Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Council of the Law Society of New South Wales v Ginges [2016] NSWCATOD 7 Hearing dates: 9 September 2015 Date of orders: 19 January 2016 Decision date: 19 January 2016 Jurisdiction: Occupational Division Before: D Patten - Principal Member M Riordan - Senior Member R Fitzgerald - General Member Decision: 1. We find the Solicitor guilty of professional misconduct pursuant to ss 497(1)(b) and 498(1)(a) of the 2004 Act. 2. Pursuant to s 562(2)(e) of the 2004 Act, we order that the Solicitor be reprimanded. 3. Pursuant to sch 5, cl 23(1) of the CAT Act, we order the Solicitor to the Law Society's costs, as agreed or assessed. Catchwords: Solicitor – disciplinary proceedings – borrowing money from clients – withdrawing trust money for legal costs without authority – 'exceptional circumstances' – order for costs Legislation Cited: Legal Profession Act 1987 Legal Profession Act 2004 Civil and Administrative Tribunal Act 2013 (No. 2) Legal Profession Act 1987 - Regulation Legal Profession Regulation – 2005 Professional conduct and Practice Rules Cases Cited: 73 Union St Retail Pty Ltd v J&S Group Pty Ltd [2012] NSWADT 212 Council of the Law Society of New South Wales v Hinde [2011] NSWADT 20 Council of the NSW Law Society v Vaughan [2015] NSWCATOD 156 Council of the New South Wales Bar Association v Miller (No 2) [2012] NSWADT 129 at [44] Law Society of New South Wales v Foreman [1994] 34 NSWLR 408 at 441-442 Law Society of New South Wales v Harvey [1976] 2 NSWLR 154 Law Society of New South Wales v Moulton [1981] 2 NSWLR 736 at 739, 740 Regina v Kelly (Edward) [2000] QB 198 at 208; [1999] UKHL 4 Smith v New South Wales Bar Association (1992) 176 CLR 256 at 270; (1992) 66 ALJR 605; (1992) 108 ALR 55; (1992) 1992 ALR 55; [1992] HCA 36 Walter v Council of Queensland Law Society Incorporated (1988) 77 ALR 228 at 235; [1988] HCA 8 Walter v Council of Queensland Law Society Incorporated (1988) 62 ALJR 153 at 157 Wentworth v New South Wales Bar Association (1992) 176 CLR 239 at 251; [1992] HCA 24 Category: Principal judgment Parties: Council of the Law Society of New South Wales (Applicant) Hal Jon Ginges (Respondent) Representation: Solicitors: Council of the Law Society of New South Wales (Applicant) H Ginges (Respondent in person) File Number(s): 1520040 Reasons for decision The Application 1. On 11 March 2015, the Council of the Law Society of New South Wales ("the Law Society") filed an Application in the Tribunal alleging that the Respondent solicitor, Hal Jon Ginges ("the Solicitor") was guilty of professional misconduct on the following grounds: 1 He breached cl 27 of the Legal Profession Act 1987 – Regulation 2 He breached rule 23.2.1 of the Professional Conduct and Practice Rules 3 He transferred costs without authority. 1. The Law Society sought orders as follows: 1 The Solicitor be reprimanded. 2 The Solicitor pay the costs of the Law Society, as agreed or assessed. 3 The Solicitor be subject to any other order as the Tribunal feels appropriate. 1. The Particulars set out in the Application were as follows: In these Particulars: "Client" means Mr Sidney Raymond Sherwood, known as Ray Sherwood "Law Practice" means the law practice known as Hal Ginges & Co from 1 July 1988 to 30 June 2007 and Hal Ginges & Co Pty Ltd from 1 July 2007 to the present. "Solicitor" means Hal Jon Ginges "Trust account" means the account styled Hal Ginges & Co Statutory Trust Acc held by the National Australia Bank at Katoomba NSW (details recorded). 1. The solicitor was admitted to practice on 11 March 1977. At all material times he held a practising certificate and was either the principal or the solicitor director of the Law Practice. 2. From 1991 to 2012 the Law Practice was retained by the Client. 3. On behalf of the Client, the Solicitor held money in: a. The Law Practice's general trust account from 7 April 1992 to 14 February 2013; and b. In a controlled money account from about 5 May 1992 to 15 NOVEMBER 2012. 4. By order dated 30 November 2012 the NSW Guardianship Tribunal committed the estate of the client to the NSW Trustee and Guardian. Breach of clause 27 of the Legal Profession Act 1987 – Regulation 5. On 4 September 1993 the Solicitor caused the sum of $15,000.00 to be withdrawn from the client's controlled money account [(details recorded) then held at St George Building Society Ltd] and forwarded to the Solicitor's wife, Heather Margaret Ginges. 6. By Loan Agreement dated 27 September 1993 the Client agreed to advance Heather Margaret Ginges [the Borrower], a principal sum of $15,000 [already advanced on the terms specified [the First Loan]. 7. The Solicitor failed to ensure that the Client obtained independent legal advice prior to the payment of any part of the proposed loan, or at all. 8. In breach of clause 27(2) of the Legal Profession Act 1987 – regulation, the Solicitor permitted his associate to borrow money from his client without fulfilling the provisions of clauses 27(2) (ii) and (iii). 9. The Borrower made principal repayments and interest repayments on the First Loan until 4 February 2005. 