The Legal Services Tribunal of New South Wales CITATION : Patrick Bede O'Reilly [1986] NSWLST 1 PARTIES : Patrick Bede O'Reilly FILE NUMBER(S) : of CORAM: CATCHWORDS: Professional Misconduct - mislead client - Professional Misconduct - fail to keep client adequately advised - Professional Misconduct - make false statement - Professional Misconduct - fail to act honestly - Professional Misconduct - misappropriate trust moneys/moneys :- LEGISLATION CITED: Legal Practitioners' Act 1898 CASES CITED: DATES OF HEARING: 10/10/85 - 04/09/86 DATE OF JUDGMENT: 09/04/1986 Mr P. Taylor of Counsel Miss R. MacDougal LEGAL REPRESENTATIVES: Mr J. Bryson of Queen's Counsel Mr G. Lindsay of Counsel Messrs. Phillips Fox. JUDGMENT: The Solicitors' Statutory Committee In the matter of Patrick Bede O'Reilly Statement of findings and order This matter was referred to the Solicitors' Statutory Committee for enquiry and investigation pursuant to Section 76 of the Legal Practitioners' Act 1898 (as amended) by the Law Society of New South Wales ("the Society") pursuant to the Resolution of its Council passed on 30 May 1985. The questions referred to the Committee are set out in the amended Schedule to the Reference and in the Supplementary Reference. The Reference was heard on 10 and 11 October, 9, 10 and 11 December 1985, 17 February, 17 and 18 March and 21 May 1986. Mr P. Taylor of Counsel instructed by Miss R. MacDougal, appeared for the Law Society and to assist the Committee and the Solicitor was represented by Mr J. Bryson of Queen's Counsel and with him Mr G. Lindsay of Counsel instructed by Messrs. Phillips Fox. The evidence before the Committee consisted of: 1. Statutory Declarations of: (a) John Richard Aloysius Hunt dated: (i) 17 June 1985 and the annexures thereto being; (a) copy of the Report dated 14 September 1983 of Mr Alan Francis Batley, Chartered Accountant, the Investigator appointed by the Law Society; (b) copies of the Solicitor's Trust Account ledger sheets re J.R. McNeil, D.R.J. & K.M. Korte and D.E. & B.R. Pegler. (c) copy search of Transfer of Mortgage referred to in the letter dated 22 August 1983 of Mr G.S. Lewis, the Solicitor assisting the Investigator (being appendix "E" of the Investigator's Report). (d) copy of the Solicitor's trust ledger sheet re B.L. Larwood. (e) copy of the Solicitor's submission to the Complaints Committee of the Law Society dated 16 October 1983. (ii) 14 August 1985 relating to a client Kuliza, which was at the hearing not pursued by the Law Society; and (iii) 8 October 1985 relating to a client Romstein, Home Mortgage Corporation of Australia Limited and R. & I. Barnsley Pty Limited; (b) Ernest Alfred Flint dated 11 December 1985 (c) Patrick Bede O'Reilly, the Solicitor, dated; (i) 4 October 1985, and (ii) 26 March 1986; (d) Kathryn Anne Rigney dated 10 December 1985; (e) John David O'Brien dated 29 November 1985; (f) Raymond Clarence White dated 3 December 1985; (g) Noel Richard Winton dated 5 October 1985; (h) Paul Gase dated 27 September 1985; and (i) Reginald Thomas Barnsley dated 27 September 1985. 2. Oral evidence given by: (a) Alan Francis Batley; (b) Geoffrey Selwyn Lewis; (c) The Solicitor; (d) Raymond Clarence White; (e) Noel Richard Winton; (f) Reginald Thomas Barnsley; and (g) Ernest Alfred Flint. 3. Exhibits. 4. Twelve Declarations and References as to character from a solicitor and member of State Parliament, a Magistrate and solicitor, seven other solicitors and three barristers. The Reference and Supplementary Reference raise questions regarding the Solicitor which fall into the following categories: (a) failure to disclose to his clients his interest in various companies with which the clients had transactions (questions 1 and 7); (b) failure to advise his clients to seek independent legal advice in connection with such transactions (questions 1, 5 and 8); (c) failure to disclose to his clients the true nature of certain transactions (questions 1, 2 and 4); (d) failure to protect adequately the interests of his clients (question 3); (e) intermingling the personal financial affairs of himself and of companies in which he was interested with the financial affairs of his clients (question 6); (f) breaches of trust account requirements (questions 9, 10, 11 and 12); (g) breach of Regulation 29 (question 13); (h) false representation to a client and overcharging (questions 14 and 15); (i) misleading the Committee and the Law Society (question 15A-G). Question 15A to G is found in the Supplementary Reference which was filed after the hearing had proceeded for five days. This question alleges that the Solicitor made a false statement in submissions to the Law Society dated 16 October 1983 and confirmed it in his Statutory Declaration of 4 October 1985 relied upon by him before the Committee and that he gave false evidence before the Committee on 10 and 11 October 1985. Mr Bryson QC Senior Counsel for the Solicitor, objected to the addition of this further question to the Reference on the basis that such amendment at the stage which the proceedings had then reached would be unfair to the Solicitor and amount to a denial of justice. He submitted that any suggestion that the Solicitor deliberately misled the Committee must be put during his cross-examination and that it was not open to the Society to initiate that suggestion by a case in reply or in rebuttal. This admission focused on the admissibility (which he challenged) of a Statutory Declaration by Mr Ernest Flint rebutting evidence given by the Solicitor on the subject of his ownership of and association with Home Mortgage Corporation of Australia Limited (HMC). Questions 1 and 6 of the Reference both raised the issue of the Solicitor's relationship with HMC, the former in the context of disclosure of his interest, the latter regarding intermingling of his personal financial affairs with those of his clients. Counsel for the Solicitor claimed that Mr Flint's Declaration could not be used on credit to impeach the Solicitor's evidence and his credibility at that stage of the proceedings. Further he submitted that it would not be fair to amend the Reference at that time by adding the question concerned. Counsel assisting the Committee argued that Mr Flint's evidence was in rebuttal of positive assertions made by the Solicitor and if accepted would show that the Solicitor had given false evidence to the Committee and had sought to mislead the Society, matters going to the fitness of the Solicitor, that the Committee had power to allow amendment of any question or charge and further, that if not then added the question could be raised in some other Reference. After careful consideration the Committee allowed the Declaration of Mr Flint to be admitted in evidence and the filing of the amended question and supporting particulars. The order made on 11 December 1985 (a copy of which is annexed hereto marked "D") sets out the Committee's reasons. After the Order was made the Statutory Declaration of Mr Ernest Flint was read by Counsel assisting the Committee Although Mr Flint was available no evidence was given by him in chief and Counsel for the Solicitor elected not to cross-examine him, on that day. The proceedings were adjourned until 17 and 18 March 1986 to enable the Solicitor to take such steps and make such enquiries as he considered appropriate. The Solicitor was born on 20 August 1947 and is married, with three children. He was admitted as a solicitor on 28 July 1972 after graduating from Sydney University with the degrees BA LLB and having served two years' Articles with Messrs Kenneth W. Tribe & Co. Between November 1972 and 1973 he was employed with Mr C.R. Sweeting, a sole practitioner and then he was employed by Messrs Milne & Berry for several months. In March 1974 he commenced practice on his own account as a sole practitioner in Campbelltown. Apart from the period of about one year in partnership with Mr Trevor Booth in about 1976 he has continued as a sole practitioner to date. At some time he had ~~branch offices at Parramatta and Liverpool. At the time of the proceedings he had only his Campbelltown office where he employed two managing clerks, two secretaries and a part-time bookkeeper. The Committee makes the following findings of fact relative to the questions in the Reference and the Supplementary Reference. Questions (1), (2) and (3) These relate to mortgage and/or loan transactions where the funds were provided by R. & I. Barnsley Pty Limited and the borrowers were clients of the Solicitor and also persons who were not clients. In each case (except