that the Clerk was a qualified solicitor. "Having said all this in favour of the Solicitor, the Committee must also say that it has no doubt that the Solicitor never really attached sufficient importance to the task of supervision of the firm's operations and the firm's trust account. As the sole proprietor of the firm he was solely responsible, yet a large part of the firm's practice was in the hands of an unqualified person. This was not a situation where he could justifiably relax his supervision. It was as much a part of what he inherited with the purchase as was the goodwill and the Clerk's client connection; it was a problem which the Solicitor did not adequately address. "While reiterating that the Solicitor believed that the Clerk was competent, it was nevertheless a situation, notwithstanding that belief, where he should have exercised closer supervision. For example, he could and should have himself signed Harding's letters (except perhaps for formal ones) and he could and should have had a tighter system of checking on trust account cheques (such as the contemporaneous production of the ledger card or receipt book in the case of unposted credits) with a signed cheque requisition slip and the trust account cheque for signature. It was a difficult situation (as all such situations involving sole practitioners are); the exercise of a closer degree of supervision would have made some inroads into the time which the Solicitor needed to spend on the `non-finicky' and important matters with which he was directly concerned. But, after all, that was the situation which he inherited by his purchase of the practice and he should have completely recognised that and faced the consequences. "It follows logically that, to some extent, the Solicitor did not face up to his responsibilities. However, the Committee considers he by no means totally abrogated them as was submitted by the Law Society. "Having regard to the specific cases where the Committee has found that the Solicitor has been negligent or has failed to prevent intermingling of his clients' affairs with those of his Clerk and to the Solicitor's overall inadequate supervision, the Committee finds that the Solicitor has been guilty of professional misconduct. "Because of his lack of responsibility the Law Society submitted that the Committee should make some protective order, i.e. one for striking-off or suspension. The Committee agrees that the degree of lack of responsibility, though by no means total, was nevertheless sufficiently high to warrant a concern by the Committee for the protection of clients. Indeed, the Committee is not satisfied that, notwithstanding the undoubted honesty and experience of the Solicitor as a legal practitioner, he would be capable of fully responsibly administering his own practice without some further experience as an employee in a solicitor's office in addition to the period he has already spent in such a capacity since ceasing to practice on his own account. At the same time the Committee is satisfied that the Solicitor has learned an important lesson from these proceedings and that, again because of his honesty and experience, a period spent working as a solicitor employed by another solicitor in private practice will sufficiently instruct him in the need for careful (even `finicky') administration of a legal practice at all times and thus again qualify him to resume practice on his own account or in partnership. The Committee is also mindful of the appropriateness of an order for suspension from practice to the Solicitor's failure to recognise fully the responsibilities involved in practice; the acceptance of those responsibilities is the price that must be paid for the privilege of practising. Additionally, the Committee feels a pecuniary penalty should be imposed." I come now to consider the three matters in respect of which, in the main, submissions were made to this Court: the finding of professional misconduct due to failure to supervise what was done by Mr Harding in the practice; the "intermingling" issue; and the form of the orders made. Failure to supervise It is not in question but that the responsibilities of a solicitor for the proper conduct of the practice of which he is a part extend beyond his own actions and the work that he does. The obligations placed upon a solicitor by the regulatory legislation to which he is subject involve that he, to a proper extent, take steps to ensure that the statutory obligations in respect, to take one example, of the maintenance of a trust account, are complied with. Reference was made to the obligations of a solicitor in respect of those practising with him in partnership in Bridges v The Law Society of New South Wales (1983) 2 NSWLR 361. And a solicitor has also responsibilities in respect of staff employed by him or his practice in the conduct of legal matters. It is not necessary or desirable that the court attempt to formulate in detail the principles on which such obligations rest or the application of them, in general terms, to the practice of law. The kinds of practices now carried on vary considerably and the managerial and other structures within legal practices vary and will, no doubt, vary further to meet the needs of a changing profession. What will be proper in one kind of practice may not be proper in another. It is therefore proper to confine what is said in this case to the