10. In about May 2013, the Solicitor reviewed the payments by the Borrower pursuant to the First Loan and realised that there remained a sum of $4,000 outstanding from the initial advance. That sum, together with outstanding interest at 7% per annum for 8.25 years commencing 4 February 2005 [calculated at $2,310.00] was paid by way of a cheque in the sum of $6,310.00 to the NSW Trustee and Guardian under cover of letter dated 16 May 2013. Breach of rule 23.2.1 of the Professional Conduct and Practice Rules 11. On or about 20 November 1995, the Solicitor facilitated a further loan from the Client to the Borrower by way of a transfer of the Client's monies in the sum of $4,000.00 held in the general trust account [the Second Loan]. 12. Whereas there was no written loan agreement between the parties, the transaction was recorded in trust ledger #S226 and on a Schedule of Borrowings signed by the Client. 13. The Client was not represented in the transaction comprising the Second Loan by a solicitor unrelated to and acting independently of the Borrower. 14. In the circumstances described in paragraphs 11 and 13 above, the Solicitor breached rule 23.2.1 of the Professional Conduct and Practice Rules. 15. The Solicitor recorded the quarterly interest payments made by the Borrower on the Second Loan as credits in trust ledger #S226 on 12 January 1996, 22 March 1996, 20 June 1996 and 14 November 1996. 16. The Borrower repaid the Second Loan on 14 November 1996. The transaction was also recorded in trust ledger #S226. 17. In a routine trust account investigation of the Law Practice on 4 February 2000, the trust account inspector recorded 'No' as the Solicitor's response to the following question: "Have you, your partners or associates (incl. corporations & partnerships) borrowed money from a client since the date of the last inspection?" 18. In routine trust account investigations of the Law Practice, a trust account investigator on 12 November 2002, 1 July 2009 and 15 March 2014, recorded 'No" as the Solicitor's response to the following question: "Are you aware of any solicitor of this practice, or their associates, who have borrowed monies from clients?" 19. The Solicitor did not disclose to the trust account inspectors the existence of the First Loan. 20. The Solicitor disclosed to the Law Society the existence of the Second Loan by letter dated 15 May 2013. Transferring monies for costs without authority 21. The Solicitor obtained payment for his services to the Client by issuing invoices. 22. As stated in the table below, the Solicitor on the dates listed withdrew the Client's entrusted funds in payment of his costs prior to the issue of invoices for work done. Date of W/D AMT $ Source In No, $ Date of Inv 31 Jan 11 990.00 C M Acc S226/2, 990.00 25 Feb 11 29 Dec 11 352.00 Trust Acc S226/3, 352.00 6 Jan 12 16 Aug 12 660.00 Trust Acc S226/4, 660.00 28 Aug 12 5 Oct 12 130.00 Trust Acc S226/5, 330.00 8 Oct 12 23. The withdrawals described in paragraph 22 above were unauthorised because they were not compliant with clause 88 of the Legal Profession Regulation 2005 and therefore not permitted by section 261(b) of the Legal Profession Act 2004. Relevant Legislation Legal Profession Act 1987 ("the 1987 Act") 57B Rules of Law Society Council (1) The Law Society Council may make rules for or with respect to practice as a solicitor. (2) The power to make rules is not limited to the matters for which this Act specifically authorises the making of solicitors' rules… 60 Definitions … (2) In this Division, a reference to an associate of a solicitor is a reference to: … (e) a person who bears a prescribed relationship to the solicitor or to a person referred to in paragraphs (a)–(d)… (3) For the purposes of subsection (2), a person bears a prescribed relationship to a solicitor or other person if the relationship is that of: (a) a spouse… Legal Profession Act 1987 – Regulation ("the 1987 Regulation") Regulation of borrowing of client's money etc. 27(1) In this clause 'client' includes any person for whom a solicitor or the solicitor's firm has undertaken to act or furnish advice and any person seeking advice from, or offered advice by, the solicitor or the solicitor's firm in respect of the investment of any money; 'independent advice' means advice given by a solicitor unrelated to, and acting independently of, the solicitor borrowing or any associate of the solicitor or any other party to the borrowing transaction, which takes account of all relevant circumstances, including the borrower's solicitor's full disclosure of that solicitor's interest, and is of such scope as would permit the lender to consider fully the proposed transaction, its nature and effect, free of any influence which might be exercised by the borrower solicitor or by any person on behalf of that solicitor; 'full disclosure' means a disclosure in writing by the borrowing solicitor or all matters relevant to the solicitor's financial circumstances and the solicitor's interest in the transaction, sufficient to allow the