Legal Services Division CITATION: Law Society of New South Wales -V- Bird [1998] ADT COMPLAINANT: Law Society of New South Wales RESPONDENT: Patrick William Bird Mr J Currie (Chairperson) ( Judicial Member ) TRIBUNAL: Mr G Foster Mr B Dyster GROUNDS OF COMPLAINT: Professional Misconduct DATE OF JUDGMENT: 12/15/1998 Complainant: Mr G Robinson Council of the Law Society of New South Wales LEGAL REPRESENTATIVES: Respondent: Mr I Wales The Tribunal had before it an Amended Information filed on 17 March 1998. At the commencement of proceedings, Counsel for the Law Society informed the Tribunal that certain grounds contained in the Amended Information were not relied upon. Accordingly, the Information against the Legal Practitioner alleging professional misconduct was proceeded with on the following grounds:- "2. The legal practitioner provided Messrs. H. and C. with a written advice dated 14 June 1995, which involved a substantial failure to reach reasonable standards of competence and diligence to be expected of a reasonably competent legal practitioner. (a) was drafted in such a way so as to be capable of misleading SME (Southern Mitchell Electricity) that such advice was prepared for its benefit; (b) contained assertions of fact the legal practitioner ought to have known were incorrect; (c) contained assertions of fact which were unsupported by any material available to the legal practitioner; (d) contained assertions of law, which the legal practitioner ought to have known, were incorrect or alternatively were not reasonably available to the legal practitioner; (f) omitted matters of significance of which the Legal Practitioner ought to have known; (j) to the knowledge of the legal practitioner, was to be used by Messrs. H. and C. as an instrument of persuasion against SME and which advice did not contain appropriate qualifications or caveats which drew attention to difficulties which the legal practitioner perceived. 3. The legal practitioner agreed to provide advice to SME and did provide advice with respect to the legality of a proposed rescission motion on 15 June 1995 when his obligations to Messrs. H. and C. conflicted with his obligations to SME." In his Reply filed on 19 August 1998, the Legal Practitioner admitted the various grounds of complaint, except for (j) above. In substance, the Legal Practitioner asserts that his conduct as particularised in Grounds 2 and 3 amounts to unsatisfactory professional conduct and not professional misconduct as asserted by the Law Society. The Evidence The primary evidence of the Law Society comprised the Statutory Declaration of Garry James Still sworn 15 August 1997. That Declaration annexed a number of documents relevant to the grounds set out in the Information. In addition, the Law Society tendered copies of the Employment Agreements of Messrs. H. and C. with SME, those Employment Agreements dated 11 July 1994. The evidence of the Legal Practitioner comprised his Affidavit sworn 11 August 1998 and a number of character and testimonial affidavits. Further, the Legal Practitioner gave oral evidence as to matters, the subject of the Information and significantly he was not cross examined by Counsel for the Law Society. Background Facts A short summary of the relevant facts is as follows:- On 11 July 1994, Messrs. H. and C. entered into new contracts for employment with SME. Mr H. for a period of five (5) years as General Manager and Mr C. for a period of four (4) years as Assistant Manager. In late May 1995, the relevant Minister announced various reform proposal to the electricity industry and on 8 June 1995, issued a direction as to employees within the industry, that Direction effectively freezing employee levels and salary arrangements as at that date. On 9 June, the Minister appointed new Chief Executive Officers to various merged organisations within the electricity industry. On 13 June 1995, Messrs. H. and C. consulted the Legal Practitioner and sought advice in relation to their position under their Contracts for Employment with SME. On 14 June 1995, the Legal Practitioner provided his advice in writing to Messrs. H. and C.. At a Board Meeting of SME that afternoon, the Board purportedly terminated the employment of Messrs. H. and C. on the basis of redundancy. The Legal Practitioner subsequently prepared Deeds of Release as between H. and C. and SME, which were to be entered into in consideration of significant contract payout amounts being paid to H. and C. On 15 June 1995, the Legal Practitioner was requested to provide an advice in relation to a proposed rescission motion to be put before the Board of SME that day to rescind the motion to terminate the Employment Contracts of H. and C. The Legal Practitioner prior to providing such advice had been informed by an appropriate Officer of SME that H. and C. had been paid their redundancy entitlements as a consequence of the Board's resolution the previous day. The Legal Practitioner prepared and provided to SME an advice in relation the proposed rescission motion, which he knew would be considered by the Board of SME in relation to the proposed rescission. Subsequently, the relevant Minister intervened. The Board of SME was dismissed and on 31 July 1995, the New South Wales Independent Commission against Corruption commenced an enquiry in