New South Wales Supreme Court CITATION : Wardell v New South Wales Bar Association [2002] NSWSC 548 FILE NUMBER(S) : SC 13750/01 HEARING DATE(S) : 06/05/02, 07/05/02, 08/05/02, 09/05/02 JUDGMENT DATE : 3 July 2002 PARTIES : Plaintiff: Timothy Macarthur Wardell Defendant: Council of The NSW Bar Association JUDGMENT OF : Cripps AJ at 1 COUNSEL : Plaintiff: P Brereton SC Defendant: S Robb QC and M McCulloch SOLICITORS : Plaintiff: Deacons Defendant: Hicksons CATCHWORDS : Barrister - Bankrupt - Fit and proper to hold a practising certificate - Relevance of character LEGISLATION CITED : Bankruptcy Act 1996 (Cth) Legal Profession Act 1987 (NSW) Brigginshaw v Brigginshaw (1938) 60 CLR 336 CASES CITED : Zeims v Prothonotary of Supreme Court of NSW (1957) 97 CLR 279 NSW Bar Association v Murphy (unreported) 2002 NSWCA 138 Murphy v NSW Bar Association (unreported) 2001 NSWSC 1191 DECISION : Appeal dismissed; Mr Wardell's practising certificate to be cancelled; Each party to pay their own costs - 3 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION Cripps AJ 3 July 2002 13750/00 Timothy McArthur Wardell v New South Wales Bar Association JUDGMENT 1 His Honour: On 16 November 2001, the Bar Council resolved that Mr Wardell's practising certificate be cancelled effective from midnight on 23 November 2001. 2 On 6 December 2001, by summons, Mr Wardell applied to the Supreme Court for an order that the decision of the Bar Council be set aside and for a declaration that Mr Wardell is a fit and proper person to hold a practising certificate. 3 Mr Wardell was declared bankrupt on 9 March 2000, on his own petition, following rejection by his creditors (the largest of which was the Australian Taxation Office (ATO)) of a proposal to enter into a scheme of arrangement pursuant to Part X of the Bankruptcy Act 1996 (Cth). 4 On 2 April 2001, Mr Wardell notified the Bar Council of his bankruptcy and forwarded to it a statement setting out why, despite his bankruptcy, he was a fit and proper person to hold a practising certificate. On 11 October 2001, the Bar Council forwarded to Mr Wardell an interim draft report of the Committee, which recommended cancellation of his practising certificate. Thereafter, Mr Wardell made certain submissions to the Bar Council and one was made on his behalf by Senior Council. 5 The Bar Council's interim report was forwarded to the Chief Judge of the Compensation Court, who wrote to the Bar Council informing it that Mr Wardell had practised extensively before the Compensation Court for a number of years during which time he had earned the trust of the Judges "who regard him as frank, reliable and entirely trustworthy". 6 The Chief Judge referred to the draft interim report of 11 October, (which His Honour said had been read by three other senior Judges) and continued, "While we find the material therein sad and disappointing, having regard to our long experience with Mr Wardell as counsel appearing before us, we are confident that he will continue to have the trust of the Judges in any future practise before this court". 7 The Committee forwarded a further report to the Bar Council on 13 November 2001. It recommended that: "The Bar Council decide that for the purposes of s38FE (1)(b) of the Legal Profession Act 1987 (NSW), (the Act) that the barristers statement pursuant to s38FB has failed to show that he is a fit and proper person to hold a practising certificate". 8 On 16 November 2001, the Bar Council resolved as follows: "For the reasons expressed in the report dated 11 October 2001 and the revised report dated 13 November 2001, and having considered the alternatives expressed in the report dated 13 November 2001, and having further considered a letter from the Honourable Justice Campbell date 19 October 2001, and letters from the barrister dated 19 October 2001 (and annexures, including submissions by Brereton SC), 6 November 2001, 9 November 2001 (minus annexures) and 12 November 2001, the Bar Council resolve, for the purposes of s 38FE(1)(b) of the Legal Profession Act 1987 (NSW), that the barristers statement pursuant to s38FB of the Act has failed to show that he is a fit and proper person to hold an practising certificate. Further resolved, that the practising certificate of Timothy McArthur Wardell be cancelled, effective from midnight Friday 23 November 2001 to enable the proper arrangement of the barristers affairs." 9 Subsequently, the solicitors for the Mr Wardell wrote to the solicitors for the Bar Council requesting, in accordance with s 38FE (2) of the Legal Profession Act that it state its reasons for determination. On 27 November 2001, the Bar Council's solicitors informed the solicitors for Mr Wardell that the reasons for the Bar Council's resolution were to be found in the reports of 11 October 2001 and 13 November 2001, which had been made available to Mr Wardell. 