The Legal Services Tribunal of New South Wales CITATION : John Baptist Malfanti [1991] NSWLST 15 PARTIES : John Baptist Malfanti FILE NUMBER(S) : of CORAM: Mr G Williams (Presiding Member) - Mr D. Mahon - Ms A Plotke CATCHWORDS: Professional Misconduct - mislead client - Professional Misconduct - mislead Law Society/Bar Association/LSC - Professional Misconduct - mislead Investigator - Professional Misconduct - breach of s. 61 of the Legal Profession Act :- LEGISLATION CITED: Legal Profession Act 1987 CASES CITED: DATES OF HEARING: 19/02/90 - 18/05/91 DATE OF JUDGMENT: 05/18/1991 Mr G.L. Lindsay LEGAL REPRESENTATIVES: Ms Rosemary MacDougal Mr P. Roberts Messrs Horowitz & Bilinsky JUDGMENT: THE LEGAL PROFESSION DISCIPLINARY TRIBUNAL IN THE MATTER of JOHN BAPTIST MALFANTI ORDERS AND REASONS FOR determination Before: Mr G.L. Williams (Presiding Member), Mr D. Mahon and Miss A. Plotke Appearances: Mr G.L. Lindsay instructed by Ms Rosemary MacDougal appeared for the Law Society; Mr P. Roberts instructed by Messrs Horowitz & Bilinsky appeared for the Solicitor. This complaint against the conduct of John Baptist Malfanti (sometimes referred to as John Baptiste Malfanti) (the Solicitor) was made to the Legal Profession Disciplinary Tribunal (the Tribunal) pursuant to the provisions of Section 135 of the Legal Profession Act 1987 by the Council of the Law Society of New South Wales (the Society). The complaint is dated 31 July 1989 and in it the Society seeks such order as the Tribunal shall deem fit and orders relating to costs upon the following grounds: 1. The Solicitor failed to obtain any security for a loan from his clients Sam and Haifa Kabbara to his client McNamara, 2. The Solicitor has deliberately misled his clients Sam and Haifa Kabbara, 3. The Solicitor has misled the Society in that he informed the Society that an amount of $50,000.00 was paid to him for the purchase of shares which he did not own in International Food Technology Limited, 4. The Solicitor misled the Investigator appointed by the Society, 5.The Solicitor misled Messrs. Hunt & Hunt as solicitors for Sam and Haifa Kabbara, 6.The Solicitor misled the Society in relation to a sum of $10,000.00 given to him for investment on behalf of Sam and Haifa Kabbara, 7.The Solicitor wilfully breached Section 41 of the Legal Practitioners Act, 1898 and Section 61 of the Legal Profession Act, 1987, 8.The Solicitor intermingled his own funds with those of his clients, 9.The Solicitor failed to obtain adequate security from one client for moneys loaned by the Solicitor on behalf of other clients, and 10.The Solicitor preferred the interest of his client Oayda to that of his client Olga May Henman. The complaint was heard by the Tribunal on 19, 20 and 21 February and 14 March 1990. Oral evidence was given by: (i) Jean Sayer, the Investigator appointed by the Society to investigate the affairs of the Solicitor, (ii) James Sofiak, a Trust Account Inspector employed by the Society, (iii) Haifa Kabbara, (iv) Yahya Sam Kabbara, (v) Issam Oayda, and (vi) the Solicitor. The written evidence before the Tribunal included: (i) Statutory Declaration of Nigel Norman Mainwaring dated 31 July 1989 with certain annexures including copies of reports by Jean Sayer dated 16 September 1988 and James Sofiak dated 10 August 1988, (ii) Jean Sayer's Report dated 16 September 1988, (iii) Statutory Declaration of James Sofiak dated 1 June 1989, (iv)District Court File on proceedings No. 10050 of 1988 between Sam Kabbara and Haifa Kabbara as plaintiffs and the Solicitor as defendant together with a Deed of Release in connection with such proceedings, and (v) Copies of certain pages and cards from the Solicitor's Trust Account and Journal. Grounds 1 6 of the complaint all relate to transactions between the Solicitor and Mr and Mrs Kabbara and Mr Oayda. It is alleged that in April 1985 the Solicitor received a bank cheque for $50,000.00 from the funds of his client, Mrs Kabbara, drawn in favour of M. McNamara, another client of the Solicitor, for a loan to the latter client, that he deposited that cheque to a bank account of Michael McNamara but did not obtain any security with respect to the loan of that money and did not follow instructions to obtain an agreement for the payment of interest thereon. Evidence as to this transaction was given by Mr and Mrs Kabbara, Mr Oayda and the Solicitor. Mr Oayda was a long time friend of Mr and Mrs Kabbara and he introduced them to the Solicitor (whom, he said in his evidence, he had then known for over 10 years) who was his solicitor and also a business associate and he recommended the Solicitor and when asked about the $50,000.00 transaction