Law Society of New South Wales v Aouad [2012] NSWADT 267

Administrative Decisions Tribunal New South Wales Medium Neutral Citation: Law Society of New South Wales v Aouad [2012] NSWADT 267 Hearing dates: 23 November 2012 Decision date: 14 December 2012 Jurisdiction: Legal Services Division Before: Judge K P O'Connor, President J Pheils, Judicial Member J Butlin, Non-judicial Member Decision: 1. The Tribunal finds that the respondent engaged in professional misconduct. 2. The Tribunal orders that the respondent be reprimanded. 3. The Tribunal orders that the respondent pay the applicant's costs of and incidental to the proceedings, and, if not agreed, as assessed by a costs assessor under Part 3.2 of the Legal Profession Act 2004. Catchwords: LEGAL PRACTITIONERS - Discipline - Negotiation by solicitor of regulated mortgages - Contravention - Unethical conduct - Reprimand - Legal Profession Act 1987, s 117 Legislation Cited: Legal Profession Act 1987 Legal Profession Act 2004 Category: Principal judgment Parties: Law Society of New South Wales (Applicant) Nasser Aouad (Respondent) Representation: Counsel C Webster (Applicant) A Cheshire (Respondent) L Pierotti (Applicant) File Number(s): 112034

REASONS FOR DECISION 1On 5 December 2011 the Council of the Law Society lodged an application with the Tribunal under s 551 of the Legal Profession Act 2004. The Council applied for disciplinary orders to be made against a legal practitioner, Mr Nasser Aouad, on the ground of professional misconduct. The Council alleged that he had contravened s 117 of the Legal Profession Act 1987 on two occasions, in November 2004 and in January 2005. Section 117 regulated the conduct of solicitors in relation to the obtaining of mortgages for their clients; and provided that a contravention constituted professional misconduct. The conduct came to notice as a result of a trust account inspection. 2The material before the Tribunal comprises: the application, setting out the particulars of the grounds of complaint; the solicitor's reply, admitting many of the particulars, and denying or qualifying some; the affidavit of Anne-Marie Foord, of the Law Society, setting out the resolutions of the Society in relation to the matter; the affidavit of Charles Quagliata, Law Society trust account investigator, outlining his investigation of the matter; an affidavit of the solicitor, in elaboration of those points of reply where he disagrees with the particulars. 3At hearing on 23 November 2012, the parties handed up an agreed statement of facts (see Attachment to these reasons), and indicated their consent to an order, in the terms sought in the application, i.e. that the respondent be publicly reprimanded and that the respondent pay the applicant's costs of and incidental to the proceedings. 4The events of concern took place between November 2004 and January 2005. A finance broker introduced a Mr Charmand to the solicitor, with a view to the solicitor introducing Mr Charmand to persons to whom he might be able to on-lend money which he had borrowed on the security of a mortgage of his home from Perpetual Trustee Australia Pty Ltd. The total amount borrowed under the primary loan was $520,000. The amounts on-lent were $250,000 and $95,000. The first amount was the subject of a loan described in the agreed statement of facts as the 'First loan', and the second was the subject of a loan described in the statement as the 'Naamat loan'. They were secured by second mortgages. The agreed statement of facts is attached. 5These loans were regulated mortgages within the meaning of s 115 of the Act, which provided relevantly to this case: regulated mortgage means a mortgage (including a contributory mortgage) other than: ... (b) a mortgage under which the lender or contributors nominate the borrower, but only if the borrower is not a person introduced to the lender or contributors by the solicitor who acts for the lender or contributors or by: (i) an associate of the solicitor, or (ii) an agent of the solicitor, or (iii) a person engaged by the solicitor for the purpose of introducing the borrower to the lender or contributors, ... 6Mr Charmand was a 'client' within the meaning of s 115: client of a solicitor means a person who: (a) receives the solicitor's advice about investment in a regulated mortgage or managed investment scheme, or (b) gives the solicitor instructions to use money for a regulated mortgage or managed investment scheme. 7Section 117 provided: 117 Conduct of mortgage practices (1) A solicitor must not, in the solicitor's capacity as solicitor for a lender or contributor, negotiate the making of or act in respect of a regulated mortgage unless: (a) the mortgage is a State regulated mortgage, or (b) the mortgage is a run-out mortgage, or (c) the mortgage forms part of a managed investment scheme that is operated by a responsible entity. (2) A solicitor must not, in the solicitor's capacity as solicitor for a lender or contributor, negotiate the making of or act in respect of a regulated mortgage except in accordance with: (a) the Corporations Act 2001 of the Commonwealth, or that Act as modified by any ASIC exemption or the regulations under that Act, and (b) this Act, the regulations and solicitors rules. (3) A solicitor must not, in the solicitor's capacity as solicitor for a lender or contributor, negotiate the making of or act in respect of a regulated mortgage that forms part of a managed investment scheme unless the solicitor complies with any ASIC exemption that applies to managed investment schemes that: (a) have more than 20 members, and (b) are operated under the supervision of the Law Society in accordance with that exemption. This subsection applies even if the regulated mortgage forms part of a managed investment scheme that has no more than 20 members. (4) Subsection (3) does not apply if the managed investment scheme is operated by a responsible entity. (5) A solicitor who knows that an associate has contravened a requirement referred to in subsection (1), (2) or (3) must notify the Law Society Council of that fact in writing within 21 days after becoming aware of the contravention. (6) A solicitor who contravenes this section commits professional misconduct. 