The Legal Services Tribunal of New South Wales CITATION : Alan Davis [1993] NSWLST 1 PARTIES : Alan Davis FILE NUMBER(S) : of CORAM: Mr D E Hunt (Presiding Member) - Mr A. Edgar - Mrs J. Bartos CATCHWORDS: Professional Misconduct - breach of s. 61 of the Legal Profession Act - Professional Misconduct - fail to act honestly - Professional Misconduct - misappropriate trust moneys/moneys :- LEGISLATION CITED: Legal Profession Act 1987 CASES CITED: DATES OF HEARING: 28/04/93 - 03/06/93 DATE OF JUDGMENT: 06/03/1993 LEGAL REPRESENTATIVES: Mr D. Hipsley JUDGMENT: The Legal Profession Disciplinary Tribunal In the matter of Alan Davis Determination and Orders Before: Mr D.E. Hunt (Presiding Member), Mr A. Edgar and Mrs J. Bartos Misappropriation of funds from trust account - Breaches of Regulation 8 and Sections 61 and 62 of the Legal Profession Act 1987 - Detailed consideration of facts notwithstanding admissions by the solicitor - Finding of professional misconduct - Solicitor's name removed from the Roll. Appearances: Mr D. Hipsley for the Law Society of New South Wales. The Solicitor appeared for himself. Hearing date: 28 April 1993 This complaint was made under Section 135 of the Legal Profession Act 1987 ("the Act") by the Council of the Law Society of New South Wales ("the Law Society") against Alan Davis ("the Solicitor"). Following receipt by the Law Society of a letter from the Solicitor dated 20 March 1992 the Law Society did on 24 March 1992 cancel the Solicitor's Practising Certificate on the grounds appearing in Sections 35(2)(b) and 35(2)(g) of the Act. On 25 March 1992 Jean Sayer, Chartered Accountant was appointed Receiver pursuant to the provisions of Section 92 of the Act of all property held by the Solicitor within the meaning of Section 91 of the Act. Following receipt by the Law Society of a report by the said Jean Sayer the Law Society on 3 December 1992 resolved that in its opinion the Solicitor may be guilty of professional misconduct and that a complaint be made to this Tribunal ("the Tribunal"). Particulars of the complaint against the Solicitor were: 1. The Solicitor wilfully contravened Section 61 of the Act 2. The Solicitor wilfully contravened Section 62 of the Act; 3. The Solicitor misappropriated moneys. Annexed to the complaint are set out detailed further particulars in relation to various matters handled by the Solicitor referred to in Ms Sayer's report dated 31 August 1992 ("the Report"). Leave was sought by the Law Society and leave was granted by the Tribunal to admit in evidence a Schedule of Amendments to the said further particulars. Copy of the Schedule of Amendments to the said further particulars is annexed hereto marked "A". On 25 January 1993 the Law Society forwarded to the Solicitor a letter attaching a copy of the further particulars referred to above requesting the Solicitor to endorse against each paragraph thereof the word "admitted" or "not admitted" as appropriate. By letter dated 10 March 1993 the Solicitor returned the copy of the further particulars all of which were marked "admitted" or "not admitted". In some instances qualifications were added by the Solicitor. During the course of the hearing a copy of the complaint with the further particulars annexed and the Solicitor's comments "admitted" or "not admitted" were admitted as evidence and became Exhibit "A". A statutory declaration of Frederick John Smith dated 29 March 1993 with annexures was admitted as Exhibit "B". The Schedule of Amendments to the further particulars to the complaint was admitted as Exhibit "A1". Two cheques, one being no. 507662 for $19,404.37 payable to Jonathan Baker and one being no. 146154 for $2,000.00 being bank cheque in favour of the Commonwealth Bank, both drawn on the Solicitor's trust account were admitted as Exhibit "C". The letter from the Solicitor to the Law Society dated 20 March 1992 together with a map of Beecroft was admitted as Exhibit "D". Counsel for the Law Society had prepared a schedule which cross-referenced each of the complaints with the page number in the Report and with the exhibit therein which was available to the Tribunal. Ms Sayer gave evidence that she was appointed Receiver of the Solicitor's practice on 25 March 1992 and she confirmed that she had prepared a the Report dealing with breaches of Sections 61 and 62 of the Act which were revealed in the Solicitor's trust records. Ms Sayer stated that the Report was in two