relation to matters which included the termination of the Contracts for Employment of Messrs. H. and C. The Legal Practitioner gave evidence in those proceedings and as a consequence of those proceedings, the matter was referred to the Law Society of New South Wales. The Tribunal's Determination as to Ground 2 This ground alleged professional misconduct by the Legal Practitioner by reason of his substantial failure to reach reasonable standards of competence and diligence to be expected of a reasonably competent practitioner. The particulars upon which the Law Society relied were not contested by the Legal Practitioner. Firstly, the Law Society alleged and the Legal Practitioner admitted that the advice dated 14 June 1995 was drafted in such a way as to be capable of misleading SME that such advice was prepared for its benefit. The Legal Practitioner conceded that the advice contained no statement that the Legal Practitioner had prepared the advice for and was acting for Messrs. H. and C. and that the terms in which the advice was expressed could mistakenly lead a reader of the advice to conclude or assume that it was an advice prepared for the Board of SME or SME. The Tribunal is satisfied that the advice was capable of being misleading as alleged. Secondly, the matters relied upon by the Law Society related to a number of assertions in the advice that were incorrect or unsupported by any material available to the Legal Practitioner at the time of the preparation of the advice. These assertions included the following:- 1. "In addition as from 14 July 1995, the State's 25 power distributors will be dissolved .". 2. "... Presumedly, all General Managers of the affected distributors will loose their positions...". 3. "... No doubt the Government will put in place the necessary legislative machinery to give effect to the termination of each General Manager ...". 4. "(That as from 14 July 1995, the Board would not exist) and "therefore it will not be able to fulfil its part of the Employment Agreement entered into with Mr H. on 11 July 1994. Having regard to the evidence before the Tribunal and the admissions made by the Legal Practitioner, the Tribunal is satisfied that the assertions of fact and law set out above were not available to the Legal Practitioner and were unsupported by any of the material available to the Legal Practitioner. Thirdly, the Law Society alleges that the advice omitted matters of significance, of which the Legal Practitioner ought to have known. The Law Society particularised the following omission:- (a) the advice failed to draw attention to the fact that there was as statutory prohibition on the Board removing a General Manager from office. (b) the advice failed to address the existence of any reasons or grounds as a basis for SME dismissing Mr C.. (c) the advice failed to address the question of whether in the circumstances the Board was entitled to terminate under Clause 3.3. (thus entitling the Employee to a significant payout) as against one of the other sub-clauses. (d) the advice failed to advise that if Messrs H. and C. wanted to leave SME, they could have done so by agreement or resignation. The Legal Practitioner admitted the matters alleged by the Law Society and the Tribunal is satisfied that the advice did omit matters of significance, of which the Legal Practitioner ought have known. Finally, the Law Society alleged that to the knowledge of the legal practitioner, the advice was to be used by Messrs. H. and C. as an instrument of persuasion against SME and which advice did not contain appropriate qualifications or caveats which drew attention to difficulties which the legal practitioner perceived. In his Reply, the Legal Practitioner did not admit this ground of complaint. The Legal Practitioner in the course of the hearing gave oral evidence, during the course of which, he said: Q. I think you accept that there are shortcomings in the advice which you gave to H. and C.? A. Yes. Q. And those are detailed in the particulars of the amended information? A. Yes, that is correct. Q. Although I think you describe in your affidavit and in your reply to the Society the time pressures that you were under preparing that document? A. Yes. Q. I think you have said that you had the honest belief what you were saying in your opinion was correct and the facts you asserted there were correct? A. Yes. (Transcript p14). Q. But you understand that, looked at objectively, it contained shortcomings. A. Yes. Q. And very substantial shortcomings? A. Yes. Q. And they are what have been listed in the particulars of the information? A. Yes. Q. And although you tell the Tribunal that you felt that your advice was qualified, you accept that, as it were, as a matter of objective consideration, standing back and looking at it that it being an advice which was being put before the Board of the SME, then it ought to have been expressed in different terms and to contain qualifications and reservations that were not in it? A. Yes." (Transcript p15). In relation to this oral evidence, the Legal Practitioner was not cross-examined. Having regard to the Legal Practitioner's oral evidence and to the other evidence before the Tribunal, particularly the transcript of evidence given by the Legal Practitioner before the Independent Commissioner against