The Legal Services Tribunal of New South Wales CITATION : Paul Herbert Kennedy [1996] NSWLST 20 PARTIES : Paul Herbert Kennedy FILE NUMBER(S) : of 1995 CORAM: Mr A. Martin (Presiding Member) - Ms J. Greenwood - Dr P.O. Miller A.M. CATCHWORDS: :- breach of his fiduciary duty to the client Professional Misconduct - Clause 27 of the Legal Profession Regulation 1987 - LEGISLATION CITED: Legal Profession Act 1987 Allinson v General Council of Medical Education and Registration (1894) 1 QB 750 ; CASES CITED: Re The Law Society v Bannister (LPDR No 4 of 1993); Law Society of NSW v Harvey (1976) 2 NSW LR 154 ; Tyrrell v Bank of London (1862) 10 HLC 26 DATES OF HEARING: 26 February 1996. 13, 14, 15 August 1996. DATE OF JUDGMENT: 12/09/1996 LEGAL REPRESENTATIVES: Mr Wales appeared for the Law Society. Mr Gye for the solicitor. JUDGMENT: Alleged loans made to the Solicitor or to companies (of which the Solicitor was a director and a shareholder) by clients of the Solicitor. Solicitor admitted failure to comply with the Borrowing Guidelines in one matter. Tribunal found professional misconduct and the Solicitor in breach of his fiduciary duty to the client in failing to advise her to obtain independent legal advice. Tribunal found that the Solicitor failed to ensure that a client obtained independent legal advice as required by Clause 27 of the Legal Profession Regulation 1987 which failure amounted to professional misconduct. Tribunal found failure to comply with Clause 27 in a further matter, but the Tribunal dismissed the complaint on the particular facts of the relationship between the Solicitor and the other party and found that one advance was not, on the facts, a loan. Tribunal determined that a protective order was not required and imposed a fine of $10,000 plus costs. T he Law Society Council ("the Council") filed an Information in the Legal Services Tribunal ("the Tribunal") on 8 November 1994 the Council having resolved to complain to the Tribunal with respect to the professional misconduct of Paul Herbert Kennedy, a solicitor ("the Solicitor"). The grounds of the complaint are: 1. The Solicitor intermingled his own interests both personally and of companies of which he was a director and shareholder with the interests of clients. 2. The Solicitor arranged loans from clients without arranging security for those loans. 3. The Solicitor failed to observe clients' instructions by arranging loans without ensuring the availability of security for those loans. 4. The Solicitor failed to make a conscientious disclosure of his interests before obtaining moneys from his clients by way of loans. 5. The Solicitor failed to advise clients that they should obtain independent legal advice before making loans to him and failed to advise the basis upon which such independent legal advice should be sought. 6. The Solicitor acted for clients in circumstances which placed him in a situation of a conflict of interest. 7. The Solicitor acted in breach of section 62 of the Legal Profession Act 1987 ("the Act") in failing to keep records which at all times disclosed the true position in relation to the money received from clients: i) Marjorie Green; ii) G A Hoorda by P G Lamplough pursuant to a power of attorney, and iii) L E Stewart and Stewart Investments Pty Limited. 8. The Solicitor acted in breach of Clause 27 of the Legal Professional Regulation 1987 ("the Regulation").No suggestion was made by the Council in respect of the first ground of complaint that the Solicitor had "intermingled" trust moneys with his own moneys. Furthermore, the Council did not press Ground No 7 which alleged that the Solicitor acted in breach of section 62 of the Act. The complaint arose out of 4 transactions in which the Solicitor was either a party on his own behalf or on behalf of either Parkway Enterprises Pty Limited or Parkway Securities Pty Limited, of which companies the Solicitor was a director and a shareholder. In each case the Council alleged that the transaction was a loan of money, and that each such loan was made to the Solicitor or to the Parkway companies by a client of the Solicitor in circumstances which constituted a breach by the Solicitor of his fiduciary duty to his client. The transactions can be shortly referred to as follows: Marjorie Green – loan of $20,000 to Parkway Enterprises in or about May 1985; G A Hoorda by his attorney, P G Lamplough – $58,000 – between 27 May 1988 and 12 July 1988 to Parkway Securities; L E Stewart and Stewart Investments $100,000 in July 1988 to the Solicitor; L E Stewart and Stewart Investments $50,000 about 7 December 1989 to the Solicitor. A complaint in respect of each transaction in general terms charged the Solicitor with breaches of his fiduciary duty in preferring his own interests to that of his interests of his clients and in particular he acted in breach