10 When the proceedings commenced on 6 May 2002, submissions were made by Mr Brereton SC on behalf of Mr Wardell and responded to by Mr Robb QC on behalf of the Bar Council concerning the meaning and application of provisions of the Legal Profession Act. It was submitted, for example, that the Bar Council misunderstood its function in determining, as it apparently did, that in all the circumstances it was entitled to take the action it did pursuant to s38FE (1)(b) in the course of which it, in effect, cast an onus on Mr Wardell to establish that he was a fit and proper person and that his failure to discharge that onus resulted in a cancellation of his practising certificate. It was also submitted that the Bar Council failed properly to state its reasons for the determination it made and hence was in breach of its obligation under s38FE (2) of the Act. 11 On 13 May 2002, the Court of Appeal heard an appeal from the Bar Council from a decision of McClellan J upholding an appeal by a barrister against the cancellation of his practising certificate (see Murphy v NSW Bar Association NSWSC 12 December 2001(unreported)). The appeal raised for consideration a number of matters the subject of submissions by Mr Brereton SC and Mr Robb QC. 12 In the course of His Honours judgment, McClellan J expressed the opinion that the test for determining lack of fitness and propriety in the context of bankruptcy was whether the indebtedness which led to the bankruptcy was brought about or associated with "dishonest conduct by the barrister". His Honour then explained what was meant by the word "dishonest". 13 On 28 June 2002, the Court of Appeal published its judgment (NSW Bar Association v Murphy (unreported) 2002 NSWCA 138). It dismissed the appeal of the NSW Bar Association. In doing so, it held the Bar Council to be in error in purporting to exercise its powers under s38FE (1)(b) of the Act. It thereupon determined for itself, there being no dispute as to the findings of fact made by McClellan J, whether it was satisfied that the barrister was not a fit and proper person to hold a practising certificate and it concluded that it was not so satisfied. 14 The parties in the proceedings before me accepted that the appeal was a hearing de novo and that it was my function to make the decision the Bar Council could and should have made. I do not understand a submission to have been made that because the Bar Council purported to exercise a power under s 38FE(1)(b) its decision was in law a nullity. This case has strong similarities with Murphy's case. Neither the Supreme Court at first instance, nor the Court of Appeal, determined that the Bar Council's decision was a nullity. Rather, both McClellan J and the Court of Appeal dealt with the matter de novo (the Court of Appeal, however, accepting McClellan J's findings of fact which were not disputed by the NSW Bar Association). In making his submission concerning 38FE(1)(b) Mr Brereton made it plain that he was concerned to ensure that the court did not approach the matter on the assumption that Mr Wardell to establish that he was a fit and proper person to hold a practising certificate and I have not done so. 15 In Mr Brereton's written submission, made after the publication of the Court of Appeal's judgment in Murphy, so much was made clear. He submitted that although the Bar Councils discretion must have miscarried because it misunderstood the power which it was exercising, the appeal before me was a hearing de novo, the Bar Council accepting that I had to determine the matter pursuant to s38FC and not s38FE of the Act. He maintained, however, that that circumstance meant that the Bar Council never expressed the opinion that Mr Wardell was not a fit and proper person to hold a practising certificate. I think I am entitled to conclude that the Bar Council is of the opinion that Mr Wardell is not a fit and proper person to hold a practising certificate. That was the case strenuously pressed by it during the hearing. In my opinion, there is substance in Mr Brereton's submission that the Bar Council did not give proper reasons for its decision. Nonetheless, the Bar Council has, before me, expressed a positive view before me concerning the matter, and has done so by reference to arguments on the undisputed facts. Mr Brereton appeared to suggest that for me to attach any weight to the Bar Councils statement from the bar table would be unfair to his client because it denied Mr Brereton the opportunity of cross-examining members of the Bar Council. I do not think this submission can be accepted. (I should also mention that when that submission was made I raised whether I should adjourn the proceedings to give the Bar Council the opportunity to make a formal resolution. Neither party wanted to do that.) 16 I make it clear, however, that although weight must attach to the view of the Bar Council, in the last analysis, it is for me and not the Bar Council to determine whether it has been established to the appropriate standard that Mr Wardell is not a fit and proper person to hold a practising certificate. 