the case of Romstein referred to later) the mortgage documents showed the borrower concerned as mortgagor and Home Mortgage Corporation of Australia Limited (HMC) as Mortgagee and there was a transfer of the mortgage to R. & I. Barnsley Pty Limited. HMC is a company with a paid up capital of ~$2 in which the Solicitor and his wife were between March 1983 and May 1984 the sole directors and shareholders. The Company is the trustee of the O'Reilly Family Trust in which the discretionary beneficiaries are the Solicitor, his wife and their children. HMC carried on business in New South Wales and Queensland. It promoted its activities by advertising in the press, contacting large numbers of real estate agents and building companies. It had extensive business activities between about March 1983 and April 1985 after which date it continued to operate, albeit on a very reduced scale. The Solicitor took an active part in the business of HMC from March 1983. After May 1985 he was the de facto manager of its reduced operations, its only employee at the time of the hearing being a secretary who worked from her home. At its peak HMC had five or six employees in New South Wales and Queensland. The Solicitor estimated its turnover between $5m and $10m in New South Wales. Its modus operandi was that having found a borrower who required funds it then found a lender wishing to invest. HMC "sold" mortgages to Citicorp Australia Limited, Beneficial Finance Corporation and to private investors. It never advanced its own funds but brought together the borrower and the lender. De facto its business was that of a finance broker. The Committee does not accept the Solicitor's evidence that HMC's activities were not that of a mortgage broker nor that HMC lent money itself. HMC rarely ever gave an approval to a loan before it had found someone to "purchase" the loan. In the mortgage documentation HMC was expressed to be the mortgagee but it never advanced any funds and on settlement the mortgage funds supplied by the investor were made available to the borrower and HMC transferred the mortgage to the investor. Thereafter it continued to service the loan, looked after queries, collected payments from the borrower and paid them to the investor. For this service it charged the investor a fee, commonly 2 per cent of the principal sum. HMC arranged for the mortgage advance to be guaranteed by two associated companies, Trouber Pty Limited and Chrymall Pty Limited. For this it charged a guarantee fee to the borrower at a percentage rate of 1 per cent to 5 per cent of the principal sum but commonly 2 per cent. The Solicitor and his wife were directors and shareholders of these guarantor companies, both of which were controlled by him. Neither of the companies had any assets at the relevant time. The guarantee fees collected by HMC for guarantees given by Trouber and Chrymall were not passed on to these companies but were used by HMC for its day to day running expenses. On several occasions HMC made good late interest payments and twice capital defaults of borrowers. The Solicitor arranged bank overdraft facilities for HMC and with Kemu Pty Limited, his family company which had substantial assets, guaranteed this facility for HMC. As a result he had a personal financial interest in ensuring that HMC did not collapse. This company had a significant excess of liabilities over assets, as at 30 June 1983 had accumulated losses of $10,000.00 and at 30 June 1984 of $30,000.00. At this time there was a loan account owing by the Solicitor to the company of $26,197.00. This amount did not include moneys paid by the company for leasing of the Mercedes car used by the Solicitor, for running expenses of his aeroplane, for the use of his Wang computer equipment and for administration charges to his firm. These were, to use his words; "...for time and advice I was giving to Flint and HMC at any time for the running of HMC: the legal questions, the liaison and the running of the solicitors, and any problems they had, and advising him on those aspects." (226.7T) The Solicitor's firm handled the greater portion of the transactions of HMC and he agreed that the Company was a very substantial source of work for the firm. Mr Barnsley was a client of the Solicitor. He was a farmer and controlled R. & I. Barnsley Pty Limited, a company which was registered as a money-lender since about 1981. The Solicitor had acted for him in relation to enforcing securities under various mortgages where default had occurred and also in a number of advances where he had been contacted by borrowers and had decided to enter into mortgages. In none of these was his firm otherwise involved. The Solicitor introduced HMC to Mr. Barnsley and told him about its activities. "I told him that the Hone Mortgage Corporation was lending money to people on mortgage to Home Mortgage Corporation, and in a way it was exactly similar to a transfer by direction in real estate; that that mortgage would be immediately transferred to the purchaser of the mortgage, and the funds that were used to purchase the mortgage, less the premium for the mortgage, would be passed on and used as the funds were advanced to the borrower in the same way the funds provided by a purchaser are passed through a transferring purchaser to an ultimate purchaser of real estate being transferred by direction." In May, June and July 1983 R. & I. Barnsley Pty Limited advanced moneys to Borsone, Reeves, Ellis, Korte, D.F. Pegler, B.L. Larwood and in May 1985 to Mr & Mrs Romstein. Apart from Korte and possibly Larwood these borrowers were all clients of the Solicitor. In each case (except Romstein) there was a mortgage showing HMC as mortgagee and the borrower concerned as mortgagor and a transfer of that .mortgage from HMC to R. & I. Barnsley Pty Limited. Notices of the assignments by HMC were prepared but not passed on to the borrowers as HMC collected moneys due under the mortgages for R.& I. Barnsley Pty Limited (245.6T). The mortgagor clients were left under the impression that payments to HMC were made to discharge their obligations under the mortgages. Thus Ellis wrote to HMC when in 1985 he wished to extend his mortgage. In the case of the Romsteins there was no mortgage as they owned no real estate and their loan was secured by a charge over damages due to them in a personal injury claim. The principle of this transaction was otherwise similar. Mr Barnsley was informed by the Solicitor that this was a personal loan and that the Romsteins had a court case where in his opinion they would recover more than $10,000.00. The documentation did not correspond with the transactions aS they occurred. HMC did not advance its moneys to any of the mortgagors or to the Romsteins. R. & I. Barnsley Pty Limited was the real lender but no mortgage documents came into being between this company and the borrowers. The Solicitor failed to disclose to R. & I. Barnsley Pty Limited the true nature of each of the transactions. He did not inform it that no money was lent by HMC and that in each case the money of R. & I. Barnsley Pty Limited was lent to the mortgagor or borrower. In the Romstein case the deed assigning the subject loan recited that HMC was entitled to be paid as lender the moneys lent to the Romsteins. The Solicitor conceded that no loan had been made by HMC to the Romsteins when the deed was signed but claimed that HMC was in a similar position to a directing purchaser in a transfer by direction of real estate. The Committee does not accept this as a tenable version of the transaction. The trust account records correctly identified the Barnsley money as advances to the borrowers. For example, the ledger cards showing the receipt of moneys from R. & I. Barnsley Pty Limited recorded them as "advance" to McNeil, Korte and Pegler and similarly in the trust account receipt book there were entries showing R. & I. Barnsley Pty Limited "advance" to W. & S. Reeves, F. & M. Borsone, R.L. Larwood, D.F. & B.R. Pegler and "adv" to Ellis, Korte & McNeil (exhibit "W"). In the Romstein matter that client's card originally showed an entry "R. & I. Barnsley Limited advance" (annexure to SD Hunt 8/10/85) but was later re-written to show "R & I. Barnsley P/Limited purchase price of loan". There was a disclosure made by the Solicitor to Mr Barnsley regarding his interest in HMC. He told him that he was the majority shareholder - total ownership - in HMC. Mr Barnsley acknowledged this by writing under his hand dated 8 September 1983 (annexure SB Stat. Dec. Solicitor 4/10/85) where he also acknowledged