he said: The $50,000, actually he didn't put the money with John Malfanti on investment money. The $50,000 has been brought shares from that food company. In cross examination he confirmed this in answer to a question from Mr Roberts: Question: Yes, and in relation to the $50,000, the $50,000 as you understood it was for the purchase of shares...? Answer:Not as I understood it, I said it. Question: It was? Answer:Yes. Question: And you understood, didn't you, from what the Kabbaras told you that they changed their mind and wanted the money back? Answer:That's right. Mr and Mrs Kabbara's evidence did little or nothing to indicate the true nature of the transaction and the Tribunal preferred the evidence of the Solicitor that he had prior to the $50,000,00 transaction in April 1985 accepted $10,000.00 from Mrs Kabbara for the purchase from him of shares in International Food Technology Limited (IFT) but had later refunded that amount to Mrs Kabbara in February 1985 after she had changed her mind and Mr Oayda had pleaded with him to give she money back. Subsequently the Solicitor saw Mr Oayda and Mr and Mrs Kabbara socially and the topic of investing in IFT arose again on several occasions at Mrs Kabbara's initiation culminating in Mrs Kabbara deciding to pay $50,000.00 for shares in IFT. The Solicitor either directly or through Mr Oayda asked for the $50,000.00 bank cheque to be paid to Mr McNamara from whom the Solicitor was in the course himself of purchasing further shares in IFT. That cheque was given by the Solicitor to Mr McNamara's solicitors. It is appropriate here to pause and analyse the relationship which existed between the Solicitor and Mr and Mrs Kabbara. It seems clear that a solicitor/client relationship existed between the Solicitor and Mr Oayda but the evidence as to such a relationship between the Solicitor and Mr and Mrs Kabbara leaves the Tribunal in no doubt that such a relationship did not exist. That evidence was: Mrs H. Kabbara The only pertinent evidence from Mrs, Kabbara is as follows and this offers little help to resolve the question: Question: All the discussions that you had with Mr Malfanti occurred either at social gatherings or at your house, is that right? Answer: Yes. Question: Did you know that Mr Malfanti was a solicitor? Answer: Yes. Question: How did you know that, who told you? Answer: From the first time I met him I knew he was a solicitor through Mr Oayda. Mr S. Kabbara Question: In all events in connection with the investment of $50,000 did you regard Mr Malfanti as your solicitor? Answer: Doesn't matter to me anything, if solicitor or not. The problem is Mr Oayda. Question: Did you rely on Mr Oayda? Answer: Yes, because Mr Oayda and Mr Malfanti partner. I gave to invest money with them when I saw him bought a thousand of shares from this company. Question: Did you regard Mr Malfanti as your solicitor in connection with the $10,000 investment? Answer: $10,000 I gave to Mr Oayda and Oayda invested for us. Question: In connection with that $10,000 investment did you regard Mr Malfanti as your solicitor? Answer: No, not my solicitor at all. and later Question: Did Mr Malfanti do any professional work for you as a solicitor in any other transaction? Answer: No. Question: Did he ever make a will for you? Answer: No. Question: Did he act when you bought your home, when you purchased your home? Answer: No I was only met him at that time. Question: Have you ever paid any costs to him, any legal costs? Answer: No. Question: Did he ever send you a bill for any work? Answer: Not at all. Question: With the investment did you ever see him in his office? Answer: I never visit him. Question: Has he ever seen you in your home? Answer: Yes. Question: He has visited you in your home, has he? Answer: Yes. Question: For what purpose was that? Answer: I think talking about the money. My wife, because I all the time ask him about my money, I need my money back, I want to build up something, I need furniture, so on and so on. One day Mr Oayda and Mr Malfanti visit us at my place and we talking about the money. Yes he visit us. Question: Did you regard him as being your solicitor? Answer: No regard him as my solicitor at all. Question: Have you consulted any other solicitors yourself? Answer: No. Question: You obviously had somebody else representing you when you bought your home. Who, Mr Malfanti? Answer: No not to him at all. I never met him in that time. Question: You saw another solicitor? Answer: Yes, another solicitor, yes, of course. Question: Are you aware whether your wife had consulted Mr Malfanti about any other matter? Answer: Most of the time he would ring my wife or sometimes