17 Mr Wardell was born on 17 August 1958. He was admitted to the Bar on 1 September 1983. Like many young barristers, he earned very little in his first four or five years of practice. In June 1988 his taxable income was approximately $44,000 and he incurred a tax liability of $15,000. He had been in arrears with his tax prior to that but had paid. From 1989 onwards, his income increased, as did his indebtedness to the ATO. As will be seen he remained indebted to the ATO until his bankruptcy in March 2000. For the year ending June 1999 his taxable income was $338,000 and for the year ending in June 2000 his taxable income (including the period from March to June) was $303,000. During the period of his practise at the Bar he earned in all approximately $3,500,000 and incurred primary and provisional tax liability of approximately $941,281. 18 At the time of his bankruptcy, his financial position as shown in his statement of affairs was that he had assets of approximately $193,000 and liabilities of $1,161,589. His principal debtor was the ATO, to whom he owed $1,055,656. 19 As I have said, his tax liability escalated with increasing income. In 1989 it was $97,000. By 1996 it was $240,650 and, as I have said, in the year prior to his bankruptcy it was $338,771 and up until March of 2000 it was $205,920. During the whole period, Mr Wardell paid the sum of approximately $292,000. During the last three years, except for a modest payment of $17,764 Mr Wardell made no payments to the ATO, notwithstanding that during those years he earned a substantial taxable income. 20 In 1994, the ATO commenced legal proceedings against Mr Wardell for unpaid taxes (plus interest and penalties) and after Mr Wardell failed to honour what he has described as an onerous payment schedule, judgment was entered in June 1996. In April 1998, the ATO served a bankruptcy notice. In September 1999 it served another. 21 Throughout the period Mr Wardell remained in contact with the ATO. He gave a number of undertakings to pay, few of which were honoured. 22 Mr Wardell does not dispute the figures. However, Mr Brereton has submitted that the source of Mr Wardell's financial problems was to be found in incompetent management early in his professional life. As a result, as the years progressed, he accumulated what was described as a "practically insurmountable problem" (by the early nineties) with the result that he "put his head in the sand about it". 23 Before dealing with what I regard as the real issue in this appeal, I record the following: · Mr Wardell, at the time of his bankruptcy and for many years before, was a successful and competent barrister in his specialised field. · He had the confidence of senior members of the profession and, as well, of the Judges of the Compensation Court. · Fellow practitioners spoke of his trustworthiness in his dealings with them and to their belief that he had always acted with honesty and integrity. · He regularly furnished income tax returns as required by law (although some were lodged late). It is not alleged that he has committed any offences under the taxation laws or, for that matter, other laws. · He has not been guilty of "tax evasion" as that expression is relevantly understood. He sought tax deductions in his returns in 1995, 1996 and 1997 arising out of a cattle breeding scheme which were disallowed by the ATO, but it has not been suggested that his conduct in this regard amounted to tax evasion. · He has not disposed of assets for the purposes of quarantining them from his creditors. 24 As is apparent, Mr Wardell had an income far in excess of that required to meet ordinary living expenses. A considerable amount of money was spent on what has been called "discretionary lifestyle choices". These include annual overseas holidays and, at least since 1997, heavy gambling. Some attempt has been made to downplay what might appear to be described as a lavish lifestyle. It was said, for example, that some of the trips to Barbados were paid for by the accumulation of frequent flyer points. But none of the explanations given gainsay that, from the early nineties onwards, he had a good income, and money that should have been used to reduce his indebtedness to the ATO was used for other purposes. He has said that he had an expectation in 1996 that the Prudential Insurance Company would acquire his chambers, giving him a large capital profit. However, that expectation was based on mere rumour, and in fact Mr Wardell knew by mid 1997 that the Prudential purchase and his consequent windfall profit was not going to eventuate. 