The Legal Services Tribunal of New South Wales CITATION : David John Russell [1993] NSWLST 20 PARTIES : David John Russell FILE NUMBER(S) : of 1993 CORAM: Ms A Plotke (Presiding Member) - Mr I. Ferguson - Mr A Martin CATCHWORDS: :- Findings of wilful breach of s.41 of the Legal Practitioners Act 1898 and s.61 of the Legal Profession Act 1987 - Solicitor found to have preferred the interests of one beneficiary to those of other beneficiaries - Although professional misconduct made out question as to appropriate penalty considered by Tribunal. LEGISLATION CITED: Legal Practitioners' Act 1898 Legal Profession Act 1987 CASES CITED: DATES OF HEARING: 11 October 1993 DATE OF JUDGMENT: 12/21/1993 LEGAL REPRESENTATIVES: Mr I. Wales (instructed by Mr F. Smith) appeared for the Law Society of New South Wales. Mr J. Turnbull (instructed by Messrs Pope & Spinks) appeared for the Solicitor. JUDGMENT: This complaint was made under Section 135 of the Legal Profession Act 1987 ("the Act") by the Law Society of New South Wales ("the Society") against David John Russell ("the Solicitor") and comprised the allegations that the Solicitor wilfully breached Section 61 of the Act, Section 41 of the Legal Practitioner's Act 1898 ("the prior Act"), misappropriated monies and preferred the interests of one beneficiary in a deceased's estate to those of others. The Society sought such orders as to the Tribunal seemed fit and an order against the Solicitor for costs. The particulars of the allegations in the complaint all related to the one matter, namely, the Estate of the Late Walter G. Wilkinson ("the deceased"). The Solicitor acted for Eve Tod, David Greenhalgh and Terry Ryan, the Executors of the Will and Codicil of the deceased. Probate was granted to them on 19 November 1986. The allegations against the Solicitor were that in wilful breach of Section 61 of the Act, the Solicitor paid to himself without the authority of the Executors, the sum of $4,000 out of monies held by him in trust for the Executors and that in wilful breach of Section 41 of the prior Act he, also without the authority of the Executors, paid to himself amounts of $880 on 17 December 1986, and $549 on 21 June 1987 out of monies held by him in trust for the Executors. The allegation of misappropriation related to the same amounts of $4,000, $880 and $549. The allegation of preferring the interests of one beneficiary in the estate of the deceased to those of others related to payments made to Ann Bennett who was a beneficiary under the Will of the deceased. On 30 July 1988 the Solicitor made a partial distribution of $4,500 to her and on 16 November 1988 he made a further distribution to her of $1,478.73 in circumstances in which he knew or should have known that there were inadequate monies held by him for the Executors to enable a proper distribution in accordance with the terms of the Will and Codicil of the deceased to be made to the beneficiaries other than Ann Bennett. The Solicitor admitted the wilful breaches of Section 61 of the Act and Section 41 of the prior Act and also the misappropriation and the allegation of preferring the interests of one beneficiary to those of others. The evidence before the Tribunal comprised the following:For the Law Society the Statutory Declarations of:1. Frederick John Smith dated 16 November 1992 (Exhibit "A")2. Eve Rosemary Tod dated 3 June 1993 (Exhibit "B")3. David James Greenhalgh dated 31 May 1993 (Exhibit "C") and 4 June 1993 (Exhibit "E")4. Terence James Ryan dated 3 June 1993 (Exhibit "D"), and5. Diana Mary Karageorge dated 6 October 1993 (Exhibit "F").For the Solicitor:1. The Statutory Declaration of David John Russell dated 23 September 1993 (Exhibit "1")2. Three references (Exhibit "2"), and3. The oral evidence of the Solicitor and of Michael Gidman Hand, Managing Director of Castle Express, which at the time of the hearing employed the Solicitor as a consultant. Background The Solicitor was admitted to practise as a Solicitor in 1977. From then until 1979 he worked for the legal department at the Commonwealth Bank and thereafter practised on his own account in Bexley until February 1989 when he sold his practice. After that he had short periods of employment with two different firms of Solicitors, practised privately for about eight months and was on unemployment benefits from November 1992 until March 1993. At that time he commenced business as a Quality Assurance Consultant and was still carrying on this business at the time of the hearing. At the end of June 1993 he did not renew his practising certificate for financial reasons. He had been married in 1971 and divorced in 1986. He was now running his business from a rented one bedroom unit in which he lived. The Solicitor's response to the complaint The Solicitor admitted all the matters alleged in the complaint and the particulars and put forward by way of mitigation the following explanations: Complaint no. 1: Transfer of $4,000 without authority 1. The payment to himself of $4,000 on 10 August 1988 occurred at a time when he was under considerable pressure from work and was negotiating