8This case did not fall within any of the exceptions listed in s 117(1), nor were these State regulated mortgages as defined. Section 118 required solicitors who are involved in negotiating regulated mortgages to notify the Law Society, and nominate their practice as a State regulated mortgage practice. The solicitor did not make a notification. 9It is not disputed that the solicitor acted in contravention of these provisions. 10The application is brought under the current Act, the Legal Profession Act 2004, but relates to conduct that contravened the former Act. Conduct of the kind identified by the application remains regulated by the current Act, see generally ss 477 ff. The difference of immediate relevance between the old and new provisions is that a contravention of s 117 must be treated as professional misconduct (see s 117(6)), whereas a contravention of the current provision (s 479(6)) is less definitively categorised, and it provides that a contravention is 'capable of being professional misconduct'. 11We are satisfied, as outlined in the disciplinary application, that each loan into which the solicitor's client entered as lender, following the solicitor's introductions, constituted a regulated mortgage as defined in s 115, and they were not State regulated mortgages as defined in s 116. The solicitor had not furnished a notice as required by s 118. Nor were they run-out mortgages as defined in s 115, having been entered into after 7 September 2001, and they did not form part of a managed investment scheme operated by a responsible entity as defined in s 115. 12The respondent was admitted to practice in June 1999 at the age of 30. He had just commenced practice as a principal in a small suburban practice in Lakemba when the events the subject of these proceedings occurred. He has now been in practice for 13 years. 13At hearing his counsel referred to the toll these events had taken on his client. He said that these were the only occasions when his client had engaged in conduct of the kind charged. He noted that the events had occurred several years ago, and that his client had not come to disciplinary attention since then. He said that though his client acknowledges that he should have been aware of ss 115-118 and their implications for the course of conduct on which he embarked, he was not aware of them. Counsel also noted that a finding of professional misconduct was a grave one, and that this was an instance of a case where, once contravention was admitted, the finding followed by virtue of the statute, there being no possibility of it being dealt with by, say, a finding of unsatisfactory professional conduct. 14While ss 115-118 possess a degree of complexity in the way they draw distinctions between permissible activity and impermissible activity by solicitors in relation to arranging mortgages, it should have been readily apparent to any solicitor by 2004 that the giving of assistance to clients to find borrowers drawn from his circle of associates or clients was, at the very least, problematic. 15During the 1990s, there had been a spate of major collapses involving solicitors' mortgage practices, leading to the significant depletion of the Fidelity Fund. At the time the respondent was entering practice this was a major area of concern. Sections 115-118 replaced earlier provisions going to this subject, and involved a significant tightening of the rules. See further, Legal Profession Amendment (Mortgage Practices) Bill, Second Reading Speech: New South Wales, Parliamentary Debates Legislative Council 3 May 2000, p 5020 (The Hon. Jeff Shaw, Attorney General). The Law Society's material included the bulletins issued to practitioners notifying them of these amendments when they came into effect and their significance: see 'Caveat 220 - 07 June 01' and 'Caveat 224 - 31 August 2001'. 16Further, the facts as agreed show that the solicitor had a plain conflict of interest in respect of both loans. The solicitor not only had Mr Charmand as a client but also the co-borrower in respect of the first loan, NGK Enterprises Pty Ltd. The same situation applied in relation to the Naamat loan. This conflict should have been obvious to the solicitor, and led him not to be involved in this kind of activity regardless of whether he had a specific awareness of s 117 and the related provisions. 17As the orders to which the respondent is prepared to submit are in line with those sought by the Law Society, we are not inclined to intervene and exercise our discretion to impose a different, and possibly more serious, order. 18We accept that the finding of professional misconduct is itself a form of punishment. We also acknowledge that it is now six years since the respondent was first notified of the Law Society's concerns. This case was delayed until civil proceedings for professional negligence brought by Mr Charmand against the respondent were resolved. That occurred in December 2010. 19The applicant was not able to inform us how the orders proposed compared with previous orders in similar cases, advising that this was a unique case. 20The case is one of unethical conduct involving an admitted contravention of provisions designed to protect clients. In that sense it is not, regrettably, unique. We have reviewed recent Tribunal decisions involving unethical conduct where orders of reprimand have resulted. We consider this case comparable, and that the additional orders seen in some of those cases such as a fine, or a condition that the respondent undertake a course of instruction need not be considered on this occasion. 21The orders are to be made under the present Act. As the Law Society acknowledged at hearing, there is no need to use the adjective 'public' to describe the reprimand, as all reprimand orders are now public ones in contrast to the earlier system. In that regard, the Act provides (s 562(8)) that: 'If the Tribunal makes an order reprimanding the practitioner, the Tribunal is to publish the order and a statement of its reasons for making the order'.