25 Two psychiatrists (who saw Mr Wardell in early 2002) gave evidence. One on behalf of the plaintiff and one on behalf of the defendant. So far as I can see there was little difference between them. One suggested Mr Wardell might then be suffering a minor major depression and the other, a major minor depression. That, it would seem to me, was a distinction almost without a difference bearing in mind the issues to which their opinions were directed. But however that may be, I accept that Mr Wardell was, when he was seen in the early part of 2002, depressed, and I infer that his depression preceded for some time his first psychiatric consultation. But I do not accept the psychiatric evidence as establishing exculpating circumstances. Mr Wardell has said that from 1997 onwards he became a very heavy gambler. But heavy gambling is not a mental illness and although the words "compulsive gambler" are sometimes used they do not connote an inability to stop gambling or an inability to appreciate the consequences of gambling. It must also be recalled that during the period he was gambling heavily, he was also efficiently conducting a practice in the Compensation Court with, according to the evidence which I accept, competence and, in his dealings with the Bench and other members of the profession, with integrity. 26 In evidence, Mr Wardell said that it was never his intention not to pay his tax. I have no reason to doubt that at the time Mr Wardell expressed that opinion it was one that he honestly held. But, in my opinion, it defies common sense to conclude that during the period he was spending large sums of money on discretionary lifestyle pursuits, he knew otherwise than that the money spent was money denied to the ATO. 27 Mr Brereton has submitted that although Mr Wardell's conduct could not be described otherwise than "conduct deserving of disapproval" it was not conduct rendering him unfit to hold a practising certificate. 28 Mr Brereton has endeavoured to separate motives of avoiding tax from "a need or desire to spend money in the present rather than save it to pay in the future". He does not dispute that objectively it is obvious that the consequence of the conduct engaged in by Mr Wardell would result in non-payment of tax indebtedness. But he disputes that his conduct should be characterised as "deliberate" in the relevant sense because he hoped, in effect, that something might happen (as for example the rumoured Prudential buyout) which would result in him being able to pay his debts at some unspecified time in the future. 29 The Bar Council has submitted that debts owing to the ATO should be considered in a special category because the obligation is imposed and not undertaken voluntarily. It was submitted that that tax revenue is necessary in a modern society for the provision of services such as health, defence and education for the wellbeing of our society. That submission was put to and rejected by the Court of Appeal in Murphy (supra). I therefore reject that submission. However, it is to be noted that Giles JA, with whom Spigelman CJ and Ipp AJA agreed, made the following comment: "A legal practitioner who spends all his or her money on self-indulgent high living, in disregard of ordinary commercial obligations, may be just as much (or as little) deserving of criticism as a legal practitioner who prefers ordinary commercial obligations over taxation obligations. But criticism is not really the point. The point is what the conduct shows of the legal practitioners fitness to hold a practising certificate." 30 People may have differing views as to what amounts to "high living", but it would seem to me that expenditure of between $200,000 - $250,000 each year over and above ordinary business expenses and necessary domestic expenses would be characterised as spending money on a style of living well beyond the means of most members of the community. 31 I have approached my assessment of Mr Wardell's conduct not upon the assumption that he had one large single debt, but that he incurred a number of separate debts, all of which were significant, and the sum total huge. That is to say, I have approached the matter in the same way as if he had incurred a succession of commercial debts and had used monies otherwise available for the discharge of those obligations on his own "lifestyle" pursuits. 32 In Murphy (supra) the Court of Appeal accepted the findings of fact made by McClellan J. They were not disputed by the Bar Council. These included a claim of early incompetence, that the barrister paid part of the tax, that he did not honour arrangements with the taxation commissioner, that he could have paid more, and that his conduct was open to severe criticism. There was also a suggestion that gambling was a cause (but not a major cause) of his financial problems. 33 It is important to remember that monies owing to the ATO by Murphy were small in comparison with Mr Wardell's indebtedness. Moreover, it must be remembered that the Court of Appeal accepted findings of fact by the learned Trial Judge concerning aspects of the barristers conduct. For example, the learned Trial Judge accepted that his financial problems stemmed from incorrect advice given to him by his accountant. His Honour also found that Mr Murphy "honestly intended to try to trade out of his difficulties", and that he was prepared to sell his remaining assets to meet his liabilities. The Court of Appeal found that Mr Murphy was not a person of whom it could be said that he was enjoying a disposable income, which could have met a tax liability. The court accepted the finding that "there were cogent reasons for the expenditure supporting the respondents children, and his lifestyle was free from excess". 