parts, one part consisting of her analysis of the Solicitor's activities and the second part consisting of the exhibits from which she drew information to prepare part one of the Report. Mr Hipsley informed the Tribunal that there were three errors in cheque numbers in the Report and these errors were rectified with the consent of the Solicitor. Counsel for the Law Society referred Ms Sayer to page 15 of the Report in relation to the Solicitor's clients, M.C. Ziebell and Ms T.A. Dodd. Ms Sayer told the Tribunal that the Solicitor acted for Mr Zeibell and Ms Todd in respect of the purchase of vacant land at Primbee from Wollongong City Council, the purchase price being $10,500.00. Initially, the Solicitor forwarded his client's cheque for the deposit of ~$1,050.00 together with Agreement for Sale duly executed to the Solicitors for the Council but the Agreement was subsequently returned to the Solicitor together with the cheque as the Agreement for Sale was to be amended. Ms Sayer has been unable to trace the whereabouts of the cheque which was the clients' cheque. Subsequently, Agreements for Sale were exchanged on 27 May 1991 and the trust account cheque to cover the deposit was for the sum of $1,050.00. This cheque was debited to the trust ledger account of the Estate Van Bussel and represents a misappropriation of the funds of that Estate. Mr Ziebell and Ms Dodd received an advance from the IMB Building Society of $10,500.00. The net proceeds of the loan were $10,237.70 which was deposited to the Solicitors trust account on 25 June 1991 and credited to the trust ledger account of M.C. Ziebell and T.A. Dodd account no. 2921. Ms Sayer pointed out that on page 18 of the Report, she had listed amounts that were drawn as costs and debited to the trust account which also showed that at that stage the Solicitor had drawn in excess of the amount shown in the statement of $588.93. On page 20 of the Report Ms Sayer stated that she had dealt with the cheques drawn against the funds of Ziebell and Dodd and that each one represented a misappropriation of the amount of $10,237.70. For example, cheque no. 100807 dated 25 June 1991 was drawn payable to the Commonwealth Bank for $1,000.00 and was used to purchase a bank cheque in the name of K. Dodd. That cheque was actually re-deposited back to the trust account several days later on 1 July 1991, the deposit slip incorrectly showing that that cheque was drawn by T.G. Parker on the Commonwealth Bank at Oak Flats. The amount of $1,000.00 when deposited back to the trust account was credited to the trust ledger account of Brown and Szebak re Sale to Parker and Dunn. A receipt was issued in the amount of $1,000.00 and shown as received from Brown and Szebak and also shown as received prior to cheques drawn on the same day. The trust ledger account was actually in debit because the cheques were drawn and presented before that deposit was made on 1 July 1991. Ms Sayer stated that her investigations in relation to Brown and Szebak showed that there was a deficiency in that account. The Solicitor had received the deposit on the sale of $3,075.00 on 27 May and had drawn from those funds a cheque payable to a Mr L. Clark, a client of the Solicitor. That cheque for $1,000.00 was in fact a misappropriation of funds of those clients and was virtually made good by the re-deposit of the cheque from Ziebell and Dodd. Ms Sayer stated that the next cheque that she dealt with in her report was cheque no. 100864 in the sum of $2,000.00. The trust account ledger showed that cheque as payable to Paynes Real Estate. She found that the cheque drawn to Paynes Real Estate actually covered the deposit of other clients, Mr and Mrs R.J. Gallagher in respect of the deposit in relation to their purchase from Bott. Mr Gallagher has informed Ms Sayer that he paid a deposit of $2,000.00 in cash which was not deposited to the trust account. The next cheque was also in the sum of $2,000.00 and numbered 100886 dated 8 August 1991. The trust records showed it as being payable to the Commonwealth Bank of Australia account Ziebell & Dodd payment to your account. It was actually deposited to the Solicitor's general account. The next cheque no. 146120 dated 23 August 1991 was payable to Mrs N. Sheiler and the details given are "payment as per instructions". Ms Sayer pointed out that on page 22 of the Report she had dealt with that cheque, the amount being $1,478.73 and that in her report she