responsibilities of a sole practitioner in respect of a non-qualified person who has been given the duty of conducting matters involving the application of the law and requiring the observance of proper standards of conduct. Such, in my opinion, was the position of Mr Harding. Mr Burns, for Mr Foreman, accepted the basic findings of the Statutory Committee as to what Mr Foreman had and had not done. The Law Society's contention from those findings was to the effect that Mr Foreman had "totally abrogated" his responsibility to supervise. That, Mr Burns submitted, was not a justified conclusion. Mr Foreman had known Mr Harding for some time, he respected him and treated him as a friend, he had confidence in his ability and experience in the practice, and, it was suggested, he had no reason to suspect that what he was doing was not carried on honestly and efficiently. In that context, Mr Foreman did not concern himself with, as he would see the matter, the detail of what Mr Harding was doing. Mr Burns submitted that he had not "totally abrogated" the responsibility of supervision: Mr Burns submitted that he had, for example, read incoming mail, checked the trust account records and certified the trust trial balance each month, checked Mr Harding's files if they were brought to him for consideration, signed all trust account cheques, and discussed matters with Mr Harding when his assistance was sought. And, Mr Burns submitted, the office being a small one, he was generally aware of what was going on in it, or thought he was so. The Statutory Committee did not seek to detail exhaustively what Mr Foreman should have done: it was not necessary that it do so. Mr Lindsay suggested that, for example, Mr Foreman should have signed all outgoing correspondence of relevance, should have inquired systematically and periodically as to what was happening in respect of Mr Harding's matters, and should have checked Mr Harding's files, at least on a "spot check" basis. And, the suggestion was to the Statutory Committee, Mr Foreman should have established a management structure apt to ensure that what was being done by Mr Harding was done properly and efficiently. What will be required for the discharge of a solicitor's responsibilities in a case such as the present must, even within such confines, be affected by the circumstances of the case. It will, for example, be affected by the solicitor's knowledge on a continuing basis of the competence and integrity of the clerk. It will be affected also by the nature of the transactions taking place or apt to take place within the clerk's scope of activities. But, without seeking to be definitive or exhaustive, it will be of assistance to see as involved in the conduct of a solicitor's practice , inter alia, five things: (1) a knowledge of the law to be applied; (2) the proper application of the law to the individual transactions carried out by the clerk; (3) the efficient and effective processing of those transactions from their commencement to the completion of them; (4) the observance of the statutory and other requirements in respect of the dealing with moneys received into the practice; and (5) the observance of the general obligations of those involved in the conduct of a legal practice, relating to, e.g., conflict of interest, the conduct of fiduciaries, and the general ethics and etiquette of lawyers and those associated with them. These things are, in my opinion, of significance in the present case. Thus, to take an example, transactions were taking place or apt to take place in relation to companies in which Mrs Harding was interested. Mr Harding was, to Mr Foreman's knowledge, an undischarged bankrupt. There were apt to be circumstances in which Mr Harding's interests and duty to his wife and such companies might well be, in the recognised sense, inconsistent with the obligations which he had to clients involved in such transactions. The transactions to which Mr Bartter was a party are, in principle, illustrations of this. In general terms, Mr Foreman, although conscious that there was, as he understood it to be, a close personal and business relationship between Mr Bartter and Mr Harding, did not concern himself with such transactions. In addition, the interests of clients of the firm who had deposited moneys for investment were involved: their moneys were lent to Mr Bartter and he in fact lent substantial parts of those moneys to Mrs Harding's companies. Such transactions, though not of a nature unprecedented in the practice of law, involved the knowledge of and the proper application of principles of some importance. They involved, at the least, principles dealing with the conflict of duty and interest and with the duty of a solicitor to make available to his client all relevant information of which he has knowledge. The clients in question had, through Mr Harding, lent money to Mr Foreman's firm or asked him to hold such moneys on trust for them, upon the basis that the moneys would be lent to others on proper security. The moneys were lent to a close associate of Mr Harding and some of them were "on lent" to companies in which Mrs Harding had interests. There was in this a conflict between the duty of Mr Harding (and through him Mr Foreman) to ensure that the moneys were properly lent on security and the interest of Mr Bartter and Mrs Harding to have the moneys at best advantage to them. Mr Harding's