34 Although making reference to early financial incompetence, Mr Wardell has not claimed to rely on incorrect advice. He did not try to trade out of his problems, and his disposable income was not taken up supporting his family and a "lifestyle…free from excess". 35 I do not understand it to be the opinion of the Court of Appeal that the fitness and propriety to hold a practising certificate is limited to competence and the preparedness to abide by the written and unwritten rules relating to barresterial behaviour. It is true that it was said (para 171) "If the respondent were to be judged unfit to hold a practising certificate, it would be because his failing so reflected upon his ability to act in the affairs of his clients that protection of the public warranted cancellation of his practising certificate". However, the learned Judge then continued, "In my judgement, the circumstances as found do not reveal such deficiency in character or competence as a legal practitioner that the respondent is not fit to practise as a barrister". 36 I record therefore that I have approached this matter upon the basis that it is not only legal competence and the trust of the professional associates that determines fitness and propriety to hold a practising certificate. If that were all there were to it, Mr Wardell would have to succeed in this appeal. In my opinion, however, the test also extends to embrace aspects of character derived from conduct. 37 One evident purpose of the recent legislation is the promotion and maintenance of public confidence in the legal profession. The special role of a barrister has been considered on a number of occasions and it is judicially recognised as being, in a sense, a special profession. Thus, in Zeims v Prothonotary of Supreme Court of NSW (1957) 97 CLR 279, it was said by Kitto J " The Bar is no ordinary profession or occupation. These are not not empty words, nor is it their purpose to express or encourage professional pretension. They should be understood as a reminder that a barrister is more than his clients confident advisor and advocate and must therefore possess more than honesty, learning and forensic ability. He is, by virtue of a long tradition, in a relationship of intimate collaboration with the Judges, as well as with his fellow members of the Bar in the high task of endeavouring to make successful the service of the law to the community. That is a delicate relationship and it carries special privileges and exceptional obligations. If a barrister is found to be, for any reason, an unsuitable person to share in the enjoyment of these privileges and in the effective discharge of those responsibilities, he is not a fit and proper person to remain at the bar (emphasis mine). " 38 Mr Brereton has also relied on the following observation of Kitto J, "Yet it cannot be that every proof which he may give of human frailty so disqualifies him. The ends which he has to serve are lofty indeed, but it is with men and not with paragons that he is required to pursue them. It is not difficult to see in some forms of conduct, or in convictions of some kinds of offences, instant demonstrations of unfitness for the Bar. Conduct may show a defect of character incompatible with membership of a self-respecting profession; or, short of that, it may show unfitness to be joined with the Bench and the Bar in the daily co-operation which the satisfactory working of the Courts demand. Conviction may of its own force carry such a stigma that Judges and members of the profession may be expected to find it too much for their self respect to share with the person convicted of the kind and degree of association which membership of the Bar entails. But it will be generally agreed that there are many kinds of conduct deserving of disapproval and many kinds of convictions of breaches of the law which do not dispel unfitness for the Bar; and to draw the dividing line is by no means always an easy task". 39 In Zeims (supra) the Court had determined that it was incompatible with membership of the Bar that a member should, at the time, be in gaol. However, it also recognised that the circumstances leading to the gaol sentence were the result of one unlawful act (driving whilst intoxicated) with unintentional but nonetheless criminal consequences (the death of a motorcyclist). 40 The integrity and impartiality of the Bench is central to the functioning of our liberal democracy. As an institution it is sustained by public confidence in that integrity and impartiality. It would appear to me that the special position of members of the Bar, as a necessary and recognised part of the judicial process, is likewise sustained by public confidence in the integrity of its members. 