of the Borrowing Guidelines of the Law Society in the matter of Green and in the other matters, in breach of Clause 27 of the Regulation which replaced the Borrowing Guidelines. Street CJ in delivering the judgment of the Supreme Court in Law Society of NSW v Harvey (1976) 2 NSW LR 154 said (at 169-70): "Where there is any conflict between the interest of the client and that of the Solicitor, the duty of the Solicitor is to act in perfect good faith and to make full disclosure of his interest. It must be a conscientious disclosure of all material circumstances, and everything known to him relating to the proposed transaction which might influence the conduct of the client or anybody from whom he might seek advice. To disclose less than all that is material, may positively mislead. Thus for a solicitor merely to disclose that he has an interest, without identifying the interest, may serve only to mislead the client into an enhanced confidence that the Solicitor will be in a position better to protect the client's interest. The conflict of interest may, and usually will, be such that it is not proper, or even possible, for the Solicitor to continue to act for and advise his client. A solicitor, who deals with his client while remaining his solicitor, undertakes a heavy burden. Where a solicitor discovers that continuing to act for his client will, or may, bring the interests of his client and his own interests into conflict, it will be a rare case where he should not, at least, advise his client to take independent legal advice. It may well happen that the conflict arises fortuitously, and has not been anticipated when the Solicitor undertook to act for the client. This circumstance does not alter the duty of the Solicitor already referred to. A conflict of interest which is avoidable, and ought to be avoided, is that which arises from a deliberate proposal of the Solicitor that his client deal with him. If, for example, a client seeks aid or advice from a solicitor concerning lending or borrowing, or the acquisition or disposal or dealing with assets, the Solicitor will disregard his primary duty as a solicitor referred to so trenchantly by Lord Westbury ( Tyrrell v Bank of London (1862) 10 HLC 26 at 39-40), if he uses the occasion to become the party who deals with his client. It can make no difference if he is not a party directly, but the transaction is with the company in which he has an interest. Even the tender of advice to his client to have independent legal advice, although of importance, does not really overcome the objection to the Solicitor having proposed, invited or encouraged the client, to deal with him or his company in the proposed transaction. We need not pause to analyse the differing problems which arise where the client rejects the advice to seek such independent legal advice, and the Solicitor continues to act, or the Solicitor acts for himself or where he has independent advice either just for the transaction or has a permanent new solicitor." and later: "In the absence of very special circumstances, a solicitor who promotes himself as the dealer with his client, misuses his position. A solicitor who constantly promotes dealings with various clients clearly misuses his position, and puts it beyond his capacity to observe his primary duty to his clients. The price of being a member of an honourable profession, his duty to his client ought not to be prejudiced in any degree, is that a solicitor is denied the freedom to take the benefit of any opportunity to deal with persons whom he has accepted as clients. Therefore, he ought neither to promote, suggest or encourage a client to deal with him, but rather should take all reasonable steps positively to avoid dealing directly, or indirectly with his client. There are of course exceptional cases where the transaction may be in the special interest of a particular client, but such cases will be isolated and need to be dealt with conscientious regard for the procedures already referred to." Following the decision in Harvey's Case the Council issued a special bulletin concerning borrowing transactions and the ruling of that bulletin was later replaced by clause 27 of the Regulation. In its explanatory note, the Council stated that it was not seeking to restrict unnecessarily a solicitor's business enterprise but it was apparent from judicial decisions (particularly Harvey's case) that a solicitor, practising as such, is by law already under severe restrictions as regards dealings with his clients and the existence of the current trust account problems suggests that the legal restraints are certainly no wider than they need to be. It was the Council's purpose to explain and clarify the extent of these restrictions and not to impose any further or other restrictions beyond them but the Council further stated that