had said it was paid to Mrs Scheiler as an amount due to her in respect of the Estate R.J. Kimmorley. She had established that there was a shortage in the trust account in that Estate. In effect, it was a misappropriation of the funds of Ziebell and Dodd to make good a shortage which existed in the Estate of Kimmorley. Ms Sayer indicated in her evidence which was also set out in the Report that Ms Dodd had informed her that the Solicitor had advised Ms Dodd that the proceeds of the loan from the IMB Society had been invested either with that Building Society or the Commonwealth Bank at Oak Flats. Ms Sayer also gave evidence in relation to the matter of Van Bussell which was referred to in page 47 of the Report. The Solicitor acted for a Mr Timbs who was the Executor of the Late G.L.J. Van Bussell who died on 14 January 1987. Probate was granted on 23 January 1989 and the assets of the Estate were shown in the inventory of property as totalling $32,498.25. It was made up principally of money invested with the IMB Building Society, life policies with the MLC and GIO, and taxation credits. In the Will there were certain specific bequests and the residue was divided up amongst numerous relatives of the deceased. The assets were all realised except for the estimated refund of income tax on 31.3.89 and totalled $29,606.10 which was held in the trust account. The Solicitor prepared a Statement of Account to the Executor which showed a balance temporarily invested with the Commonwealth Bank as at 22 December 1989 of $23,802.04. The accounts given to the Executor showed two amounts which did not relate to the Estate. One of the cheques dated 8 September 1989, no. 30201, was shown as payable to a Mr Timbs being reimbursement of monies paid on behalf of the Estate. In fact, on turning up the cheque it was established that the payee of the cheque was one S. Taylor, a person unknown to Ms Sayer. A second cheque for $250.00 was shown as payable to D. Merton for accountancy fees. There was no evidence in the instruction file of any contact made with D. Merton. The funds that were deposited to the Commonwealth Bank were withdrawn on 2 October 1990 and together with interest were re-deposited to the trust account in the total amount of $26,370.98. These funds were disbursed as follows: 2.10.90 Cheque no. 954079 payable to Commonwealth Bank stated as being for overseas bank drafts 11,771.75 2.10.90 Cheque no. 954081 payable to Commonwealth Bank stated as bank cheque to M Timbs for distribution 13,490.00 22.3.91 Cheque no. 659807 shown as payable to Brodie & Ward as payment for accountancy charges 1,050.00 6.5.91 Cheque no. 659893 shown as payable to Morris Hayes & Edgar as agency charges 59.23 $26,370.98 In fact Ms Sayer's investigation showed that the cheque for $11,771.75 covered a bank draft issued by the Bank for pounds sterling 5,139.28. The funds were remitted to the account of Mrs M. Hornsby with the Halifax Building Society representing a distribution made to her from the Estate Late W.M. Costello. There was a shortage of trust funds in that Estate. The $11,771.75 represents a misappropriation of the funds of the Estate Van Bussell to make good monies that had been appropriated from the Estate Costello. The second cheque no. 954081 also drawn on 2 October payable to the Commonwealth Bank, was shown as bank cheque to Mr Timbs for $13,490.00. Having obtained a copy of the cheque, it was shown that it was disbursed in respect of a Mr and Mrs D. Kirby in respect of their purchase of a butchery and was in fact by nature of an advance to Mr and Mrs Kirby who subsequently received an advance from Esanda. $13,500.00 was deposited into a building society account styled "A. Davis in trust for M.J. Timbs". The next cheque number 659807 dated 22 March 1991 shown as payable to Brodie & Ward was detailed as accountancy charges. It was in fact the deposit in the matter of Ziebell and Dodd and was paid to the solicitors for Wollongong City Council. The next cheque to Morris Hayes & Edgar was in fact paid to them but did not relate to that Estate. Ms Sayer established that there was a letter in the instruction file of the Van Bussell Estate requesting the issue of many bank drafts to the beneficiaries in the Van Bussell Estate, to the Bank, which letter is set out in full on page 51 of the Report but was never sent. In a letter to Mr Timbs dated 3 October the Solicitor states: "Again, as arranged, I obtained