for the sale of his practice which to some extent diverted his attention from the matters of his practice to their detriment (Exhibit 1 page 2(b)). He swore in his Statutory Declaration (Exhibit 1) that he recalled preparing an account in relation to the matter shortly before 10 August 1988. In doing this he claimed that he carefully and accurately assessed each item of work done in the estate in accordance with the appropriate scale. He believed until he became aware of the complaint that the account had been engrossed and sent to the Executors of the Estate prior to the monies being drawn on 10 August 1988. Despite making a diligent search he had not been able to find a copy of this account (Exhibit 1 page 2(3c)). However, there was some evidence of the existence of such an account in the Declaration of Diana Mary Karageorge, solicitor, his former employee, who recalled that at a time after the Solicitor had sold the practice and when she was still employed there she searched for and located the account for about $6,000 which included the $4,000. She stated that she gave a copy of this to the Solicitor. (Paragraph 8-10 Exhibit F). The Solicitor had no recollection of receiving this. Complaint no. 2: Transfer of $880 and $549 without authority The Solicitor stated that at the commencement of the matter he advised the Executors in conference that the method by which legal costs would be paid was that he would draw costs from estate funds held in the trust account in accordance with accounts rendered from time to time. He said, "I assumed from their assent to this arrangement that I had authority to pay costs from the trust account" (Paragraph 4, Exhibit 1). Subsequently at the hearing he conceded that he did not have authority. Complaint no. 3: Misappropriation In relation to the $880 withdrawn on the 17 December 1986 and $549 on 21 June 1987, his submission was that these monies were drawn following the rendering of proper and fair accounts. Regarding the withdrawal of $4,000 he submitted that this was a fair and reasonable remuneration for work done by him. Complaint no. 4: Preferring the interests of one beneficiary In relation to the complaint of preferring of interests of Ann Bennett to those of other beneficiaries he claimed that his action was the result of an arithmetical error of judgment and was not a deliberate or reckless act. The evidence of his then employed solicitor, Diana Mary Karageorge was that she made a calculation of $500 and interest which resulted in a cheque for $1,478.73 being sent to the solicitor for Ann Bennett. She did not have the day to day conduct of the file concerning the estate of the deceased but at the Solicitor's request she worked out how much Ann Bennett was entitled to. She did not make, nor was she asked to make any calculation, whether there were sufficient funds to pay Ms Bennett or any other beneficiary. Her evidence was not disputed by the Solicitor. In his oral evidence relating to the Bennett matter he stated that the payment mentioned in the complaint was made as a result of her solicitor pressing him for payment. The following evidence was given on page 33 of the transcript:"You would accept, would you not that as a solicitor in charge of the administration of an estate it would be incumbent upon you to treat all beneficiaries of the same class in an equal fashion? - Yes.Plainly, to Pay Ms Bennett her 10 percent plus interest and to pay nobody else their 10 percent plus interest was not to treat the beneficiaries in an equal fashion? - I have admitted to that.Yes. What I want to suggest to you is this that the truth of what happened is this that Ms Bennett's solicitor, Colin Herald, was pressing you for payment, that is correct, is it not? - Yes, the correspondence indicates as much.And to get him off your back you had a cheque written out that would keep him quiet? - Colourfully put, but true.And the reason why you didn't pay the other legatees was as you suggested, they didn't request to be paid? - That was one of the reasons. The other reason I just put to you earlier, that the settlement and sale of this practice was proceeding. Representatives of Theodore and Smyrnis were in my office quite often. I was actually having discussions with Law Society representatives at the time as to what I should or should not do and I acted on advice from those people, I acted on advice from my accountant. I acted on my own counsel, I also sought help from fellow practitioners. I did not want to create too much of a radical change. I didn't want to go issuing cheques out of trust accounts at that very sensitive time.Except to those legatees who, through their solicitors, complained to you? - Yes, if that is what you wish me to say, yes." The evidence of Terence James Ryan, one of the Executors of the Will and Codicil of the deceased, was that he received from the Solicitor a letter and memoranda of costs dated 15 December 1986 and 11/12 June 1987 which related to the payments of $880 and $549 respectively which the Solicitor deducted from estate funds in his trust account. He did not recall being