Corruption, we are satisfied as to this allegation by the Law Society. However, the Tribunal is not satisfied that the conduct of the Legal Practitioner is such as would constitute professional misconduct. The conduct alleged arises out of one particular matter and in the Tribunal's view, having regard to the Legal Practitioner's oral evidence (upon which he was not cross examined) does not involve a substantial or consistent failure to reach reasonably standards of competence and diligence. The Tribunal is satisfied that the Legal Practitioner's conduct is conduct that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent legal practitioner. That is, in the Tribunal's view the Practitioners conduct amounts to unsatisfactory professional conduct. The Tribunal's Determination as to Ground 3 Pursuant to this ground, the Law Society alleged that the Legal Practitioner in providing advice to SME in relation to the proposed rescission motion placed the Legal Practitioner in a situation of conflict of interest as to his obligations to Messrs. H. and C. and his obligations to SME. It should be noted that at the time of the Legal Practitioner's advice in relation to the rescission motion, Messrs. H. and C. had been paid substantial monies as a consequence of the termination of their employment, hence, Messrs. H. and C. had a significant vested interest in the fate of the proposed rescission motion. Whilst it can be said that if the advice as to the proposed rescission motion was given in other circumstances and not in relation to the particular issue of Messrs. H. and C., then the advice is unremarkable. The content of the advice has not been the subject of adverse comment. The Law Society complains that in circumstances whereby the Legal Practitioner has provided a detailed advice to Messrs. H. and C. in relation to their employment contracts and is aware that their employment has been terminated (thus giving rise to a substantial financial benefit to those persons) and that the rescission motion upon which he is requested to advise relates to the termination of his clients, that the Legal Practitioner should not have provided such advice. The Legal Practitioner in his Reply admits this ground of the complaint. His Counsel asserts that the circumstances are such that the Legal Practitioner's conduct in giving the advice as to the rescission motion to SME does not amount to professional misconduct. The Tribunal has regard to the comments by Bryson J. in D and G Constructions Pty Limited v Head and Others trading as Clayton Utz (1987) 9NSWLR118 wherein the Court said:- "In my view, the legal basis on which the Court should act in restraining Legal Practitioners from acting for the opposite side after acting for one party before or during litigation appears from statements in the Court of Appeal of England in Rakusen v Ellis, Munday and Clarke (1912) 1 Ch 831, Cozens-Hardy MR said (at 835):- ".... we must treat each of these cases not as a matter of form, not as a matter to be decided on the mere proof of a former acting for a client, but as a matter of substance .... we must be satisfied that real risk and real prejudice will in all human possibility result, if the Legal Practitioner is allowed to act." ... where confidential information has been communicated by a client to a Legal Practitioner and is relevant to litigation in which the client is now engaged and is still available to the Legal Practitioner, the Court should take a cautious approach to any proposal that it should allow the Legal Practitioner to act against that client ... The considerations are much the same whether the information was communicated in the course of the litigation itself or in earlier business and whether or not the Legal Practitioner is a sole practitioner or is one of a number of partners or was employed by a principal." This basic principal was referred to by Ipp J. in Mallesons, Stephen Jaques v KPMG Peat Marwick (1991) 4 WAR 357 at 360: "Legal Practitioners have, however been restrained from acting against their former clients on grounds involving disclosure of information subject to legal professional privilege, conflict of interest. These grounds are closely intertwined. The conflict of interest is between the continuing duty of a Legal Practitioner, owed to his former client, not to disclose, or use to the latter's prejudice that which he learned confidentially, and the interest which he has in advancing the case of his new client .... The relationship between client and Legal Practitioner is one of the most important fiduciary duty relationships known to the law (Page 361-362).... Finally, in my view, public interest considerations require that a Legal Practitioner be restrained from acting for a former client when there is a real and sensible possibility that a Legal Practitioner's duty and interest might conflict .... It is extremely important that the Court should take careful measures to secure not only that justice is done, but also that it is apparent that it is done, an appearance which would not survive any general impression that lawyers can readily change sides." The Tribunal was referred to Wan v McDonald (1992) 33 FCR 491 where Burchett J. said (at 512-513):- "... But there are at least two (2) other aspects of the problem to which attention has more