having formulated the statement, it follows, of course, that any breach of the stated rules must be regarded by the Council as prima facie constituting professional misconduct. These rules prohibited borrowing transactions between a solicitor and his client unless ( inter alia ) the client had received independent advice and the certificate of independent advice had been furnished prior to the transaction being entered into by a solicitor independent of the borrower. In those rules a "client" was defined as follows: "'Client' means any person between whom any solicitor or the partner at any time of a solicitor or the employer of a solicitor any relationship of solicitor and client exists or any person seeking to invest money through a solicitor or approached by or on behalf of a solicitor for that purpose." Clause 27 of the Regulation had in substance the same requirements as provided by the rules applicable to borrowing transactions in the special bulletin of the Council. However the definition of "client" was to some extent extended – the definition being: "'Client' includes any person for whom a solicitor or the Solicitor's firm has undertaken to act or furnish advice and any person seeking advice from, or offered advice by, the Solicitor or the Solicitor's firm in respect of the investment of any money." The period during which the transactions the subject of the complaint took place was April 1986 to December 1989. During this period the Solicitor was practising on his own account carrying on what he termed as being "a legal corporate consultancy practice" under the name of Kennedy Hannaford & Kesby (St Ives). He was a consultant to the practice of his former firm Kennedy Hannaford & Kesby of Milsons Point. The Solicitor was admitted to practice in December 1969 and from that time up to the present time he has always held an unrestricted practising certificate and has carried on practice as either a sole practitioner or in partnership. Marjorie Green In or about May 1985 Marjorie Green ("Mrs Green") was a client of the firm Kennedy Hannaford & Kesby of which the Solicitor was then a partner. Mrs Green received the sum of approximately $130,000 in settlement of a third party motor vehicle action and of that amount she had approximately $20,000 which she wished to invest from which investment she could obtain a regular income. Mrs Green sought the advice of the Solicitor and he advised her that $20,000 be lent to Hebersham Pty Limited as bridging finance for a short period of 3 months at an interest rate of 30 per cent per annum. On 25 September 1985 a deed was executed by Hebersham Pty Limited acknowledging the loan with provision for repayment by 25 December 1985. In December 1985 the loan was repaid by Hebersham Pty Limited and $20,000 was then lodged with Permanent Finance Corporation (later Syncarp Finance Corporation) awaiting Mrs Green's further instructions. On 27 March 1986 Syncarp Finance repaid the $20,000 and that sum was then placed in the trust account of the firm Kennedy Hannaford Kesby of which firm the Solicitor was then a partner. On 3 April 1986 the Solicitor as a director of Parkway Enterprises Pty Limited wrote to Mrs Green as follows: "Re Your Proposed Investment Following requests from you and your daughter Jud that I consider involving you in investing the sum of $20,000 with this company for an initial period of 2 years and then to be reviewed from time to time, I advise that I would be so disposed subject to the following: 1. Clearly while through this company's real estate developments it has from time to time made considerable internal rate of return on funds employed (usually in the order of 30 per cent per annum) it cannot be said that there is not some element of risk in such matters and no specific guarantee can be given. 2. In view of our close personal relationship and the relationship between your daughter Jud and secretary Wendy, I would be happy to assist you by taking these funds 'on board'. As you are well aware (from both your daughter Jud and from Wendy who works in my legal practice at Kirribilli) while I shall agree to accept these funds for investment into this company by way of loan investment funds, you are on notice that this company is a private family company of mine personally and, as the legal practice of which I am a partner has acted for you, it could be said that there may be some conflict of interest between my position as a director of this company as well as a partner in a legal firm which acts for you. While it is you and Jud who have approached me and not my approaching you and this approach has been on a personal basis (as distinct from my position as a solicitor) to ask if you could become involved in any non-legal development activities, I feel compelled to formally advise you that not only are you clearly entitled