that he did not require independent legal advice in relation to purchasing of mortgages from HMC. He confirmed in his Declaration-of 27/9/85 that the Solicitor did not act for him or his company in the HMC transactions and that he did not regard himself or his company as a client of the Solicitor. He did not seek or want legal advice in respect of the dealings with HMC. The Solicitor's evidence was that he did not act for the Barnsley company in the transactions and had no correspondence with it but acted for some of the borrowers and throughout for HMC. He attended to registration of the transfers of the mortgages as HMC's solicitor and the Barnsley company looked to that company for delivery of the documents. He was aware that Mr Barnsley used other solicitors. The Solicitor signed the transfers of the mortgages from HMC to R. & I. Barnsley Pty Limited as solicitor for the mortgagee and gave evidence that he obtained express authority from Mr Barnsley for such signatures on behalf of the company but that he was not the solicitor of the company for the purpose of the transaction. Mr Barnsley confirmed that his dealings with HMC were mainly through Mr Flint including in respect of the transactions particularised in question 1. At the point of time when the Solicitor introduced HMC to Mr Barnsley the Solicitor had acted for him in a number of transactions. There existed a solicitor/client relationship between them. Mr Barnsley's decision to enter into the dealings and his decision not to require legal advice must be seen in the context of that existing relationship. That relationship did not come to an end by reason of the fact that in the particular transactions the solicitor did not act for R. & I. Barnsley Pty Limited or that in other transactions various other solicitors acted for Mr Barnsley and his interests. The Committee answers question 1: No, as regards the Solicitor's failure to disclose his interest in HMC and to advise the client to seek independent advice and Yes, as regards his failure to disclose the true nature of the mortgage and loan transactions. Question 2 The Committee has already dealt with the material in sub-paragraphs (a) to (e) inclusive of question 2. Sub-paragraph (f) alleges that the true nature of the management or transfer fees paid to HMC from moneys held by the Solicitor on behalf of R. & I. Barnsley Pty Limited was a procuration fee payable to the Solicitor or his nominee, HMC. The fee HMC charged R. & I. Barnsley Pty Limited as a premium for the loans was seen by Mr Barnsley as a fee "to initiate the mortgages and to look after them". There was evidence from him that HMC did the paper work on the loans, "enquiries as to the valuation, and features like that" and attended to the collection of loan repayments and accounted to his company on a monthly basis. The Committee finds that the fee paid to HMC by R. & I. Barnsley Pty Limited was a premium or management fee and was not a procuration fee payable to the Solicitor or HMC as his nominee. Question 2 is answered: No. Question 3 (l) whilst in the context of Question 1 dealing with disclosure of interest and of the true nature of the transactions to R. & I. Barnsley Pty Limited the Committee found the pre-existing relationship of solicitor and client to continue in effect, question 3 raises specific duties which a solicitor has in acting for a client in a specific matter. The evidence of both the Solicitor and Mr Barnsley was that the Solicitor was not acting for R. & I. Barnsley Pty Limited in the mortgage transactions particularised. Accordingly, as the Solicitor was not acting for R. & I. Barnsley Pty Limited and although he acknowledged that the delays in lodging security documents occurred in the matters of Borsone, Reeves & Ellis, the Committee answers question 3 (1): No. (2) Henk Holdings Pty Limited is the family company of Mr Noel Richard Winton who over the years has had an interest in building, land development and building finance. For some years he held a money-lender's license as nominee for a company in which he was interested. In February 1983 Henk Holdings Pty Limited advanced to Kemu Pty Limited $100,000.00 and to Cenelit Pty Limited 70,000.00. The Solicitor was a director and shareholder of Cenelit Pty Limited and this company (ex.C) was also a trustee of the O'Reilly Family Trust. He was a director and shareholder of Kemu Pty Limited. Mr Winton knew that the mortgages securing these advances were neither registered nor protected by a caveat. He was aware that the Solicitor was personally interested in both companies. He had prior to February 1983 at the suggestion of the Solicitor, obtained independent legal advice and did not require such advice before lending to Kemu and Cenelit. He was satisfied with the Solicitor's handling of the matter. Mr Raymond Clarence White, a licensed real estate agent, 1 licensed finance consultant and one time Area Manager of the R.S.L. Building Society who assists the ~Winton brothers in the administration of their investments and describes them as competent businessmen who closely control their own affairs confirmed that Mr Noel Winton was familiar in 1983 with mortgage documentation and procedures for lodgement of caveats and both he and Mr Winton knew that mortgages securing the moneys lent to the Solicitor's companies were not registered or protected by caveat. Question 3(2) is answered: No. (3) Delnor Pty Limited is the family company of Paul Gase, managing clerk employed by the Solicitor. Mr Gase commenced the Solicitors' Admission Board course in 1972 and expected to complete it about the end of 1986. He has been "employed in jobs involving the law" (Gase SD par.4) for almost 20 years. At the time when Delnor Pty Limited advanced $56,579.00 to Cenelit Pty Limited he was experienced in conveyancing matters particularly in the preparation of mortgages and lodgement of caveats. He personally handled the matter and did not consider himself or Delnor as a client of the Solicitor. Question 3 (3) is answered: No . Question 3(4), Question 4A, Question 5, Question 6(f), Question 7, Question 8 (4) Mr & Mrs E.K. Romstein were clients of the Solicitor. They were in urgent need of funds to redeem pawn brokers' tickets. They owned no real estate. On 10 May 1985 they applied on the suggestion of the Solicitor to HMC for a personal loan of $10,000.00. On the same day they signed the following documentation addressed to or made with HMC, prepared by the Solicitor's firm: (a) a loan application; (b) an authority to deduct a mortgage guarantee fee of $400.00, legal costs and interest in advance, a statement of loan details showing an effective interest rate of 20 per cent and referring to the mortgage guarantee fee of $400.00 for the benefit of the lender; (c) an acknowledgement that they were informed that: (i) the Solicitor is the major shareholder of HMC, the proposed lender of Trouber (194) Pty Limited, the guarantor, and of Kemu Pty Limited trading as Conveyancing Agents, which would be paid for searches, registrations and similar services in connection with the transaction, (ii) the Solicitor was acting for HMC and Trouber. (iii) they had been advised to seek independent legal advice, (d) a deed charging their claim for damages against GIO with repayment of the advance of $10,000.00. On 10 May 1985 when these documents were signed a Deed of Assignment of the loan from HMC to R.