requested to authorise the payment of these two accounts. He did not complain as to quantum of either account. He had received no account relating to the deduction of $4,000 nor could he recall being requested to authorise this payment. He knew nothing about the specific payment of additional monies to Miss Bennett by way of the additional 10 per cent of the bequest and interest thereon at the time when it was made, nor did he authorise this payment. The evidence of Eve Rosemary Tod was similar as regards receipt of the account for costs for the transfer of $549 which she also did not query. She received neither the account for $880 nor any account for $4,000 and she did not authorise the payment of any of these three amounts nor did she know of or authorise the payment of additional monies to Miss Bennett. The third Executor, David James Greenhalgh, could not recall ever receiving any account in respect of the amount of $880. He was overseas between 29 April 1987 and 1 January 1988, (when the $549 account was rendered and this amount was transferred) having given a Power of Attorney to Mr Ryan for the purposes of doing all things required for the finalisation of the estate during his absence. He had never been requested to authorise the withdrawal of the funds complained of, nor had he given any such authority. He was not aware of the Bennett payment nor had he given authority in relation to it. He considered the costs of $880 and $549 reasonable in the circumstances. Findings On the evidence before the Tribunal and in accordance with the admissions made by the Solicitor, the Tribunal finds that the allegations in paragraphs 1, 2, 3 and 4 of the complaint and as specified in the particulars, have been established against the Solicitor. Pursuant to Section 61(7) of the Act a wilful contravention of Section 61(1) of the Act is professional misconduct. The payment by the Solicitor of the sum of $4,000 out of his trust account without the authority of the Executors of the Will of the deceased is a breach of Section 61(1). The breach has been found to be wilful and accordingly the Solicitor is guilty of professional misconduct. The breach of Section 41 of the prior Act in respect of the payment of $880 and $549 has been admitted by him to be wilful and pursuant to Section 43 of the prior Act, such breach constitutes professional misconduct. Having found the Solicitor guilty of professional misconduct it now remains for the Tribunal to determine the proper Orders to make. Submissions Counsel for the Solicitor submitted that:1. This is really a case of sloppy office work, poor business practices and poor professional practices in the Solicitor's office. Bills if not prepared were not sent. If they were sent the proper authority was not received.2. Even now the Executors make no complaint about the amounts which the Solicitor deducted from the trust account.3. This case is to be distinguished from cases of fraudulent misappropriation of funds that never could have become the right of the person who misappropriated them.4. The Solicitor is not practising, his financial resources are limited and an appropriate penalty might well be to restrict his right to practise as opposed to imposing a large monetary penalty. He will be liable for costs. Counsel for the Society submitted as follows:1. Compliance with Sections 41 and 61 are not just matters of good practice, they are matters of fundamental ethical behaviour.2. Wilfulness of the breaches of these sections is admitted and the Solicitor concedes he had no authority from the Executors, either express or implied.3. There was no account for the $4,000 and it does not seem likely that he received a copy as recalled by Ms Karageorge.4. In the Bennett matter there is no process of careful consideration of the size of the estate and whether it could bear the payment out but the reason for payment to her was because her solicitor complained long and loudly.5. The matters are far from insignificant and far from merely lapses in good practise. Character references Three references were tendered in support of the character of the Solicitor. Mr Richard Black, solicitor, who had known him for 10 years in a professional capacity, found him to be professionally efficient and courteous. He observed that he got on well with clients and was respected generally. He expressed confidence that the breach would not occur again. Richard Phillips, barrister, had known the Solicitor since 1989 when he began to instruct him. He stated that the Solicitor was at all times scrupulous to ensure that the client was properly served and that he, the barrister, was adequately instructed. Mr Phillips expressed confidence in the Solicitor's character and would have no hesitation in entrusting him with funds belonging to him. Mr Tony Catanuto was a client of 12 years' standing who stated he trusted the Solicitor without reservation. He had no doubt from his knowledge of him that the Solicitor is not and had never been capable of any deliberate dishonest act. Mr Hand, who gave oral evidence, had known the Solicitor for about four years