lender, with the benefit of independent advice, to fully consider the transaction, its nature and effect; … (2) A solicitor shall not borrow any money, nor permit an associate of the solicitor to borrow any money from a client of the solicitor – … (c) unless – (i) the solicitor has made full disclosure of the interest in the proposed borrowing of the solicitor or the associate of the solicitor; (ii) the client is given independent advice by a solicitor who is unrelated to and acts independently of any party to the borrowing transaction, prior to the payment of any part of the proposed loan, as to the terms of the borrowing transaction and the type and value of the security, if any; And (iii) the solicitor giving the advice, at the same time, or as soon as practicable thereafter, completes and signs a certificate of independent advice in Form 2 and delivers that certificate to the solicitor seeking the loan, who shall retain it. Professional Conduct and Practice Rules commencing 1 July 1994 ("the Solicitors' Rules") 23. Solicitor and Client Borrowing Transactions 23.1 … 23.2 A solicitor must not borrow any money, nor permit or assist an associate to borrow any money from a person – 23.2.1 who is currently a client of the solicitor, or the solicitor's firm; Unless – The Solicitor does not act for, nor provide any advice to the person in respect of the borrowing transaction, and the person is represented in the transaction by a solicitor unrelated to, and acting independently of, the borrower or any associate of the borrower. Legal Profession Act 2004 ("the 2004 Act") 261 Dealing with trust money: legal costs and unclaimed money (1) A law practice may do any of the following, in relation to trust money held in a general trust account or controlled money account of the practice for a person: (a) … (b) withdraw money for payment of the practice's account for legal costs owing to the practice if the relevant procedures or requirements prescribed by this Act and the regulations are complied with. 497 Professional misconduct (1) For the purposes of this Act: professional misconduct includes: (a) unsatisfactory professional conduct of an Australian legal practitioner, where the conduct involves a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence, and (b) conduct of an Australian legal practitioner whether occurring in connection with the practice of law or occurring otherwise than in connection with the practice of law that would, if established, justify a finding that the practitioner is not a fit and proper person to engage in legal practice. (2) For finding that an Australian legal practitioner is not a fit and proper person to engage in legal practice as mentioned in subsection (1), regard may be had to the matters that would be considered under section 25 or 42 if the practitioner were an applicant for admission to the legal profession under this Act or for the grant or renewal of a local practising certificate and any other relevant matters. 498 Conduct capable of being unsatisfactory professional conduct or professional misconduct (1) Without limiting section 496 or 497, the following conduct is capable of being unsatisfactory professional conduct or professional misconduct: (a) conduct consisting of a contravention of this Act, the regulations or the legal profession rules,… (2) Conduct of a person consisting of a contravention referred to in subsection (1) (a) is capable of being unsatisfactory professional conduct or professional misconduct whether or not the person is convicted of an offence in relation to the contravention. 562 Determinations of Tribunal (1) Orders generally If, after it has completed a hearing under this Part in relation to a complaint against an Australian legal practitioner, the Tribunal is satisfied that the practitioner has engaged in unsatisfactory professional conduct or professional misconduct, the Tribunal may make such orders as it thinks fit, including any one or more of the orders specified in this section. Legal Profession Regulation 2005 ("the 2005 Regulation") 88 Withdrawing trust money for legal costs – section 261(1)(b) of the Act (1) This clause prescribes, for the purposes of section 261 (1) (b) of the Act, the procedure for the withdrawal of trust money held in a general trust account or controlled money account of a law practice for payment of legal costs owing to the practice by the person for whom the trust money was paid into the account. (2) The trust money may be withdrawn in accordance with the procedure set out in either subclause (3) or (4). (3) The law practice may withdraw the trust money: (a) if: (i) the money is withdrawn in accordance with a costs agreement that complies with the legislation under which it is made and that authorises the withdrawal, or (ii) the money is withdrawn in accordance with instructions that have been received by the practice and that authorise the withdrawal, or (iii) the money is owed to the practice by way of reimbursement of money already paid by the practice on behalf of the person, and (b) if, before effecting the