to do so but it may be prudent to seek independent legal advice on your proposal, as the loan is an unsecured loan to a company of which I am and my secretary Wendy are directors and the personal guarantee by me alone is on the following basis: (a) That this company would endeavour to achieve a level of return in the order of 30 per cent p.a. during the term but no guarantee can or is given that such a return can or will be achieved. (b) In order to protect you from any possible downturn in, the economy or changed circumstances for any reason, I would be prepared to personally guarantee the repayment of your capital and interest from today's date to the date of final repayment of capital or balance of capital and interest to that date at the rate of thirteen (13 per cent) p.a. on the capital or balance thereof which may from time to time remain outstanding. (c) The purpose of the above is to put you in no worse a position (and indeed possibly in a much better position) than you would be if you left funds on bank deposit for a similar length of time, and is equally guaranteed. I note we have discussed this latter aspect before and although you have indicated that you do not intend to seek other advice and I accept that, nevertheless I believe it is correct for me to so advise you as I have now done." Mrs Green denies that she ever received this letter of 3 April 1986. The Solicitor says that in a conversation with Mrs Green in March 1986 he disclosed his interest in Parkway Enterprises to her and that the letter was not despatched to Mrs Green because of Mrs Green's assertion that she did not want to have the independent advice. On 3 April 1986 the Solicitor withdrew from the trust account of his firm, against the credit of Mrs Green $20,000 and paid it to Parkway Enterprises of which company he was a director and shareholder. The Solicitor conceded this ground of complaint on the basis that the Borrowing Guidelines were in force in April 1986 and that he had failed to comply with these Guidelines. Putting aside this concession by the Solicitor the Tribunal finds that the Solicitor was in breach of his fiduciary duty to Mrs Green (inter alia) in failing to advise that she should obtain independent legal advice. The Tribunal further finds without difficulty that the Solicitor's breach of fiduciary duty constituted professional misconduct as being conduct within the definition of professional misconduct in Allinson's Case that the Solicitor's conduct "would be reasonably regarded as disgraceful or dishonourable by [the person's] professional brethren of good repute and competency". The Tribunal finds the Solicitor guilty of professional misconduct under this ground of the complaint. G A Hoorda & P G Lamplough The Solicitor acted for Mr Hoorda and Mr Lamplough as attorney for Mr Hoorda in the year 1982. The Solicitor claimed that he ceased to act for Mr Hoorda and/or Mr Lamplough as the attorney for Mr Hoorda in 1984 and that he had ceased to act as a solicitor for Mr Lamplough in his own right in 1986. The Council alleged that between 27 May 1988 and 12 July 1988 the Solicitor requested and received from Mr Hoorda through Mr Lamplough loans totalling $58,000. That the loans were made to Parkway Securities Pty Limited of which company the Solicitor was a director and shareholder and that the Solicitor failed to advise his client to obtain independent legal advice and failed to properly secure the loans or advise the client they should be secured. The Solicitor denied that at the times the loans were made that there was any solicitor/client relationship between himself and Mr Hoorda or between himself and Mr Lamplough. The Solicitor in answer to the complaint that he arranged the loans without properly securing the loans said: "Third party security was provided to protect the interests of Mr Hoorda through his agent Mr Lamplough which security was as follows: (i) personal guarantee of the Solicitor; (ii) provision of equitable mortgage/equitable charge over assets of the company Parkway Securities Pty Limited; (iii) conferral of right of caveat over real property asset of Parkway Securities Pty Limited at 40 Bundabah Avenue, St Ives; which securities were detailed in a letter dated 20 April 1988 from the Solicitor to Mr Lamplough." The Tribunal is comfortably satisfied up to the time there was a discussion on or about 18 April 1988 between Mr Lamplough and the Solicitor concerning the proposed loans the relationship of solicitor and client had ceased as between the Solicitor and Mr Hoorda and that relationship did not exist at that time. However it is necessary to look at the discussions concerning the proposed lending transaction and the letter from the Solicitor of 20 April 1988 in an order to ascertain if Mr Hoorda was a "client" within the meaning of Clause 27 of the Regulation