recently been drawn., a Legal Practitioner's duty of loyalty, which cannot be treated as extinguished by the mere termination of his retainer, and the important consideration of public policy which gives a special quality to the relationship of Legal Practitioner and client that the law will not generally permit to be stained by the appearance of disloyalty." It is the Tribunal's view that the question of a conflict of interest must be viewed within the particular circumstance of the transaction or dealing. The Tribunal takes the view that a Legal Practitioner acting in a position of conflict of interest whether such conflict be potential or actual, will not of itself justify a finding of professional misconduct. That is in no way to understate the importance of practitioners recognising, and avoiding, positions of conflict of interest. The profession has for some years been aware of the dangers that may arise in a conflict situation. As far back as May, 1975, the "Loxton Memorandum"alerted the profession to the problem of conflict in conveyancing transactions. The Memorandum concluded as follows: "Council says that the integrity of the Legal Practitioner will give him the answer and the onus lies very heavily on him to come to the right answer." Rule 9 of the Legal Practitioner's Revised Professional Conduct and Practice Rules casts an onus upon the practitioner in the particular circumstance where a conflict may arise. The Legal Practitioner in the course of the hearing said the following:- "Q. And you understand that even absent questions of confidential information, there are issues of loyalty to the client involved in a particular matter? A. Yes. Q. Which make it inappropriate to act again (sic) the client in the same or a related matter, even when questions of confidentiality arise? A. Yes. Q. I think that for the reason, even though the advice to the Board about the rescission motion did not involve matters of confidentiality, you accept that it was appropriate to give the advice which you gave? A. Yes. (Transcript p13) The Tribunal is satisfied that the conduct of the Legal Practitioner alleged in this ground does not constitute professional misconduct, but is conduct that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent legal practitioner. The Practitioner's conduct therefore amounts to unsatisfactory professional conduct. The Tribunal finds that the Practitioner's conduct described above in relation to Grounds 2 and 3, when viewed cumulatively, does not amount to professional misconduct. The Tribunal's Determination as to Penalty The Tribunal having determined that the Legal Practitioner's conduct is such as to constitute unsatisfactory professional conduct has considered a number of factors relating to penalty:- 1.The fact that the circumstances of this complaint arose from essentially one particular matter. 2.The Legal Practitioner's character and standing within the profession. In this regard, the Legal Practitioner was admitted in 1974 and has been a partner in his present firm since 1976. Character testimonials before the Tribunal demonstrate to the Tribunal that the Legal Practitioner is held in high regard by fellow members of the profession and the general community in which he works. 3.The Legal Practitioner as a consequence of his conduct, the subject of this complaint has had cause to give evidence before the New South Wales Independent Commission against Corruption. That evidence being taken over a period of some seven (7) days. In relation to the ICAC proceedings, the Legal Practitioner gave evidence that he incurred legal expenses in relation to his representation, totalling some $48,000. 4.The Legal Practitioner has consented to an Order that he pay the costs of the Law Society of New South Wales in the sum of $12,144. 5.The role of the Tribunal in these proceedings is concerned with the protection of the public. The Tribunal's duty to protect the public is not confined to the protection of the public against further misconduct by the particular practitioner who is the subject of the disciplinary proceedings. It extends to protecting the public from similar defaults by other practitioners. Thus it is relevant to take into account the effect the order will have upon the understanding in the profession and amongst the public of the standard of behaviour required of Legal Practitioners. In this sense, any penalty imposed should contain an element of deterrence, publicly marking the seriousness of what the instant Legal Practitioner has done (per Beazley JA The Law Society of New South Wales v Walsh (NSW Court of Appeal 15 December 1997)). On the basis of the Tribunal's assessment of the matters set out above, the Tribunal having found that the Legal Practitioner has been guilty of unsatisfactory professional conduct in respect of the two (2) grounds disclosed in the Amended Information, makes the following Orders:- 1.That the Legal Practitioner be publicly reprimanded; 2.That the Legal Practitioner is fined the sum of $2,000, which is to be paid within two (2) calender months from today's date; 3.That the Legal Practitioner pay the costs of the Law Society as agreed in $12,144 within six (6) calender months of today's date. Dated this 15th day of December, 1998. 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.