withdrawal, the practice gives or sends to the person a request for payment, referring to the proposed withdrawal. (4) The law practice may withdraw the trust money: (a) if the practice has given the person a bill relating to the money, and (b) if: (i) the person has not objected to withdrawal of the money within 7 days after being given the bill, or (ii) the person has objected within 7 days after being given the bill but has not applied for a review of the legal costs under the Act within 60 days after being given the bill, or (iii) the money otherwise becomes legally payable. (5) Instructions mentioned in subclause (3) (a) (ii): (a) if given in writing, must be kept as a permanent record, or (b) if not given in writing, must be confirmed in writing either before, or not later than 5 working days after, the law practice effects the withdrawal and a copy must be kept as a permanent record. (6) For the purposes of subclause (3) (a) (iii), money is taken to have been paid by the law practice on behalf of the person when the relevant account of the practice has been debited. Civil and Administrative Tribunal Act 2013 (No. 2) ("the CAT Act") 28(1) - Jurisdiction of Tribunal generally (1) The Tribunal has such jurisdiction and functions as may be conferred or imposed on it by or under this Act or any other legislation. Sch 5, cl 23 - Costs consequent of adverse conduct findings (1) Despite section 60 of this Act, the Tribunal must make orders requiring a respondent lawyer whom it has found to have engaged in unsatisfactory professional conduct or professional misconduct to pay costs (including costs of the Commissioner, a Council and the complainant), unless the Tribunal is satisfied that exceptional circumstances exist. The Law Society's evidence 1. On 11 March 2015, the Law Society filed an Affidavit sworn on 21 January 2015 by its Solicitor, Ms Anne-Marie Foord and an Affidavit sworn on 5 March 2015 by Mr Gregory William Livermore, a trust account investigator. On 23 March 2015, it filed a further Affidavit sworn on 20 March 2015 by Mr Gregory William Livermore. These Affidavits and their annexures constituted the Law Society's evidence. The Solicitor's evidence 1. The Solicitor filed a Reply on 29 April 2015, in which he indicated that he "agreed" with many of the particulars set out in the Application. He filed an Affidavit that he swore on 29 April 2015, in which he disputed that he was guilty of professional misconduct and requested that Ground 1 of the Application be dismissed. He acknowledged that he should have been more diligent and made further enquiries about the requirements for loans to associates of legal practitioners before arranging the loans, but disputed that he transferred money from his trust account in payment of his costs without authority. He stated that he did not dispute the contents of Ms Foord's Affidavit and that he did not dispute the contents of Mr Livermore's Affidavit filed on 23 March 2015, but took issue with some of the evidence set out in Mr Livermore's Affidavit sworn on 11 March 2015. The course of the proceedings 1. The matter was listed for hearing before the Tribunal on 9 September 2015, when Ms Groenewegen appeared for the Law Society and the Solicitor appeared in person. The evidence filed by both parties was admitted without objection and no deponents of Affidavits were required to attend for cross-examination. 2. Prior to the hearing of the matter, the parties lodged written submissions, which we have summarised below and both Ms Groenewegen and the Solicitor made oral submissions at the hearing. Law Society's Submissions filed 10 August 2015 1. Ms Groenewegen submitted that this is a relatively simple matter involving two (2) separate borrowings by a Solicitor from his client, in circumstances where there was a clear conflict of interests. 2. In relation to Ground 1 of the Application, the solicitor prepared a Loan Agreement dated 27 September 1993 in order to formalise the loan transaction to his wife, which had already taken place on 4 September 1993. The Agreement stipulated terms for the payment of interest and the repayment of the principal. However, he failed to ensure that the client obtained independent legal advice before the loan monies were advanced, at the time of executing the Loan Agreement, or at all. 3. In his Reply, the Solicitor stated that he requested that the client obtain independent legal advice, but he declined to do so. He also stated that he contacted the Law Society and was advised that there was no need for independent legal advice for a loan to his wife rather than to himself. On this issue, in his Affidavit, he deposed: 3. So far as Ground 1 is concerned I say that I made what I believed to be all proper inquiries in respect of making arrangements for a loan from the Client to my wife. Those inquiries included speaking to a solicitor employed by the Law Society to advise solicitors in the handling of trust funds… I respectfully ask that this ground be dismissed. 