position was therefore one of some nicety: see Law Society of New South Wales v Harvey (1976) 2 NSWLR 154 at 171. If the moneys were borrowed to be "on lent", the conflict was clear and immediate. If the loans to the Harding companies were not prearranged but were separate and subsequently arranged transactions, it yet remained that care was necessary to ensure that the loans to Mr Bartter were properly secured. The duty of a solicitor to provide to his client all relevant information within his knowledge has been discussed in this Court in several cases: see, for example, the important case of O'Reilly v Law Society of New South Wales (Court of Appeal, 23 December 1988, unreported) and the references there cited. In the transactions involved in this example, questions would (I put the matter no higher) be apt to arise as to the disclosure to the client lenders of Mr Harding's close personal relationship with the person to whom he chose to lend their moneys and the proposals for or possibilities of (if they were such) the "on lending" of some of the moneys to the Harding companies. It is not necessary for me to express firm conclusions as to what, in the present case, Mr Harding was in fact obliged to do, in relation to conflicts of his interest with his duty and in relation to the advice he should have given and disclosure he should have made to the clients involved. It is sufficient to say that, in such transactions, problems of these kinds were apt to arise. In such a situation, it was not sufficient for Mr Foreman to adopt the attitude he did. Where a clerk is to have the conduct of matters of that kind, it is ordinarily the duty of the solicitor responsible for him to satisfy himself that the clerk is aware of the principles involved and has a proper appreciation of what they involve. It will ordinarily be his duty to have at least a sufficient acquaintance with the transactions to enable him to satisfy himself that there is nothing to suggest that those principles have not been applied. And where fiduciary obligations and conflicts of interest are apt to be involved, he should take appropriate steps to ensure that there is no apparent breach of them. I do not mean by this that a solicitor must himself scrutinise every step of such transactions or that in every case he must be concerned with all such transactions. He may be in a position from past knowledge and experience of the clerk to exercise a more general rather than a particularised supervision of such matters. But he must give attention to the extent of supervision necessary in each case and maintain a sufficiently close oversight of cases in which principles of the kind to which I have referred are apt to come into operation. The Statutory Committee was correct in holding that he did not do so. I am conscious that in fact the Statutory Committee saw the value of the security given by Mr Bartter as being sufficient to secure the moneys lent to him, at least had the documentation been properly carried out. And I am conscious that the Statutory Committee found that, in the end, the transactions were not improper and did not involve any actual loss to the clients. But the transactions which, as Mr Foreman knew or ought to have known, were undertaken or apt to be undertaken by Mr Harding raised for consideration what should be done for the protection of the clients and what was or was not proper conduct on the part of the solicitor and his clerk. In such circumstances, it was not, in my opinion, sufficient for Mr Foreman to leave the matter, to the extent that he did, under the unsupervised control of Mr Harding. I have taken, by way of example, one aspect of the work undertaken by Mr Harding. It is not necessary to detail in this judgment other aspects of what Mr Harding did and the extent to which Mr Foreman failed to supervise him. I have considered the evidence given by Mr Foreman and the reasons advanced by him as to why he did what he did. I agree with the conclusion of the Statutory Committee that he failed to do what he should have done in this regard. There is, nonetheless, a distinction between a failure by a solicitor to discharge his obligation to supervise and professional misconduct: not all failures to supervise will necessarily constitute professional misconduct: see the observations of Clarke JA in the O'Reilly case, supra. But, in the present case, the extent to which Mr Foreman left to Mr Harding the conduct of the relevant matters and his attitude to his obligation to supervise what was done went in my opinion so far as to constitute professional misconduct: see generally Law Society of New South Wales v Moulton (1981) 2 NSWLR 736. There were, I think, suggestions emerging from the argument that Mr Foreman's failure resulted from the position in which he found himself vis-a-vis Mr Harding. As I have said, he purchased the practice with money borrowed from Mrs Harding and did not pay interest or document the loan. And he was, to an extent, dependent upon Mr Harding's goodwill because of Mr Harding's knowledge of the clients of the practice. It may be that there were pressures upon Mr Foreman in this regard. If Mr Foreman had, because of a desire to retain Mr Harding's goodwill, because of his financial position, or for other such reasons, allowed Mr Harding to remain more or less unsupervised, his conduct would have been disgraceful in a professional sense. But