41 The question in the present case is whether public confidence is affected by anything other than the competence a person brings to his or her practise and the trust which other barristers and the Bench may feel that they can repose in the barrister. As I have pointed out, Mr Wardell has committed no crime and has filed affidavits representing the views of senior counsel and Judges of the court before whom he regularly practised as to his competence and the trust others repose in him. 42 In order to maintain public confidence in the Bar it is necessary, in my opinion, for members of the Bar to recognise and abide by the ethical and moral standards expected of people enjoying the special privileges offered by the Bar. It is true that these standards have varied over the years. Many years ago, the private sexual life of a person in high office (if it did not conform with acceptable standards) was generally regarded, if it became public, as rendering that person in the eyes of the community unfit to hold high office. In recent years, that standard or expectation has changed. I would suggest, however, that now it is generally recognised by most right thinking members of the community that people have an obligation to meet their debts, if they can, and that failure to do so over a long period of time without any exculpating features other than that the money was spent elsewhere would promote in the minds of right thinking people in our community that that person was not a fit and proper person to hold a practising certificate. 43 I am not dealing with the consequences of an unexpected or untoward event resulting in an indebtedness that cannot be met. What I am dealing with is the conduct of a person who was able to pay his debts, but who elected instead to spend money, over a long period of time, on what has been described as "discretionary lifestyle pursuits". In one sense, therefore, it does not seem to be of great moment whether the money was spent on holidays in Barbados and/or Hawaii etc or whether it was spent on pursuits within Australia, such as gambling. As it seems to me, it does not matter so much how the money was spent, once it is established that it was spent in pursuit of discretionary objectives. Thus, the circumstance that Mr Wardell decided to gamble thousands of dollars on poker machines over a long period of time is not much different in consequence than spending a similar amount of money on annual overseas holidays. Mr Wardell's expenditure had the consequence, known to him, that the money spent ceased to be available to be used to meet his indebtedness to the ATO. Whether that was the result of expenditure on trips to Hawaii and Barbados, luxury cars or gambling. 44 I have already accepted Mr Wardell's evidence that it was never his intention not to pay his tax as being an opinion honestly held at the time he presented it to me. But, as I have said, it is not easy to understand what he meant by this. In fact, over a long period of time, he spent money knowing that if he did so that amount of money was not available to meet his indebtedness to the ATO. At best, he must have hoped that some money would come from some other source that would allow him to meet that obligation (such as his reliance on the rumour that the Prudential Insurance Company would acquire his chambers). 45 In all the circumstances I have come to the conclusion that although I accept that Mr Wardell never made a conscious decision that he would never pay his tax, come what may, I have concluded that he has shown such a reckless disregard for his obligations as to amount to an intention to avoid them. For example, spending $18,000 on a trip to Hawaii necessarily meant that was $18,000 that would not have gone to the ATO. Likewise, $22,000 or so on renovations to his house were made at a time when his taxation obligations far exceeded that amount. 46 I have not ignored the circumstance that, if unsuccessful in his appeal, Mr Wardell will remain on the roll of practitioners. Mr Brereton has pointed to the incongruity of a lawyer losing a practising certificate but remaining on the roll. It was this incongruity that promoted the submission that the words "fit and proper" should be given a more confined meaning than tests applied by the court when determining whether a practitioner should be struck off the roll. The Court of Appeal has determined, in my opinion, that character is relevant to the question of a member of the Bar being a fit and proper person to hold a practising certificate. 47 I am satisfied, in accordance with the Brigginshaw test, that Mr Wardell is not a fit and proper person to hold a practising certificate and that the appropriate order for me to make is that which was made by the NSW Bar Council, namely that Mr Wardell's practising certificate should be cancelled. ********** Last Modified: 07/05/2002 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.