draft/cheques from my Bank today and I enclose them together with 26 photocopies of receipts one for signature by each of the various members of the family." Mr Timbs informed Ms Sayer that he received neither the letter nor the 26 bank drafts. The Bank informed her that it did not receive the letter and did not issue cheques listed in the letter quoted above and that the only foreign currency drafts issued on that date to the Solicitor were covered by the cheque for $11,771.75 for Mrs Hornsby. Further matters were dealt with by Ms Sayer in her evidence which showed a continuous history of transferring money from one trust account ledger to another where there was a deficiency as a result of money misappropriated from the latter account by the Solicitor. In her report, Ms Sayer stated that Mr Davis was admitted as a solicitor in the United Kingdom on 11 June 1963 and in New South Wales on 8 February 1980. He has practised as a sole practitioner since 1 July 1981. The Solicitor's trust account was kept with the Common~wealth Bank of Australia, Oak Flats branch and entries relative to the trust account were recorded in a Kalamazoo system. Ms Sayer found that there was a balance in the trust account at the date of receivership of $45,432.30 and these moneys were distributed by her in accordance with the rule in Clayton's case by reason of the shortage in the trust funds in that account. Ms Sayer found through her investigations up to the date of the Report that trust moneys had been misappropriated and numerous false entries made in the trust account records by the Solicitor commencing from at least mid-1988 up to late 1991. She stated that she had not at the time of the Report reported transactions prior to 1988. In the Solicitor's letter to the Law Society dated 20 March 1992 (Exhibit "D") he indicated that he had removed funds from his trust account and he listed seven matters where defalcations had occurred. Ms Sayer found that there were various other matters not mentioned in the letter where defalcations had occurred and false entries had been made. When questioned by the Chairman as to why Ms Sayer had not investigated the Solicitor's trust account records prior to 1988, Ms Sayer stated: "In this matter, as is obvious from the report, it was necessary to turn up paid cheques. The entries in the trust account were frequently false and so the only way of establishing whether or not a client got her cheque was to get the paid cheque and the banks just don't have the cheques going back beyond, I had trouble with cheques in 1989 and 1988 and the other situation is also that in this particular matter the shortage keeps moving on, like robbing Peter to pay Paul, and so it is the people at the end, and so I only go back far enough to cover and to be able to deal with the people who have actually lost money. In other words you could be rolling over for any number of years and in the end when things stop, the last clients are those who have suffered a shortage, and so I really generally only go back sufficient to have covered all of the misappropriations which will affect the claims". The Chairman put the following question to Ms Sayer: "I think you have told us, Ms Sayer, that although you haven't made a calculation yourself as to the amounts that appear individually in your report as being misappropriations from the various clients, you have ascertained that there are claims on the Fidelity Fund of $118,232.00?" Ms Sayer replied: "Yes, we were expecting claims. The report was virtually written in mind to enable the Law Society to deal with the claims against the Fidelity Fund and the Law Society is expecting claims for the amounts which exclude interest and so would the totals of the claims. If the clients are entitled to any interest that wouldn't be included in that figure and in some circumstances, interest does run on claims against the Fidelity Fund." The Solicitor gave sworn evidence. His answer to the first question by the Chairman was as follows: "Yes, I accept that, in the bulk, Ms Sayer's report is correct. It is one of these things that started with something very small and rather like a snowball rolling down a hill." He gave evidence that from about August 1987 he consulted his general practitioner, Dr R.K. Singh, in relation to constant headaches, neck pain, inability to concentrate and constant fatigue that he was suffering. The doctor's report, dated 15 April 1993, was tendered