& I. Barnsley Pty Limited was executed by both parties (71.6T exhibit "10"). At that stage no loan had been made to the Romsteins. In fact HMC never advanced any money to them. The loan was made on or about 15 May 1985 with funds of R. & I. Barnsley Pty Limited (exhibit "D") paid into the Solicitor's trust account. The Solicitor stated that he explained the documentation signed by the Romsteins and made full disclosure to them of his interest in an interview which took about ten minutes. The Solicitor contacted Mr Barnsley regarding the transaction and told him: "That HMC were doing a loan to Mr & Mrs Romstein; that it was a personal loan; but the loan would be guaranteed, and I asked him whether he wanted to buy that personal loan". He told Mr Barnsley about the court case from which he expected the Romsteins to recover more than $10,000.00 (63.6T) and that HMC and he would guarantee the loan. No fee was charged to the Barnsley company in connection with the matter. The Solicitor did not explain to the Romsteins "that HMC was not putting any money in". He agreed there were inaccuracies in the documentation as regards references to the word "mortgage" in relation to the guarantee fee and in the recital in the Deed between HMC and R. & I. Barnsley Pty Limited that HMC had an entitlement to be paid money lent to the Romsteins (72.6T). Neither to the Romsteins nor to Mr Barnsley did he give a true explanation of the transaction. His evidence to the Committee was not satisfactory. He said: "Mr Dunlop; Q. So that really you and HMC were acting as a go-between in effect between the Romsteins on the one hand and Mr Barnsley's company on the other? A. No. Q. Apart from the $150 you advanced from your general account there was no money advanced by you or HMC in the transaction, was there? A. Not on 10 May. Miss Plotke; At any time? Mr Dunlop; Q. At any time was any money paid by HMC on account of this loan? A. Yes. Q. When? A. At the time when the money was paid out. Q. Would you draw our attention to the particular entries in the ledger card (exhibit D), or anywhere else to which you wish to draw our attention, indicating where it was that HMC out of its own funds paid money out on account of this loan? A. HMC advanced funds from the sale of the loan. The whole thing was done eo instanti (immediately). Q. Yes, but where does HMC put in any money at all before the money was received from Barnsley? A. It used Barnsley's money in a back-to-back arrangement. Q. The only money it put in was money obtained from Barnsley? A. That's correct. Q. So, although the transaction as documented purports to show a loan transaction whereby HMC makes a loan of $10,000 to Romstein and then subsequently assigns that loan to Barnsley in consideration of the payment by Barnsley to HMC of $10,000, that is all it purports to be, isn't it? A. Yes. Q. That, in fact, did not happen, did it? A. I say it did happen." Although the Solicitor disclosed his interest as majority shareholder in HMC and Trouber to the Romsteins and informed them that Trouber was the guarantor for their loan, he did not provide them with any information about the financial position of Trouber other than telling them that the guarantor would reimburse the lender. They were not put in a position where they could make an informed decision regarding the transaction. Their need was pressing and in the circumstances the Solicitor had a duty to disclose fully all relevant information including the financial status of the guarantor. Trouber had no funds with which to meet any call upon the guarantee and although the guarantee was for the benefit of the lender the Romsteins had to pay the fee. It was paid to HMC which retained it and did not pass it on to Trouber HMC used the guarantee fees to fund its day to day operations which included making good defaults. The Solicitor acted for F.& M. Borsone and for I.& W. Reeves in mortgage transactions as particularised in Question 1. In each case the borrower clients were required to pay a mortgage guarantee fee to HMC for the provision of a mortgage guarantee by Trouber (194) Pty Limited for the benefit of the lender. The Solicitor disclosed his and his wife's interest as shareholders but nothing was said to them about the financial position of Trouber and they, like the Romsteins, were not given disclosure of Trouber's lack of substance. No reference was made to Chrymall in any of the three matters. Subject to this, question 3(4) is answered: Yes. Question 4 Disclosure was made to the clients Romstein, Borsone & Reeves that the Solicitor was a shareholder of HMC and Trouber but not that he was a director. In the particular circumstances this disclosure was sufficient. Korte was not a client of the Solicitor. Question 4 is answered: No. Question 4A The Solicitor obtained the authority of his clients E. & K. Romstein to pay $400.00 to HMC by way of a mortgage guarantee fee. No mortgage was given by the borrowers. The reference in the authority to a mortgage guarantee fee arose in error. There was clear authority for a guarantee fee in connection with the loan made to the Romsteins and it was never intended that such loan be secured by a mortgage. Question 4A is answered: No. Question 5 There was evidence that the Solicitor advised his clients Borsone, Reeves and Romstein to seek independent legal advice in the transaction as a whole. This must include the aspect of the guarantee fee. The Committee answers question 5: No. Question 6 Findings of facts pertinent to this question have been stated by the Committee in relation to questions 1, 3(2) and 3(3). They may be summarised as follows: (l) The Solicitor was a shareholder and director of HMC a company which acted as mortgage broker or finance broker for clients of the Solicitor namely, F. & M. Borsone, ~W. & S. Reeves, W.R. & R.V. Ellis, D. & S. Ellis, D.F. Pegler and E. & ~K. Romstein. HMC did not lend any money to these clients but arranged for R. & I. Barnsley Pty Limited to advance moneys to them. (2) HMC was the trustee of the O'Reilly Family Trust. (3) The Solicitor borrowed substantial amounts from ~HMC (4) HMC was a very substantial source of professional work for his firm. (5) In addition, HMC paid him administration charges for his time and advice. (6) HMC provided funding for the running of the Solicitor's car, aeroplane and office equipment. (7) The Solicitor as guarantor for overdraft facilities given to HMC, was interested in the financial viability of HMC. (8) As finance broker HMC received management fees from lenders and guarantee fees from borrowers. (9) There was a solicitor/client relationship between Mr R. Barnsley and the Solicitor at the time when the Solicitor introduced HMC to Mr Barnsley but the Solicitor did not act for R. & I. Barnsley Pty Limited in its dealings with HMC. (10) Kemu Pty Limited and Cenelit Pty Limited were companies in which the Solicitor was a director and shareholder and they borrowed respectively $100,000.00~ and $70,000.00 from Henk Holdings Pty Limited in February 1983. (11) Delnor Pty Limited was the family company of Paul Gase, an employee of the Solicitor and Cenelit Pty Limited a company in which the Solicitor had a personal interest borrowed $56,579.00 from this company in December 1982. The Committee makes the following further findings relevant to question 6: There was a solicitor/client relationship between the Solicitor and Henk Holdings Pty Limited. Evidence was given by Mr Noel Richard Winton, a director and shareholder of Henk Holdings Pty Limited that over the years the Solicitor had acted and continued to act for him and his companies in many transactions (SD Winton 5/10/85). He had known the Solicitor for 15 years and respected and trusted him (189.8T). The Solicitor agreed that Henk Holdings Pty Limited was his client in relation to the mortgages from Kemu Pty Ltd. and Cenelit Pty Ltd. Kemu Pty Limited was the proprietor of the business "Conveyancing Agents" which attended to searches and enquiries, settlements, registration and similar services which were charged as disbursements in conveyancing transactions carried out by the Solicitor on behalf of his clients. In 1982 and 1983 for example, the Solicitor charged F. & M. Borsone, W. & S. Reeves, D.F. & B.R. Pegler with out-of-pockets paid to Conveyancing Agents. The charges were not in accordance with those permitted by the general order of conveyancing costs. HMC frequently dealt with clients of the Solicitor in connection with loans and mortgage advances to those clients which had been negotiated by HMC. The Solicitor acted for HMC and for the borrower clients. In some of these transactions Citicorp Australia Limited and Beneficial Finance Limited were lenders by virtue of having provided the funds which were made available to the borrowers and in these transactions the Solicitor acted for the lenders as well as for the borrowers (ex.Q). Question 6 is answered: Yes. Question 7 The Solicitor made disclosure that he was a majority shareholder in HMC, Kemu and Cenelit Pty Limited to the clients who dealt with these companies. Question 7 is answered: No. Question 8 There is evidence that the Solicitor advised his clients who dealt with HMC, for example Borsone, Reeves and Romstein, to seek independent legal advice and they signed acknowledgements to this effect. There was no evidence about the adequacy of the advice or whether it was fully understood by the clients. In the case of R. & I. Barnsley Pty Limited and Henk Holdings Pty Limited where there was an existing solicitor and client relationship there was evidence by Messrs Barnsley and Winton that they were advised to seek independent legal advice but did not require it and in the case of Delnor Pty Limited