it is not necessary to make any specific finding upon that matter. No formal findings of this kind were made by the Statutory Committee and, in the circumstances, I would not make such findings. The Statutory Committee accepted that what was done was sufficiently serious to constitute professional misconduct. The court has traditionally given weight to the judgment of a body such as the Statutory Committee in the determination of what constitutes professional misconduct of this kind: see Re Hodgekiss (1962) SR (NSW) 340 at 343; Law Society of New South Wales v McNamara (Court of Appeal, 7 March 1980, unreported) and the O'Reilly case. The Statutory Committee now consists partly but not solely of solicitors: in the present case, one of the three persons was a lay person. I have taken into account the criticisms made by Mr Burns of the terms in which they formulated the findings of fact on which their judgment was based. But it is, in my opinion, proper to take account of the fact that the Committee saw what Mr Foreman did as being not merely wrong but professional misconduct. But, however that be, I am myself satisfied that his omissions in this regard represented such a failure to discharge his obligation as to constitute not merely default but misconduct. There may be professional misconduct without positive dishonesty. If a solicitor, by what he has done, evidences that he does not understand the nature and extent of the obligations to his clients which his profession imposes on him or does not observe them, then, given the sufficient gravity of the impropriety, he may be held guilty of professional misconduct: see generally the judgment of Hope JA in the Moulton case. In the present case, Mr Foreman did not appear to understand what was required of him by such obligations. He did not do what they required. And he did not appear to understand the seriousness of them. Particularly is this so, in my opinion, in relation to what happened after Mr Foreman became aware of the neglects and defaults involved in the first Alcaine matter. Notwithstanding that he then knew or should have known of serious deficiencies in what Mr Harding had done, he continued to act towards him in much the way he had done before. Mr Burns, in one of his submissions, suggested that what Mr Foreman had done represented, not a failure to understand or to carry out his obligation to supervise, but a judgment, perhaps incorrect, of the extent to which in the particular circumstances further supervision of Mr Harding was required. The submission suggested, I think, that what was involved was not a failure to supervise but an error of judgment as to the extent of supervision required. As I have indicated, it may be accepted that Mr Foreman was doing things which, to an extent, informed him of what Mr Harding was doing. The Statutory Committee was clearly conscious of such things. They did not mean by what they said that nothing of that kind was occurring. But their view was, in my opinion, that Mr Foreman so far failed to apply his mind to and to carry out the obligations of supervision that he was guilty of the default to which they referred. I am of the same view. In my opinion, therefore, the Statutory Committee was correct in finding as they did upon this issue. The "intermingling" issue One of the questions referred to the Statutory Committee, question 9, was whether: "The Solicitor failed to ensure that persons employed, or associated with persons employed, by him did not intermingle their affairs with the affairs of clients of the Solicitor". Having dealt with the transactions particularised in respect of that question and having found a number of them not to involve such "intermingling", the Statutory Committee said: "General Observations on Question 9 Since the hearing of this matter concluded, the Court of Appeal has given its judgment in O'Reilly v The Law Society of New South Wales (No. 419 of 1986). The Committee has given consideration to this judgment, particularly the judgment of Clarke JA at pp. 16-25. That case concerned direct intermingling between a solicitor and his clients, not as here, a suffering (by lack of supervision) of an intermingling between an employee with his employer's clients. "It is clear from the judgment just referred to that in dealing with intermingling, this Committee must examine each transaction and determine whether, in all the circumstances it was `wrongful'; as Clarke JA said (at pp 24/25) `the premise that any dealing (between solicitor and client) is necessarily wrongful is erroneous'. His Honour was dealing with an intermingling by a solicitor, not by a clerk but it seems to the Committee that it follows that the obligation on a solicitor's clerk can be no higher than that on a solicitor himself. "There is no specific evidence establishing any particular risks to which the lenders to the Harding interests were subject; certainly nothing which would make the lending remotely comparable to Harvey's case. In particular there is nothing to suggest that the security was inadequate or that the borrowers were financially unstable; indeed there is no information about the security or the stability of the borrowers at all. Bartter and the Marr Estate were the two principal lenders. The Clerk held Bartter's Power of Attorney and they were very close business associates; the Marr Estate had been a lending client of the firm since 