and for some three years the Solicitor had been acting for his company. Since January/February 1993 the Solicitor had worked as a consultant for his company in connection with quality management to the Australian Standards for transport. He found the Solicitor's work, both past and present, to be very precise accurate and methodical and expressed total satisfaction with it. All the character referees were aware of the complaint in general terms. The Tribunal has carefully considered all the evidence and the submissions. It finds that the solicitor presented as a truthful witness and he frankly admitted the allegations made against him. The conduct which is the subject of the four complaints, occurred between December 1986 and November 1988, that is from five to seven years prior to the hearing. The practice to which the matters related was sold by the Solicitor in February 1989, some 4.5 years before the hearing. The recollection and explanations of the Solicitor relating to the subject events must be considered in the context of the time which has elapsed since the events occurred and the circumstance that he lacked continuity of access to his practice which may otherwise have assisted his recollection. The Tribunal accepts that the evidence he gave was correct to the best of his recollection and that where there have been inaccuracies, they were not deliberate nor the results of any prevarication or concealment. The Tribunal in all the circumstances accepts the submission of Counsel for the Solicitor that the failure of the Solicitor to obtain authority for the monies transferred was the result of poor professional and business practices. It finds that there was a degree of inadvertence and there was no element of fraud or dishonesty on the part of the Solicitor. Two of the amounts were of a relatively minor order and the third payment of $4,000 was the most significant and cannot be described as a major amount. It would have been a simple matter for the Solicitor to seek at least oral authority from his clients and there was evidence that the Solicitor was subject to stress in his personal life at the time. The Tribunal accepts his evidence that he costed the work to which the $4,000 payment related but even if an account was prepared it seems clear that it was not sent to the clients. The Solicitor has been the loser in making the transfers without authority as he ultimately waived any claim on the retention of $6,000 by the firm which bought his practice which related to the $4,000 and the other monies. In the Bennett matter the Solicitor sought to rely on the fact that the settlement of the sale of his practice was imminent as an explanation for the payment by him to one beneficiary without making corresponding payments to other beneficiaries. The Tribunal cannot accept this as an excuse or a mitigating factor. Solicitors are confronted with pressures and changing situations as part of their daily professional lives. The sale of the practice does not in any way relieve a solicitor from his duty to carry out his professional services correctly and fairly and one would have thought that his obligations tended towards handing over matters in a state where he has done everything that should have been done rather than leaving undone something which required attention, under the guise of not wanting "to create too much of a radical change". The Solicitor has, the complaint aside, an unblemished record. His referees, two of whom are professional colleagues and two of whom have seen his work in solicitor/client relationships, speak well of him. The Tribunal does not consider that the fitness of the Solicitor to practise is in question and after observing the demeanour of the Solicitor as a witness, and considering the evidence of his referees, has formed the view that he is not likely to offend again. His Counsel invited the Tribunal to restrict his right to practise for a period of time as opposed to imposing a large monetary penalty on him. Having made a finding of professional misconduct the Tribunal is limited by Section 163(1) of the Act regarding the orders it may make. These do not include restricted practice, but they do allow an order that a practising certificate not be issued until the expiration of a specified period. In the special circumstances of this case the Tribunal is of the view that a period of suspension from practice is not the appropriate order and that a monetary penalty is appropriate. Orders The Tribunal therefore orders that:1. The Solicitor pay a fine of $2,000 within a period of 90 days from the date of this order.2. The Solicitor be suspended from practice at the expiration of the said period of 90 days if the said fine shall not have been paid, until it has been paid.3. The Solicitor pay the costs of the Law Society, such costs to be assessed on a solicitor and client basis as if taxed in the Supreme Court.4. If agreement cannot be reached between the Solicitor and the Law Society as to the amount of such costs, either party shall have liberty to apply. 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.