which provides that a "client" includes any person for whom a solicitor or the Solicitor's firm is undertaking to act or furnish advice and any person seeking advice from, or offered advice by the Solicitor, or the Solicitor's firm in respect to the investment of any money". The Solicitor in his statutory declaration of 11 July 1996 in paragraph 3 said: "On or about Monday, 18 April 1988 in my home shortly after midday, I had a conversation with Mr Lamplough with words to the following effect: PL: "You know I'm not happy with the way things are going in insurances. Things are coming together with you for the Stewart deal. I'm keen to get back into investment. I've got that money from Greg Hoorda that I've been using. Maybe we could use that to fund the TAC business. I could then get involved to supplement my income due to Peter Taylor's failure to supply me with any main leads which he promised to do." PK: "You're up to speed with these things at the moment and the major problem I have is the business I recently committed to the TAC project and this would solve the funding as well as my main problem because my prime concern is to sought everything out at Stewarts to settle the sale of the Stewart business and properties. I'm fairly sure we could work out an agreement to everyone's satisfaction." Mr Lamplough in his evidence says that the agreement for loans and the loans were made at the request of the Solicitor and that following the first advance of $25,000 on 27 May 1988 he received the letter dated 20 April 1988 from the Solicitor which set out the terms and conditions of the agreement for the loans. Evidence which supports the assertion that the Solicitor requested the loans is to be found in the Solicitor's letter of 6 September 1989 to Mr Lamplough where the Solicitor seeks a confirmation of their agreement (inter alia) that "You would have two prints of your choice (excluding Pelican and Bowerbird) as a "fee" for arrangement of the Hoorda loan". The inference is obvious that the Solicitor agreed to pay such a "fee"to Mr Lamplough as a procuration fee for arranging the loans from Mr Hoorda at his request. After the first advance of $25,000 the following advances were made: 6 June 1988 $10,000 16 June 1988 $10,000 12 July 1988 $13,000 In his letter of 20 April 1988 the Solicitor advised Mr Lamplough (inter alia) of the nature of the security that was to be given by one his companies Parkway Securities Pty Limited by way of a charge over the equity of that company and the property at 40 Bundabah Avenue, St Ives. The property the Solicitor advised Mr Lamplough was then valued at approximately $725,000 to $750,000 and was subject only to a first mortgage to Westpac Bank whose debt was then in the order of $400,000 with not going to exceed $500,000. The Solicitor further advised that it was the company's intention to reduce the debt as much as possible over the next six months mainly from the proposed sale of the Wahroonga property which was on the market. Furthermore, repayment of the loans from Mr Hoorda were to be personally guaranteed by him. The Tribunal is satisfied on the evidence of the initial discussion proposing the transaction as set out in paragraph 3 of the Solicitor's statutory declaration of 11 July 1996 and upon the terms of the letter of 20 April 1988 that Mr Hoorda was a "client" of the Solicitor within the meaning of Clause 27 of the Regulation. Mr Hoorda by his attorney sought advice from the Solicitor in the initial discussion of 18 April 1988 and was offered advice by the Solicitor in his letter of 20 April 1988 in respect of the investment of his money. The Tribunal finds that the Solicitor did not advise Mr Hoorda or his attorney Mr Lamplough that either of them should obtain independent legal advice and that this failure constituted a breach of Clause 27 of the Regulation. A breach of the Regulation is capable of constituting professional misconduct but the Act does not provide that such a breach of itself constitutes professional misconduct. The definition of "professional misconduct" in Allinson's case has to be considered in determining whether this breach of Clause 27 of the Regulation was professional misconduct in all the circumstances. The meaning of "professional misconduct" is defined in Allinson v General Council of Medical Education and Registration (1894) 1 QB 750 when in his judgment Lopes LJ said that such conduct would be something done by a person in pursuit of his profession "which would be reasonably regarded as disgraceful or dishonourable by his professional brethren of good repute and competency." The Tribunal finds the Solicitor was in breach of his fiduciary duty to Mr Hoorda and in breach of the provisions of Clause 27 of the Regulation in failing to advise Mr Hoorda or his attorney Mr Lamplough that Mr Hoorda should obtain