she gave him ring and ask him about money by herself, you know. Question: Any other matter though in relation to any other matter, a will or any other legal matter? Answer: No nothing at all. Mr Malfanti Question: Did you at any stage in your mind act as solicitor for the Kabbaras? Answer: Not in my mind. Question: At one stage were you asked something about a swimming pool by Mrs Kabbara? Answer: Yes, when I went to visit them at their home I think it may have been Mrs Kabbara asked me she had a bit of a problem with the swimming pool people who had just built the pool. I don't know whether it was a pool or the pump or something to do with at and I suggested that she see a solicitor about it. and later Question: Did you ever regard either Sam or Haifa Kabbara as your clients? I have asked you this before but I am asking you it again? Answer: No, I will say again no. and later Question: Do you say to the Tribunal that you had no obligations of any sort to Mr and Mrs Kabbara by reason of your not having a solicitor/client relationship with them? Answer: No, I don't think I had any obligations other than that of a friend towards another friend. There was nothing professional, at least in my opinion, about it. It is true that the Solicitor did deposit moneys received from Mr and Mrs Kabbara in his Trust Account in an account titled (MALFANTI T/F) HAIFA-IFT but in his evidence the Solicitor explained this by indicating that he had done this merely to keep a record of the transaction. There is no doubt that the $50,000.00 transaction would, had a solicitor/client relationship existed between the Solicitor and Mr and/or Mrs Kabbara, have constituted professional misconduct. In the absence however of that relationship the Tribunal does not consider that the Solicitor's conduct constitutes professional misconduct. This is not to say that his conduct is endorsed as fair and reasonable by the Tribunal, it was certainly not that. In relation to Ground 7 (Particulars (a) and (b) it is alleged that on 21 December 1984 the Solicitor received the sum of $10,078.00 on account of Sam and Haifa Kabbara being money given to him for investment and applied that money for his own use and benefit. In his evidence the Solicitor stated that a sum of $10,000.00 was on or about 23 November 1984 paid to him by Mr and Mrs Kabbara for the acquisition of shares which the Solicitor owned in IFT. The Solicitor stated that he was hesitant about cashing the $10,000 00 personally and he thought he would give Mrs Kabbara a chance to change her mind and accordingly he placed the money with Australian European Finance Corporation (AEFC) pending whether she was going to change her mind or not. In his evidence the Solicitor stated that at that time he had approximately 2,000,000 shares in IFT and when he deposited the $10,000.00 in AEFC he considered that the moneys were his. By 21 December as he had not heard from Mrs Kabbara as to any change of mind he transferred the funds together with interest to his Trust Account so that he could have a record of the transaction and he thereafter spent part of the money. It was only after representations from Mr Oayda to allow Mrs Kabbara to change her mind that he refunded that amount to her on 4 February 1985. The Tribunal accordingly is of the view that the ground thus far pleaded does not substantiate a breach of Section 41 of the Legal Practitioners Act. Inasmuch however as the ground goes on to allege (in Particulars (c) and (d)) the undermentioned debits in his Trust Account which were not satisfactorily explained by the Solicitor the Tribunal finds a breach of Section 41. The first related to accounts styled Malfanti Account/Suspense Account and Malfanti Capital Adjustment Account in the Solicitor's Trust Account which were in debit and remained in debit from time to time particularly from 4 February 1985 to 28 February 1985 and from 1st September 1985 to 3 January 1986 for varying amounts up to $694.49. The second related to the account in the Solicitor's Trust Account with regard to the sale of Michael McNamara to Perrotet which was in debit in the sum of $565.00 from 17 May 1985 to 30 May 1985. In relation to these two debit balances the Solicitor sought to justify the shortages by explaining that they were covered by other moneys in another account. That other account was a savings account styled 'J.B. Malfanti trust account with a different bank namely the National Australia Savings Bank Brookvale. The Solicitor conceded that he did not maintain any records complying with the Trust Account Regulations in relation to this account because he thought there was no need for it. The Tribunal takes the