the director of the company was an employee of the Solicitor with many years of legal experience who gave evidence that he was aware that he could seek independent advice had he considered it necessary. In all the circumstances, the Committee answers question 8: No. Questions 9, 10, 11 and 12 These questions deal with failure to comply with the requirements of Section 41(1) and 42(2) of the Legal Practitioners' Act 1898. On 23 May 1983 the Solicitor paid into the trust account of F. & M. Borsone the sum of $66,300.00 received by him from R. & I. Barnsley Pty Limited. The mortgage from F. & M. Borsone to HMC to secure the sum of $65,000.00 (being the moneys paid by R. & I. Barnsley Pty Limited to the Solicitor together with the management fee of $1,300.00 was dated 24 May and the transfer of that mortgage to R. & I. Barnsley Pty Limited 25 May (ex. 7 and ex. U). Settlement took place on 26 May. From 23 May 1983 until the settlement the Solicitor was not holding the money on behalf of R. & I. Barnsley Pty Limited. On 26 May 1983 a payment of $33,808.00 was made out of the account of F. & M. Borsone to Sydenham Acceptance Co. Pty Limited to discharge a mortgage and on the same day a payment of $24,498.19 was made to the Commonwealth Trading Bank to discharge a second mortgage. On 23 May 1983 the Solicitor paid into the trust account of W. & S. Reeves the sum of $4~0,8~00.00 received from R. & I. Barnsley Pty Limited (47R). The matter was settled on 27 May when the sum of $37,753.78 was paid out of that account to W.B. & S. Reeves. Other payments were also made on that day. Between 23 May and 27 May, the? Solicitor did not hold the money on behalf of R. & I. Barnsley Pty Limited in accordance with Section 41(1). The Solicitor's explanation of the breaches was that the crediting of the funds was carried out by the bookkeeper and not at his direction. He agreed that the practise was incorrect and was not generally followed by him (83.4T). In the case of Romstein and R. & I. Barnsley Pty Limited there was no breach of Section 41(1) as the signing of the documentation preceded the making of the advance by R. & I. Barnsley Pty Limited. In July 1982 in anticipation of his absence from the office the Solicitor transferred moneys from the trust accounts of five separate clients to the respective general accounts of the clients. In each case the moneys were paid out for settlement purposes on the same day as that on which the transfer occurred. These transfers constitute a breach of Section 41(1). The Solicitor acknowledged that the practice was a poor one but claimed that there was no breach of the section as the use made of the general account was a method of disbursing funds to the direction of the clients. In the matter of Back purchase from Landcom some costs were drawn a few days prior to completion of the matter to which they related. The Committee answers question 9: Yes, except as regards particulars 2A and 2B relating to Mr and Mrs Romstein. The Committee answers question 10: No. As regards question 11 dealing with Section 42(2) the Solicitor, in respect of the moneys received from R. & I. Barnsley Pty Limited and paid into the trust accounts respectively of F. & M. Borsone, W. & S. Reeves and E. & K. Romstein, was in breach of that section. The Committee answers question 11: Yes. The Committee answers question 12: No. Question 13 In 1982 and 1983 HMC had business premises at Suite 3A, 5th floor, 410 Church Street, North Parramatta. The practice of the Solicitor was at that time carried on at Suite 3 on the 5th floor in the same building. The two offices were door to door. HMC's office was fully partitioned from the Solicitor's office and had a separate entrance door to a short corridor where there was a main door giving onto the lift foyer. The office door of the Solicitor's firm opened onto the same corridor. The doors from the corridor to the two offices clearly identified each of them separately. The Committee is of the view that the two offices were so close that there is a breach of Regulation 29. Question 13 is answered: Yes. Questions 14 and 15 These questions related to allegations of false representations made to a client, Mr B. Kuliza and overcharging. From the bar table Counsel for the Law Society conceded that enquiries had disclosed that the Solicitor had no contact with this client who was seen by an employee and questions 14 and 15 were not pressed. Both these questions are answered: No. Question 15A-G comprises allegations of false statements by the Solicitor to the Law Society in March and October 1983, the latter confirmed in his Statutory Declaration of 4 October 1985 and in evidence before the Committee on 10 and 11 October 1985. The subject of these statements is: (a) the management and decision making of HMC (15A,B); (b) the shareholders in HMC (15C,D & E); (c) the funding of HMC (15F,G). A. The Management and Decision Making of HMC The Solicitor's initial statement was in his submission to the Law Society of 16 October 1983 where he said: "I am not carrying on HMC's business ... the business has its own manager and contacts the public only through that manager and not through me or my employees." This statement, confirmed in his declaration of 4/10/85, was false as can be seen from the Solicitor's own evidence: (i) "Q. What were you doing in May 1983? A. I was looking after all three offices, and helping Flint and HMC to get established. Q. So you were running in part your legal practice and running in part HMC? A. That's correct." (10 December 1985 in cross-examination). (ii) The Solicitor signed letters written on HMC letterhead: "Q. Well, Mr O'Reilly, can you explain how it happened, seeing that you were not running HMC, that a letter of that kind was submitted to you for signature? A. I used to send letters out from HMC, as I said, addressed to institutions like the AMP Society and large insurance companies inquiring whether they were interested in buying mortgages on the secondary mortgage market. Q. And that was something you did throughout the period that HMC was operating? A. No, in the early part of the time that HMC was operating I did that and signed those letters, and then completely faded out of any activity like that. Q. When did this complete fade-out reach its lowest point of visibility? A. I would have stopped signing any sort of letter that went out of HMC to anybody by the time of - it must have been by the end of June or July 1983." (11 October 1985 in cross-examination.) A letter dated 1 June 1983 from HMC to the Solicitor's firm instructing it to act on behalf of HMC on a mortgage advance to Pegler was signed by the Solicitor (exhibit K). A letter dated 3 June 1983 from HMC to Mr Barnsley informing him of the settlement of the Borsone matter was signed by the Solicitor (exhibit L). A letter dated 4 May 1983 from HMC to the Solicitor's firm giving instructions to act on a loan to Reeves was signed by the Solicitor (exhibit M). (iii) In September 1983 the Solicitor on behalf of HMC was negotiating with Beneficial Finance regarding their willingness to purchase mortgages from HMC. The Solicitor gave the following evidence: "Q. ... you had spoken to Beneficial Finance at a meeting on 29 September 1983? A. Yes. Q. To come to some agreement with them about their willingness to purchase mortgages from you - or from HMC, I am sorry? A. But we had meetings all the time. Q. Let's just deal with the one on 29 September 1983. At that meeting there was discussion about the mortgage guarantee and the rates that were to be charged for mortgage guarantees? A. I believe so, yes. Q. And there was specific agreement about the rates at which the contracts or the mortgages should be written? A. Can I have a look at that, sorry? Q. I show you a letter of 30 September 1983, from Beneficial Finance. That is another document that you have produced in answer to a summons? A. That's correct. Q. And it contains as an annexure minutes of a meeting that you attended on behalf of HMC on 29 September 1983? A. That's correct. Q. And purchases by Beneficial were to be discounted by 1 per cent? A. That's correct". (10 December 1985.) (iv) A letter dated 11 November 1983 from Citicorp Australia Limited to HMC approving a proposal for discounting a non-construction mortgage was addressed attention Mr P.B. O'Reilly (exhibit Q). Citicorp agreed that the interest rate in the mortgages was to be 17 per cent or more. No premium was to be paid by Citicorp unless total volume in any month exceeded $400,000.00. There was a requirement that all mortgage