independent legal advice in respect of the loan transaction between Parkway Securities and Mr Hoorda and that this conduct of the Solicitor was professional misconduct as being conduct which would be reasonably regarded as disgraceful or dishonourable by the Solicitor's professional brethren of good repute and competency. Re L E Stewart in Stewart Investments Pty Limited – $100,000.00 In July 1988 the Solicitor borrowed $100,000.00 from Mr Stewart. At the time of this borrowing the Solicitor was retained by Mr Stewart and his company as their legal consultant or corporate counsel. The Solicitor did not comply with clause 27 of the Regulation and failed (inter alia) in advising Mr Stewart that he should seek independent legal advice. The Solicitor admitted that he acted in breach of clause 27 of the Regulation. The real question before the Tribunal is the determination of whether the Solicitor's conduct in borrowing the $100,000.00 was "professional misconduct" either within the definition of professional misconduct in Allinson's Case or within the statutory definition in section 127 of the Act which provides that "professional misconduct" includes: "(a) unsatisfactory professional conduct, where the conduct is such that it involves a substantial or consistent failure to reach reasonable standards of competence and diligence." The Tribunal is of the opinion that the statutory definition does not apply to the conduct of the Solicitor in this transaction but that the definition in Allinson's Case is relevant to determine whether the Solicitor was guilty of professional misconduct in respect of his conduct in borrowing $100,000.00 from his client in breach of clause 27 of the Regulation. The Tribunal has examined the whole of the relationship between the Solicitor and Mr Stewart and his companies, in order to determine whether the conduct of the Solicitor would be reasonably regarded as disgraceful or dishonourable by his professional brethren of good repute and competency. The Solicitor and Mr Stewart met in 1960 and during the period from 1964 until 1990 their relationships were solicitor and client, friends and close business colleagues including being co-directors of the Stewart companies. The close business relationship is demonstrated in the terms and conditions of the document (exhibit 9) submitted by the Solicitor to Mr Stewart in March 1989. The terms of this letter were agreed by Mr Stewart on 22 June 1989 whereby the Solicitor would acquire 15 per cent of the equity of the Stewart Group holding company (Stewart Securities Pty Limited) with an on-going participation by the Solicitor in the Stewart Group. The future intentions were that neither Mr Stewart nor the Solicitor would be required to attend office more than two days per week and that the business would provide sufficient cashflow to support Mr Stewart's and the Solicitor's families' week to week drawings up to $100,000.00 each per annum with the provision to each of them of a vehicle and with a top up in the payment of dividends each financial year. The estimated net assets of the Group were stated to be in the order of $2.617 million. However this relationship deteriorated by the end of 1989 and was terminated finally by Mr Stewart in April 1990. The circumstances which led to and resulted in a loan of $100,000.00 to the Solicitor are not to any extent in dispute between the Solicitor and Mr Stewart. The Solicitor in 1988 was the owner of an art business known as The Art Connection (TAC) and in mid-1988 he faced financial problems with the business as it was necessary for him to acquire bulk stock at a cost of some $125,000.00. Mr Stewart told the Solicitor that he was not interested in investing in this art business but he agreed to lend $100,000.00. The Solicitor offered to pay interest at the rate of 25 per cent per annum. Mr Stewart did not wish to charge such a rate of interest to a co-director and stated that the loan would be at the market rate of interest. The $100,000.00 was released into the trust account of Kennedy Hannaford & Ford (the firm of which the Solicitor had been a former partner and was at that time a consultant) in mid-1988 and in accordance with the written authority of Mr Stewart of 5 July 1988 to Kennedy Hannaford & Ford the $100,000.00 was disbursed as to $80,000.00 in repayment of a loan from A R Ford and $20,000.00 plus accrued interest from the investment of the deposit to The Art Connection. These payments were made at the direction of the Solicitor. $80,000.00 represented a repayment of a loan that he had obtained on a temporary basis from Mr Ford pending the payment of the $100,000.00 into the trust account of Kennedy Hannaford & Ford. Mr Stewart in evidence stated that he had not signed an authority authorising and directing the proceeds of the $100,000.00 but stated that what