most serious view of the Solicitor's naive attitude and blatant departure from his obligations in relation to the maintenance and operation of his trust account. It follows that the Tribunal finds this breach of section 41 to be wilful. It was also alleged (Particular (e)) that an amount of $1,000,. was transferred in the Solicitor's Trust Account from an account styled Doueihi and Ors. to Isaac to the Malfanti Capital Adjustment Account on 4 February 1985 without the authority from the client. The Solicitor's evidence was that he had authority from the client to do this and, in the absence of any evidence to the contrary, the Solicitor must be given the benefit of the doubt in this connection. In Ground 8 it is alleged that the Solicitor conducted his own accounts which he called Malfanti Capital Account/Suspense Account and Malfanti Capital Adjustment Account' within his Trust Account and from the evidence given by the Solicitor it is obvious that he was using accounts within his Trust Account eo make various payments which should normally be paid through his Office Account. When this was called to the Solicitor's attention by the Trust Account Inspector Mr Sofiak the Solicitor stated that he had already (in August 1988) stopped doing this. The maintenance of these accounts within the Trust Account clearly offends the principles laid down in Johns case and the Tribunal finds the ground proved. Indeed the Solicitor acknowledged that it was only a couple of days prior to the third day of the hearing that he had been made aware of the judgment in Johns case. Ground 9 alleges that the Solicitor failed to obtain adequate security in relation to a contributory mortgage which was entered into in the name of the Solicitor on behalf of clients Oayda, Doueihi and Oseen in addition to himself. The Solicitor was able to produce no evidence as to the stamping of the security and freely acknowledged that it had not been registered. Although there was quite some discussion as to the necessity and desirability of registering old system mortgages the Tribunal is quite satisfied that the security obtained was inadequate and it finds the ground proved. Ground 10 relates to the same security and alleges that the Solicitor preferred the interests of his client Oayda to that of his client Olga May Henman when the latter's funds of $70,000.00 were provided to pay out the contributory mortgage. In his evidence Mr Oayda indicated that he had received $55,000.00 being his share of the contributory mortgage and he identified his written acknowledgement of this. In the particulars in support of Ground 10 it is stated that the original mortgage (the stamping of which was not evidenced and the non registration of which was acknowledged by the Solicitor) was not discharged when the new mortgage to Mrs Henman was given. The Solicitor said that the contributory mortgage was destroyed, in his words: I destroyed it, cancelled it. I don't know whether I tore it up yes, I think I tore it up. I usually burn my own papers. There has been no other evidence on the matter and the Tribunal accepts the Solicitor's evidence but in so doing is obliged to note with disfavour the Solicitor's unprofessional and unbusinesslike practice. Although it is only in relation to Grounds 7(c) and (d), 3 and 9 that it finds the Solicitor guilty of professional misconduct the Tribunal considers that his conduct in the other matters cited has been clumsy and unbusinesslike. In all the Solicitor's fitness to continue in practice has, to a serious degree, been called into question and the Tribunal has not been assisted by any character evidence whatsoever in support of the solicitor. The Tribunal believes that such conduct or misconduct approaches but does not reach the stage where a protective order should be made but warrants a serious penalty. It trusts that the Solicitor will in the future pay conscientious attention to all of the types of matters where in these proceedings his conduct has been called into question. Orders The Tribunal therefore orders: 1. That the Solicitor be fined the sum of twelve thousand dollars ($12,000). 2. That the said sum be paid within three (3) months from the date of this order and that thereafter the Solicitor be suspended from practice until the said fine be paid. 3. That the Solicitor pay the costs of the Society such costs to be assessed on a solicitor and client basis as if taxed in the Supreme Court. and 4. That if agreement cannot be reached between the Solicitor and the Society on the amount of costs either party shall have liberty to apply. Dated this 8th day of May 1991. 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.