by the Solicitor and was admitted as Exhibit 1. The report showed that the Solicitor saw his doctor on a regular basis and that he was admitted to Shellharbour Hospital on 11 January 1992 for acute coronary artery disease. In cross-examination by counsel for the Law Society, the Solicitor was asked the following question: "You are not suggesting that the medical condition caused you to do the things that you have done?" The Solicitor answered: "I am not saying that the medical condition caused me to do it. I am saying that the medical condition was such that it impaired my judgment." In answer to a further question: "You knew what you were doing was wrong I take it?" The Solicitor answered: "Yes." In further evidence, the Solicitor stated that he was married but had been separated since September 1989. He has five children aged from 24 down to 12. He further indicated that since his heart attack, he had been unable to find employment and that he was bankrupt. He was now living on unemployment benefits. He gave evidence that in 1987 he had a practice that had about 300 current files. When asked about his abilities to earn a living from those files in 1988, he stated "It would have only been mediocre. It would have been enough to keep the family on and that was about it." In answer to a question from the Chairman: "Might that have been some reason why, as you put it, you stepped across the line?", the Solicitor answered: "Yes, I think it was. I don't gamble, I'm only a social drinker, I haven't sort of got any bad habits, it was a case of - yes, it was a case really I suppose, of survival." The Chairman put a further question to the Solicitor: "What I am putting to you is this, for instance, when you would draw a cheque for a bank cheque and re-bank it into trust, and use it for purposes other than the purposes of the client, the entries in the book were designed to cover up that situation, were they not?" The Solicitor answered, "Yes, they were. I am saying I have acknowledged that I have done this but I do say that such was the state of my mind that sometimes, even now, I cannot remember doing such things but I accept that they were done." Counsel for the Law Society submitted that the actions of the Solicitor in making the defalcations in relation to his clients were wilful in that the way in which the money was moved around and moved back into accounts to make sure that in some way at least on paper they balanced, was really quite sophisticated. The Solicitor in reply stated that the first draft of the letter of 20 March 1992 was prepared in January prior to his heart attack. The actual letter was not sent until he had recovered. By that time, his practice had been taken over by another firm and the defalcations were certain to be discovered. Clearly the defalcations by the Solicitor were causing him immense mental trauma over a period of years but the Tribunal is not in a position to determine whether or not the Solicitor really intended to notify the Law Society of his actions prior to his heart attack. The Solicitor indicated in his submissions that he seeks the removal of his name from the Roll. In relation to the orders sought by the Law Society that he be ordered to pay its costs in these proceedings, the Solicitor requested the Tribunal to bear in mind the contents of his letter of 20 March 1992, that he offered assistance in any enquiries the Society undertook and that the latter offer was not taken up. The Solicitor has made defalcations of money entrusted to him by his clients in excess of $100,000.00. The Solicitor's conduct can only be regarded as disgraceful and dishonourable. The Tribunal finds that the Solicitor is guilty of professional misconduct and that he is clearly not a fit and proper person to remain in practice and that his name should be removed from the Roll. The Tribunal therefore orders that: 1. The name of Alan Davis be and the same is hereby removed from the Roll of Solicitors in New South Wales. 2. The costs of the Law Society be assessed as if taxed by the Supreme Court on a solicitor and client basis and paid by the Solicitor to the Law Society or its solicitor Mr Frederick John Smith. 3. If the costs of the Law Society cannot be agreed between the parties either party to have liberty to apply so that the amount of these costs may be determined by the Tribunal. Dated the 3rd day of June 1993. 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.