he had been asked to sign was a blank piece of paper some time later, at least six months from the date of the loan, when the Solicitor asked him to sign a piece of paper telling him that this was to cover the loan and was needed as the Neutral Bay office was having a trust account inspection. Mr Hannaford gave evidence that prior to disbursement of the $100,000.00 from his firm's trust account he had the completed written authority from Mr Stewart to pay these moneys as directed in the authority. The Tribunal is satisfied that Mr Hannaford did have such a written authority. The Tribunal is of the opinion having regard to the relation between the Solicitor and Mr Stewart that the Solicitor's failure to comply with clause 27 of the Regulation – in particular in failing to advise Mr Stewart to obtain independent legal advice would not be reasonably regarded as disgraceful or dishonourable by his professional brethren of good repute and competency so as to fall within the definition of "professional misconduct" as defined in Allinson's Case. Accordingly the Tribunal dismisses this ground of complaint. L E Stewart and Stewart Investments Pty Limited – $50,000.00 By late 1989 the Solicitor on his own admission desperately needed $50,000.00 to meet his financial commitments. Mr Stewart or his company was not in a financial position to provide this $50,000.00 to the Solicitor and according to Mr Stewart the Solicitor said "if you cannot help me, I'll have to sell my mother's home unit as I need the money". To which Mr Stewart replied "There's got to be another way." and the Solicitor responded "What if I fix up a loan in your name as my credit rating is lousy? Phil Lamplough can organise it fairly quickly." The Solicitor's version of this discussion was different in certain important respects. In his evidence he told Mr Stewart that he needed to pull down some accrued moneys due to him by the company to which Mr Stewart replied that if the Solicitor could organise a loan to him he could put that money into the Group as a loan which would enable the company to pay the Solicitor some of the accrued moneys due to him. The Tribunal heard and had to consider whether this transaction as in fact a loan by Mr Stewart to the Solicitor or was a payment made to the Solicitor for moneys which are owed to him as arrears of retainer due to him by Stewart companies. An arrangement was made for L E Stewart Investments Pty Limited to borrow $50,000.00 from Chase/AMP and part of these moneys were paid to the Solicitor and the balance to the Solicitor's creditors at his direction. This transaction took place in December 1989. On 7 December 1989 Mr Stewart wrote to the Solicitor (exhibit E) stating that the Solicitor's total drawings since 4 July 1988 amounted to approximately $250,000.00 made up as follows: Retainer/salary $78,000.00 Car (at 30 per cent cost pa) $20,000.00 Expenses $20,000.00 Loans $150,000.00 TOTAL $268,000.00 Later in this letter Mr Stewart stated: "Any moneys received from this point must be used to reduce it in the following priorities: 1. $50,000.00 to Chase/AMP 2. $300,000.00 plus to reduce O/D 3. $500,000.00 to pay off estate. Only after the above has been carried out can we consider any potential distribution of further funds. The question of interest on the Chase/AMP loan must also be answered and I would hope that you may be in the position to assist." The Solicitor said that this letter was a "kinghit" to him after his close association of 30 years with Mr Stewart. He did not reply to this letter and denied that the Chase/AMP loan of $50,000.00 was a loan to him. At the time of the transaction he made a handwritten memo to the file which stated this line of credit was arranged by him with the concurrence of Mr Stewart to enable the Stewart group to partly reduce its accrued liability to the Solicitor of his agreed retainer of $100,000.00 per annum from 1 July 1988. The memo further set out that the liability for the repayment of the Chase/AMP loan and the interest repaid thereon was the liability of L E Stewart Investments Pty Limited. This memo or note was not in the file which was produced to the Tribunal on summons. The Tribunal is not satisfied that the payment of $50,000.00 to the solicitor which had been paid from the proceeds of the loan from Chase/AMP was a loan. The Tribunal is also not satisfied that the $50,000.00 was paid to the Solicitor by Mr Stewart and his company in payment of accrued arrears of a retainer of $100,000.00 per annum from 1 July 1988. In other words the Law Society has not discharged to the satisfaction of the Tribunal the onus of proving that the transaction was a loan to that degree necessary having regard to the seriousness of the charge of professional misconduct made. The Tribunal dismisses this ground of the complaint. The Solicitor was