documents be executed in front of an independent solicitor. In relation to the business done by HMC with Citicorp the Solicitor stated in response to questions put to him by his Counsel: (133.4T) "Q. In dealing with Citicorp Aust. Limited did HMC sell some mortgages to Citicorp early in its operations in 1983? A. Yes. Q. Was there a period when there was not much activity with Citicorp? A. Yes. Q. And then did you resume a lot of activity at some stage? A. Yes. Q. When was that? A. Towards the end of 1933. Q. Before resuming that activity did you have some correspondence with Citicorp about the terms on which they would deal with them? A. Yes. Q. And you found some correspondence with Citicorp in which they sent you documents which they approved of, which you had already shown to them representing HMC - as documents which you proposed they should accept when they took mortgages? A. Yes. Q. With that correspondence did you find copies of form of guarantee by HMC to Citicorp and a related company, with the date 23 January 1984 on it; and another form of guarantee by yourself and Mrs O'Reilly with the signatures of yourself and Mrs O'Reilly on the form? A. Yes." (v) In May 1984 the Solicitor resigned as a director of HMC and at about the same time he and his wife transferred their shares to Ernest Flint and Ken Murphy (167.8T and 168.1T). Notwithstanding this he signed a Minute of the Meeting of Shareholders of the company in November 1984. This he explained as simply a mistake. In cross-examination he eventually agreed that he effectively retained control. His evidence was evasive and the following two examples illustrate this: "Q. After your transfer of shares, which you say you made to Mr Flint, you sought to retain control of HMC, didn't you? A. No. I sought to supervise what was going on in HMC. Q. You sought to retain a measure of control? A. A measure of control, yes; but not full control. Q. You sought to retain the ultimate control of the company, didn't you? A. In relation to financial matters. I wanted to protect the overdraft, but not the day to day business. Q. You sought to retain ultimate control of the company Mr O'Reilly, didn't you? A. No. I sought to retain a financial control in relation to the reduction of the overdraft. Q. The shares you say you sold to Mr Flint were transferred for a nominal consideration? A. Yes. Q. You said on the last occasion that after transfer you were going to retain some control - p. 99 of the transcript? A. Yes. Q. What you said was: "I would not say I had the capacity to control the company in a legal sense after May of 1984". Do you still say that? A. Yes, that's correct. Q. "Q. But in a de facto sense you did, didn't you? A. I think that I had a strong influence at all times." Now, that is true isn't it? A. Yes, certainly, but... Q. After the transfer of shares, or purported transfer of shares, to Mr Flint you had strong control of HMC? A. No. I secured the overdraft, and I was very concerned to see what happened in relation to the financial control of the company and the reduction of the overdraft or otherwise, plus the collection of mortgages. (168.6T & 169.4T cross-examination 9 December 1985.)and, "Q. Mr O'Reilly, since March or April of this year you have been totally in control of HMC, haven't you? A. In the sense that there was nobody running HMC, and I have stepped in from time to time and involved myself a bit with it. But so far as writing up the books, so far as the management of the company, so far as the collection of interest, I have not been involved in that. Q. You have or have not? A. Have not. Q. So far as HMC has approved loans since March or April this year, you have approved them? A. That's correct. Q. So far as decisions have been made about the level of mortgage guarantee fees, you have made them? A. That is correct. Q. So far as decisions have been made to execute mortgages, you have made them? A. That's correct. Q. You have sent letters out under HMC's letterhead? A. That's correct. Q. So far as HMC has done anything... A. I have not sent the letters out myself. They been sent out on my request. Q. You signed them? A. Yes. Q. So far as HMC has done anything since March or April of this year, it has either been done by you or at your direction? A. That's correct. Q. And it is quite misleading, is it not, to describe your connection with HMC since March or April of this year as merely acting as director from time to time? A. That is how I would. I was not fully operating the company. The company was dormant for large periods of time. Q. But so far as it was operating at all, you were operating it? A. Yes. And it only operated from time to time." (cross-examination, 9 October 1985) In his evidence before the Committee on 10 October 1985 the Solicitor said that he had no part in the day-to-day management of HMC, the decision in the case of a particular loan was taken by management and until Mr Flint left HMC, the Solicitor "left all of the management of the company up to that time the determination of lending policies, interest rates and mortgage guarantees - entirely in the hands of Flint." Regarding the guarantee fees he stated that there was a range between 1, 2 and 3 per cent of the principal sum advanced depending on the credit rating of the borrower and that the assessments relating to the guarantee fees were all made by Mr Flint. In cross-examination on 9 December he agreed that he discussed the level of the guarantee fees with Mr Flint who had authority from him to charge what he thought was appropriate to the risk of the particular loan, a matter that was to be decided by Mr Flint. Again in cross-examination on 11 December 1985 (254.4T) the Solicitor agreed that while his firm had premises in Parramatta he had very frequent meetings with Mr Flint, and discussed with him particular loan applications. He gave the following evidence and again he was evasive: "Q. So you discussed with him particular loan applications? A. Yes. Q. And discussed with him whether or not particular loan applications should be approved? A. Yes. Q. He was discussing those things with you, because you had the final say? A. No, because of a particular difficulty or particular question that may have arisen in the loan application. Q. Because you had the final say? A. No, I had the legal knowledge of the type of security, or type of particular problem that had arisen. Q. And you had the final say? A. I wasn't approving the loans; Flint was. I had the power to say "No, don't do the loan". Q. You had the right of veto, didn't you? A. I certainly did, yes. Q. And you had certainly approved loans, hadn't you? A. To the best of my knowledge, Flint was the one who approved the loans, because he had more experience in the actual assessment of the loan qualities of the applicants". After his Parramatta office was closed he agreed that he had business meetings with Mr Flint probably fortnightly or three-weekly. It is clear from the above, even if one does not consider the evidence of Mr Flint, that the Solicitor was actively engaged in carrying on the business of HMC, that he considered loan approvals and guarantee fees and involved himself in the day-to-day business of HMC. The evidence of Mr Flint which the Committee accepted in its entirety, fleshes out the extent to which the Solicitor was so engaged but is not essential to the principal finding of fact. According to Mr Flint he was employed by HMC from March 1983 until March 1985 as General Manager. He had the day-to-day conduct of the management of HMC) and supervised its staff. He engaged and dismissed staff after discussion with Mr. O'Reilly and decisions to employ were only made by him after Mr O'Reilly had interviewed the persons. He interviewed applicants for loans, dealt with correspondence, reports from the Brisbane office, promotion and advertising and saw to it that records were maintained by the company's staff relating to mortgage accounts (281.8T). Except for periods when Mr O'Reilly was overseas Mr Flint referred to him every loan application and decisions on these were made by them together. Some applications were rejected by Mr Flint because of bad credit reports and he informed the Solicitor of these. Guarantee fees on standard loans were on the instructions of the Solicitor to be 2 per cent and where there was some special difficulty the guarantee fee was discussed with the Solicitor. Whilst HMC had its office next to the Solicitor Mr Flint could speak to him simply by moving into the next room. The Solicitor's office in Parramatta closed in