1947. On the other hand, the Clerk whose interests, at least indirectly, were equated with those of the borrowers, was in the clearest financial difficulty, being an undischarged bankrupt. Were the ultimate issue to be whether the conduct of the Clerk was, in respect of these transactions `professional' misconduct on his part it might be difficult to give an affirmative answer by applying the criterion specified in O'Reilly's case, at least in the obvious and certain manner in which it was given in Harvey's case. "However that question does not arise. What the Committee has to determine is whether `the Solicitor failed to ensure that persons employed or associated with persons employed by him did not intermingle their affairs with the affairs of clients of the Solicitor'. It seems to be implicit in this question, as it was in the question in O'Reilly's case, that any such intermingling was necessarily wrongful. O'Reilly's case seems clearly to establish that there is no such implication. "Leaving aside for the moment the quality of the intermingling by the Clerk, there is also an unfortunate lack of direct evidence as to the extent of any supervision by the Solicitor over the Clerk's activities in the relevant transactions. On one view of the evidence that might not matter because the Solicitor steadfastly maintained at the hearing that he saw nothing wrong with the transactions. (See T112-115 previously quoted or referred to.) This evidence is somewhat equivocal in that it might means, in effect: `I ascertained at the time of the transactions (through proper supervision) what was going on and saw nothing wrong with it', or `Now that I know what was going on I say there is nothing wrong with it; I exercised proper supervision at the time and that did nothing to bring it to my attention'. "The Committee notes that these lending transactions occurred after the Solicitor had first been put on notice that all might not be well with the Clerk and concludes that a reasonable degree of supervision should have been exercised and if exercised would have ascertained what was going on. "Reverting to the quality of the Clerk's conduct as indicated by the circumstances of each transaction, the Committee makes the following point in relation to O'Reilly's case: that once an unqualified clerk is at liberty to deal with the firm's clients, the question whether a transaction is wrongful rests with him alone. The solicitor employer is no longer the judge, nor is he necessarily able to step in if he becomes aware of a wrongful transaction taking place. "This seems to the Committee to amount to an abrogation by a solicitor of a responsibility and that, in itself, is wrongful irrespective of any wrongfulness of any transaction which may ensue. In the O'Reilly case that did not arise; the wrongfulness or otherwise of the transaction rested with the Solicitor himself who was engaged in it. "In the present case the Committee considers the Solicitor's conduct to be clearly wrongful because: 1. If he exercised no sufficient supervision to discover the `intermingling' transactions, he should have done so. 2. If he did exercise such supervision and discovered the nature of the transactions it was his own misconception of his obligations which stopped him from intervening. 3. Speaking generally of `intermingling' transactions by the Clerk they were always likely to be `wrongful' unless each individual matter were to be examined and approved by the Solicitor. 4. If any of the Clerk's transactions turned out not to be wrongful, that leaves the Solicitor's culpability in not supervising or intervening as, nevertheless, wrongful. "The Committee's affirmative answers to parts of Question 9 have to be considered in the light of these general observations." Two things at least may be said as to what the Statutory Committee did. First, it appears not to have formed a concluded view that all of the matters particularised did not involve an improper "intermingling". It found some did not involve it but others it appears to have left undecided. It did this because it saw the matter referred to it as involving whether Mr Foreman "failed to ensure" that Mr Harding did not improperly intermingle his and the client's affairs. It appears to have seen the question as directed not to what in fact happened but to the precautions taken to prevent improper intermingling occurring. On this basis, the Statutory Committee dealt with the issue essentially as, as it were, a facet of the first matter to which I have referred, viz, supervision. Second, the Statutory Committee, in arriving at its conclusions, considered the effect of the decision of this Court in the O'Reilly case. That decision is, in my opinion, of considerable significance in relation to the conduct of solicitors' practices. It had, I think, been suggested previously that a business transaction between a solicitor and his client necessarily or at least ordinarily constituted professional misconduct by the solicitor. The decision in O'Reilly made clear that this was not so. The effect of the decision was, as the Statutory Committee indicated, that in this regard each transaction must be considered upon its own facts. But the court made clear, in my opinion, that such a transaction imposes particular obligations upon a solicitor and that the disregard of those obligations may not only affect the enforcement of the transaction