admitted as a Solicitor on 6 December 1969. He completed five years of articles of clerkship with J H Stamell & Company. He attended the Law School of the University of Sydney for two years and then completed his law course through the Solicitors Admission Board. Following his admission in December 1969 the Solicitor commenced practice on his own account in Sydney under the name Paul H Kennedy & Co. Since that time he has practised as a sole practitioner, in partnership and as a consultant. In the whole of that period up to the present time the Solicitor has held an unrestricted practising certificate. On 16 January 1991 the Solicitor was declared bankrupt on his own petition and he was discharged from that bankruptcy on 2 July 1995. In March 1996 the Solicitor moved his office to small rented premises in Milsons Point from which he currently carries on his practice which he says has been depleted and that his income is restricted due to his financial circumstances. Apart from the loan from Mrs Green, none of the moneys lent were repaid. As a result of the Solicitor's bankruptcy, he has no further liability for repayment of these loans. The Tribunal has found the Solicitor guilty of professional misconduct in the matters of Green and Hoorda/Lamplough. In both cases his misconduct was serious. In the matter of Green it might well be said that Mrs Green having refused his offer for advice to obtain independent legal advice, that the Solicitor should not have continued to act for her. In the matter of Hoorda, Lamplough was a business associate of the Solicitor, had been employed by the Solicitor and had acted for him in financial matters for some years – the Solicitor no doubt had the ability to influence Lamplough regarding the loans from Hoorda. In the circumstances, the evidence clearly indicates that the Solicitor should have advised Mr Hoorda and Mr Lamplough to seek independent legal advice. It is with this background the Tribunal has considered the appropriate orders that should be made. In Re The Law Society v Bannister (LPDR No 4 of 1993 at 23), Sheller JA said: "When the jurisdiction of the Tribunal is invoked under Part 10 division 7 of the Act to conduct a hearing into a complaint of professional conduct by a legal practitioner, the primary consideration is to protect the public by preventing a person unfit to practise from holding himself or herself out to the public as a legal practitioner in whom members of the public might repose confidence. But the Tribunal must also act so as to deter the offender in the future and any other practitioner minded to behave in like manner. In the case of a solicitor these elements together or separately may call for the removal of the Solicitor's name from the Roll or the imposition of a substantial fine." The Tribunal is of the opinion that this is not a case where, in order to protect the public, an order should be made that the name of the Solicitor be removed from the Roll or suspending his right to practise for a period. However, the Tribunal regards the Solicitor's misconduct of a severity which calls for the imposition of a substantial fine. The Tribunal proposes to order that the Solicitor pay the costs. The proceedings were protracted by reason of the choice or the necessity of the Solicitor in acting for himself in the early stages of these proceedings. These costs will be substantial. In view of the Solicitor's present financial position payment of the fine and the costs will be allowed by instalments as provided in the orders of the Tribunal. The Tribunal makes the following orders: 1. The Solicitor pay a fine of $10,000.00 by ten equal quarterly payments of $1,000.00 the first such instalment to be paid before 1 March 1997 the remaining instalments to be paid on the 1st day of June, September, December and March in each year until the fine of $10,000.00 has been paid. 2. In default of compliance with order 1 hereof, the Solicitor's practising certificate be cancelled and that a practising certificate will not thereafter be issued to the Solicitor until he has complied with such order. 3. The Solicitor pay the costs of the Law Society as if such costs were assessed by a Supreme Court Costs Assessor and in the absence of any agreement as to the quantum of these costs such costs shall be determined by the Tribunal. Such costs when agreed or determined by the Tribunal shall be paid by ten equal quarterly instalments on the 1st day of the months of March, June, September and December in each year until the whole of the costs are paid, the first of such quarterly instalments being paid on such quarterly date which allows the Solicitor no less than a period of 90 days from the date of the agreement or the determination of the costs for payment of the first such instalment. 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