September or October 1983. Thereafter Mr Flint spoke to him every morning on the 'phone and they met weekly in a restaurant over dinner at which general correspondence and loan applications were discussed. Decisions on loan applications and guarantee fees were made jointly. He also saw the Solicitor a number of times through the week when he called at the Campbelltown office and he did not make any approval of a loan without discussing it with the Solicitor. Mr Flint was a credible witness. The evidence of the Solicitor as indicated above was at times evasive and also inconsistent. The Committee answers questions 15A and 15B: Yes. B. The shareholders in HMC In his declaration of 4 October 1985 the Solicitor stated: "My wife and I are no longer shareholders of HMC. We sold our shares in the company to Ernest Flint and Ken Murphy in or about October 1984." On 11 October 1985 the Solicitor in his evidence before the Committee stated in relation to HMC: (77.6T) "The shareholders are Flint and McAleer". The Solicitor was unable to produce any transfer of his shares in HMC and admitted to this in cross-examination on 9 December 1985. He conceded that the share register for HMC did not contain any entry showing registration of the transfers of shares. The only document which the Solicitor could produce was a photocopy of a transfer of shares on which all particulars including the name of the Company concerned were blank but showing his name and address as transferor a consideration of $1 and signed by himself and Mr Flint. He stated that this was the transfer of his share in HMC. There was a similar document signed by Mrs O'Reilly as transferor and Mr Murphy as transferee (exhibit 21). The annual return of HMC filed with the Corporate Affairs Commission on 10 April 1985 specified that the Annual General Meeting of the company was held on 18 November 1984 and showed the members of the company to be the solicitor and his wife (exhibit C). The Solicitor's evidence was that as at November 1984 he was to the best of his knowledge not a shareholder of the company and did not so regard himself (160.7T). He agreed that he signed the Minutes of the Annual General Meeting of the company dated 18 November 1984 which states that he and his wife were present but denied that such a meeting took place and claimed that the document was signed apparently with a whole lot of other company documents in total ignorance by him that it was an HMC document. Another blank document which was produced by the Solicitor was a share transfer signed by Mr Flint about the time when Mr Flint left the employ of HMC. In his disclosures to clients mentioned in questions 1 to 4 the Solicitor, during 1984 and 1985 disclosed that he was the majority shareholder in HMC. The Committee has already made findings in this regard. Whatever the purpose was of the Solicitor in having the blank share transfer signed by the person whose signature appears thereon, the Committee does not accept that the shares in HMC were transferred to Messrs Flint and McAleer nor that the Solicitor and his wife ceased to be shareholders of HMC. The Solicitor continued to act throughout 1984 and 1985 in a position of control of HMC, that company continued to be the trustee of his family trust, he availed himself of the company for the purpose of making various payments which gave him tax advantages and it is simply not credible that he transferred the shares of himself and his wife as claimed by him. The Committee answers questions 15C and 15D: Yes. On 11 October 1985 the Solicitor stated to the Committee that he had no interest whatsoever in HMC money. This was in the context that the persons entitled to HMC money were the shareholders, Flint and McAleer . Later on the same day, after having been cross-examined regarding the fact that HMC was the trustee of the O'Reilly Family Trust, he conceded that the earlier statement was incorrect and had been made in error. He denied that it was untrue. Then followed evidence that HMC only ever made a loss and its gross revenue was probably between $200,000.00 and $250,000.00. This had been expended mostly in the running and operations of HMC. These expenses included the charges paid by HMC to the Solicitor and the business expenses for leasing of his office furniture, Wang equipment, car and plane, amongst others. Counsel for the Solicitor submitted that the fact that the Solicitor had a loan account in the records of HMC and that this company paid his business expenses did not give him a legal or beneficial interest in money paid to HMC and nor did the Trust Deed do so in the absence of a determination in his favour by HMC as trustee of the trust. The Committee accepts that submission but is of the view that the question: "Who is entitled to HMC money?" was asked in a general sense as is illustrated by the question which follows it: "You have no interest in it at all?" In the strictly legalistic sense, the answer to the first question must be HMC. In the general sense, because of the facts already found relating to the O'Reilly Family Trust and its beneficiaries, the borrowing by the Solicitor from the company and the payments by the company to the Solicitor and his firm for his business expenses, the Committee finds untrue and misleading the statement of the Solicitor that he had no interest whatsoever in money paid to HMC. This finding is not vitiated by the fact that the Solicitor had no legal entitlement to the HMC money under the O'Reilly Family Trust. He had an interest in it as potential beneficiary subject to any profit or assets being generated and any distribution or determination being made. He was receiving payment from the company in a number of ways and in all these circumstances it was not true that he had no interest whatsoever in HMC money. Question 15E is answered: Yes. C. The funding of HMC In a letter to the Law Society dated 23 March 1983 handed by the Solicitor to Mr John Wheeler, Trust Account Inspector, the Solicitor stated that the only source of loan funds that HMC used was from capital contributed by him and his wife and from profits generated from the sale of mortgages. In his submission to the Society dated 16 October 1983 the Solicitor stated: "I did not ever suggest to Mr J.R. Wheeler the Society's Trust Account Inspector that HMC has yet made loans from capital supplied by myself and my wife or from profits generated by HMC." The Committee has already made the finding that no funds of HMC were ever advanced to any mortgagor and that the capital of the company was $2.00. As at 30 June 1983 it had accumulated losses in excess of $10,000.00 and as at 30 June 1984 in excess of $30,000.00. In both those financial years the company had a significant excess of liabilities over assets and the Solicitor agreed that its ability to pay its debts as and when they fell due depended on his continuing support of the company. The Solicitor conceded in cross-examination that the only capital contributed as at 23 March 1983 was nominal capital of $1.00 each by himself and his wife. When asked: "Q. In truth, therefore, HMC had no source of funds by way of contributed capital for the granting of mortgages? A. No, but the funds were available to contribute if we needed them. That is the sense that I wrote that in." It must be borne in mind that the letter written to the Law Society was written by a qualified solicitor who must be taken to understand what was meant by the words he was using. The letter to the Law Society contained a clear statement that the loan funds used by HMC were from capital contributed by the Solicitor and his wife. The meaning of that is clear and it does not correspond with the factual situation of the funding used by HMC in mortgages with which it dealt. The Committee has already made findings of fact elsewhere relevant to questions 15F and 15G. Questions 15F and 15G are answered: Yes. Summary The most serious findings made by the Committee relate to the intermingling by the Solicitor of the financial affairs of himself and his companies with those of his clients and the false statements made by him to the Committee and to the Law Society. Closely associated with these is his failure to disclose to his clients the true nature of their transactions with his company, HMC. The Solicitor benefited financially through HMC and through his legal firm from the dealings between HMC and his clients. Whilst he was at some pains to comply with the letter of the requirement regarding disclosure of his interest as a shareholder or advising his clients to seek independent