by him but also, in some circumstances, constitute professional misconduct. In O'Reilly the court was not concerned, as such, with "intermingling" in the sense here in question. The case did not suggest that all cases in which there is a mingling of a solicitor's and a client's affairs must involve professional misconduct. But it made clear that a transaction of that kind will require most careful consideration by a solicitor who is involved in it. The findings of the Committee do not, in my opinion, warrant the conclusion that there was "intermingling" of the relevant kind which, standing alone, constituted professional misconduct. But the Committee's findings are, as I have indicated, relevant in determining whether the relationship between Mr Foreman and Mr Harding in the practice resulted in professional misconduct. The orders to be made Mr Lindsay, for the Law Society, submitted that suspension, or suspension of the present kind, was not appropriate for such misconduct. His submission suggested: that orders made by the court are protective of the public and not directed to the punishment of the solicitor; that a simple suspension does not protect the public because, at the end of it, there is no assurance that the solicitor has so changed that that which has occurred will not recur; and that therefore suspension was not appropriate in the present case. No doubt, in an ordinary case of professional misconduct, suspension of the solicitor will not always be an appropriate means of protecting the public interest. However, it is, I think, not necessary to analyse the suitability of suspension generally for such a purpose. In the present case, a considerable time has passed since the making of the orders of the Statutory Committee. It is accepted that, since 25 August 1989, the date of them, the solicitor has in fact undertaken employment as an employee, in the manner contemplated by the qualification to the second order made, and has done so for a substantial period. The period of the suspension, eighteen months from 25 August 1989, has now expired and the solicitor has recently commenced practice on his own account. I accept the thrust of the judgment of the Statutory Committee in this regard, namely, that such employment will be sufficient to make Mr Foreman conscious of his obligations in this regard and of what is required to discharge them. The Law Society has properly drawn to the court's attention the fact that there has been no unequivocal statement by the solicitor Mr Foreman as to his attitude towards supervision of unqualified staff in his practice: he may, the suggestion was, be still of the view held by him at the time of the Statutory Committee hearings. And therefore, the suggestion was, the court should order some precautionary procedure to rectify this difficulty. Following the hearing of this appeal and judgment in it, Mr Foreman will, I infer, have no doubt but that what he previously did was wrong and that it is necessary for closer supervision to be undertaken of what is done in his practice by unqualified staff. It has not been suggested that the court should, nor would it be desirable for it to, specify what in detail should be done. But I would infer that Mr Foreman is now conscious generally of the extent of his obligation in this regard. Mr Foreman has not yet paid the fine of $2,000 imposed on him. That fine should be paid. The period of thirty days from the date of the Statutory Committee's orders has, of course, expired. It is expected that Mr Foreman will pay the fine forthwith. I would not therefore vary Orders 1 and 2 as made by the Statutory Committee. The costs of the Law Society of and incidental to the reference to the Statutory Committee were ordered to be taxed and paid by Mr Foreman. Mr Foreman succeeded in respect of a number of the issues raised before the Statutory Committee. But the reference was, in my opinion, necessary because of the attitude which had been taken by Mr Foreman generally to Mr Harding's position in the practice and, no doubt, because of what had resulted from that. Having regard to the principles upon which the Statutory Committee may act in awarding costs, I would not interfere with the order which was made. The costs of the appeal The appeal and the cross-appeal have each failed. It was, in my opinion, proper that the Law Society bring the appeal. At the date when the order was made, the problems which it raised in relation to the suitability of the order for suspension, in the terms in which it was made, were of significance. It was desirable that the matter be clarified. But that appeal has failed. In the event, it has failed because, in the time which has elapsed between the orders and the hearing of the appeal, the circumstances have changed. For the reasons to which I have referred, it is not appropriate to interfere with the orders made. But it has failed also because of the fact that a number of the matters relied on by the Law Society should not, in my opinion, be accepted by this Court. In the circumstances, I do not think that Mr Foreman should pay the costs of the appeal. Mr Foreman pursued a cross-appeal and that has failed. In the circumstances, the proper order is, in my opinion, that each party should bear its or his own costs of the present proceeding before this Court. Meagher JA I agree with Samuels JA. 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.