legal advice or obtaining their acknowledgement that they were aware that he was acting for HMC as well as acting for them, he failed completely to recognise that because of his close association with and financial interest in HMC he should not have been acting at all for his clients who were borrowing moneys arranged by HMC because there was a conflict of interest between himself and his clients which was not capable of resolution. Each of the transactions resulted in a financial benefit to the Solicitor in the form of the guarantee fee paid to HMC, the costs paid to the Solicitor and the management fee paid to HMC. The indirect financial benefits went further. The company insofar as it gained income was paying some of the running expenses of the Solicitor's car, aeroplane and office equipment and was paying administrative charges to him personally. Its overheads and expenses resulted in accumulated losses giving the Solicitor tax advantages and if it should have made profits then the provisions of the O'Reilly Family Trust Deed were available for such profits to be split amongst members of his family. The Solicitor therefore stood to gain from promoting the activities of HMC with his clients. The statement made in The Law Society of New South Wales re Harvey (1975 March 20 Judgment at page 3) apply equally to the Solicitor: "It is abundantly clear that the defendant entered into these ventures deliberately and for his personal financial benefit. The involvement of many clients in these ventures was the result of the defendant's own deliberate conduct in the course of his handling their affairs when they came to and relied upon him personally. Thus we concern ourselves and base our ultimate conclusions upon conduct for which he is directly responsible, not being conduct into which he drifted under pressure of any exigencies due to the conduct of others". A solicitor must take care to deal fairly with his client at all times and not to prefer his own interest to that of his client. Again, quoting from Harvey's case (page 29) of the Judgment: "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, 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 a 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 independent advice and the solicitor continues to act, or the client acts for himself or where he has independent advice either just for the transaction or has a permanent new solicitor. In varying degrees the trust of and reliance upon the solicitor to act fairly and independently arising from the initial preparedness of the solicitor and client to trade may remain as the reason why the client ultimately deals with the solicitor and not somebody else. It is difficult to be sure it does not. In the absence of very special circumstances, a solicitor who promotes himself as the dealer with his client misuses his position and puts it beyond his capacity to assert his primary duty to his clients. The price of being a member of an honourable profession, whose 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 nor encourage a client to deal with him, but rather should take all reasonable steps positively to avoid dealing directly or indirectly with his client." The Solicitor on his own evidence was the prime mover bringing together his client, Mr Barnsley, and also his clients, Mr & Mrs Romstein, with HMC. The interest rate which the latter paid on their loan was in excess of 20 per cent. Other clients dealing with HMC, Borsone, Pegler and Reeves paid interest on their loans at the rate of 20.5 per cent. The guarantee fee paid by the borrowers was usually 2 per cent. When Ellis extended his mortgage in 1985 he was charged a guarantee fee of $1,300.00 which the Solicitor conceded was considerably higher than on the original loan. As HMC was in the business of "selling" mortgage transactions to lenders the Solicitor had an interest to make the terms of the transaction attractive to a lender thereby creating an immediate conflict vis-a-vis the borrower who would seek terms favourable to himself. The conflict in transactions such as the one Borsone-HMC-R. & I. Barnsley Pty Limited was three-fold. One was between the borrower and the lender, one was between the Solicitor through HMC and the borrower in determining the guarantee fee and one was between the Solicitor through HMC and the lender in determining the management fee. This pattern was repeated in various other cases already discussed. It brings the Solicitor's conduct within the constraint expressed in Harvey's case. In making the above comments the Committee has not lost sight of the fact that in the mortgage transactions with Borsone, Romstein and others the Solicitor was not acting for R. & I. Barnsley Pty Limited but as Mr Barnsley was a client of the Solicitor at the time when the HMC proposals were first put to Mr Barnsley, the conflict applied by reason of that existing relationship. Of equal concern to the Committee are the false statements made by the Solicitor in his submissions to the Law Society and the lack of frankness displayed by him in his evidence before the Committee. In giving information about shareholders, directors and dealings of HMC and his function in the management of that company his starting off point was the letter dated 23 March 1983 to the Society. Leaving aside inaccuracies regarding the number of shareholders and directors conceded by him which are not of great consequence as he disclosed the interest of himself and his wife in both of these capacities, there was a false statement regarding the business undertaken by HMC. The false statements made by the Solicitor in his submission to the Law Society are confirmed on Statutory Declaration and in his evidence before the Committee. Counsel for the Solicitor submitted with reference to the allegations of false evidence to the Committee as to the true ownership and control of HMC that no rational motive for such deception had been advanced. This may be so but absence of motive does not diminish the finding of fact made by the Committee that the statements made to the Law Society and given in evidence before the Committee were false. The Solicitor was an unsatisfactory witness. Comments have already been made on specific parts of his evidence which were evasive or where he at a later stage of the proceedings modified statements made earlier. In addition there were numerous incidents where his recollection was imperfect or he simply could not remember. Some of these matters were of no great significance such as Mr Romstein's occupation or when the Romsteins came back to sign documents or when they received his loan of $150.00 but they become significant in the context of evidence put forward as being definite on the question of explanations given to them of contents of documents seeking independent advice and disclosures of interest. The evidence of failure to disclose the true nature of the loan transactions to the Solicitor's borrower clients and to R. & I. Barnsley Pty Limited, the wrongful intermingling of the Solicitor's personal financial affairs and those of HMC with the financial affairs of his clients and the false statements to the Committee and the Law Society lead to the conclusion that the Solicitor cannot be regarded as a fit and proper person to continue to practise as a solicitor. The Committee comes to this conclusion after giving consideration to the character references adduced by the Solicitor from twelve members of the legal profession, one of whom was in addition a member of State Parliament and one a Magistrate. The Committee is of the opinion that by reason of the extensive and systematic conflicts of interest between the Solicitor and his clients, a protective Order is called for. The Committee therefore makes the following Orders: That the name of Patrick Bede O'Reilly be and the same is hereby struck off the Roll of Solicitors of the Supreme Court of New South Wales, this Order to take effect thirty (30) days from the date hereof; and the Committee also orders that the costs of the Law Society of New South Wales of and incidental to the References 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 Solicitor to the Society or to its solicitor Miss Rosemary MacDougal, such costs to be inclusive of all costs and disbursements properly incurred and paid by the Society of and incidental to the investigation and report on the accounts, transactions and affairs of the Solicitor by Mr Alan Francis Batley. Dated this fourth day of September 1986. 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.