1. The Solicitor also stated that he advised the Guardianship Tribunal that he 'checked with the Law Society' before the First Loan was entered into. However, he did not provide any evidence such as the name of the Law Society advisor or produce any evidence such as a written file note or letter confirming the giving of any advice by the Law Society. 2. Ms Groenewegen expressed serious concern that the Solicitor sought to escape liability for his conduct by asserting that it was, in effect, the inevitable consequence of inaccurate advice by the Law Society. She referred to the Loan Agreement and noted that this included a provision that stated that the terms and conditions of the Agreement have been explained to the client by a solicitor acting independently of the borrower. This was a false representation as the client did not receive independent legal advice regarding the loan transaction. She submitted that the inclusion of this provision in the Agreement is evidence that at all material times, the Solicitor knew that for his client to lawfully lend money to his wife, the client must receive legal advice from a solicitor acting independently of his wife. 3. For these reasons, Ms Groenewegen submitted that the Solicitor's reply to ground 1 of the Application is either mistaken or lacks frankness, candour and credibility and should not be accepted and that the Tribunal should be satisfied that ground 1 of the Application has been made out. 4. In relation to ground 2 of the Application, Ms Groenewegen noted that there is no evidence that the terms of the Second Loan were ever reduced to writing and that the evidence indicates that the client was not represented by a solicitor unrelated to and acting independently of the borrower (Mrs Ginges). Section 60(3) of the 1987 Act provides that Mrs Ginges is "an associate" of the Solicitor and, by assisting or permitting an associate to borrow money from the client, the Solicitor breached Rule 23.2.1 of the Solicitors' Rules. 5. In his Reply, the Solicitor stated in response to ground 2: Although I continued to believe that it was not necessary, I suggested to the client that he obtain independent legal advice. Again he declined to do so. I did not make any further enquiries with the Law Society on this occasion. 1. Ms Groenewegen noted that when the Second Loan was entered into the First Loan was still being repaid. She submitted that this factor, when combined with Term 4 of the Loan Agreement for the First Loan, rendered this Statement in the Reply as either mistaken or disingenuous (at best) and incredible (at worst). 2. In relation to the solicitor's failure to disclose the existence of the First Loan to trust account investigators, Ms Groenewegen noted that in his Reply the Solicitor stated: I do not remember this question ever being put to me without the additional "since the date of the last inspection"/ I have never concealed the existence of the First Loan. All of the transactions relating to it went through controlled moneys and the trust account and were completely transparent. All the payments of interest and the repayments capital were recorded on the trust ledgers for the Client. The trust ledgers were made available for each inspection. Some of the ledger card transaction [sic] carry a green tick, indicating they have been checked by a trust account inspector. 1. Ms Groenewegen submitted that what can be drawn from these responses is that it was the Solicitor's view that all of the trust account investigators doing five separate inspections failed to ascertain the existence of the loans because they asked him the wrong question in relation to the loans, and in any event the trust account investigators could have and should have discovered the existence of the loans as the controlled money accounts and trust account records in relation to the loans were completely transparent. He did not disclose the existence of the first loan despite having a duty to do so and it is no answer to assert in response to this ground that he did not conceal its existence. She submitted that the Tribunal should be satisfied that ground 2 has been made out. 2. In relation to ground 3 of the Application, Ms Groenewegen noted that the Solicitor agrees that he transferred entrusted moneys for his costs before invoices were issued, but he denies that the first, second and fourth transfers were unauthorised and asserts that the client verbally approved the first transfer and that the invoices for the second and fourth transfers had been dictated, but not typed and issued. He did not offer any explanation for the third transfer, which also pre-dated the issue of an invoice. He requested that ground 3 of the Application be dismissed. 3. Section 261 of the 2004 Act permits the withdrawing of entrusted funds to pay costs on the condition that certain procedures are complied with and these are outlined in cl 88 of the Legal Profession Act Regulation. Where no invoice has been issued, cl 88(3)(a) of that Regulation applies. Where verbal instruction to withdraw trust monies is given by a client, cl 88(3)(a)(ii) permits the monies to be withdrawn, but cl 88(5)(b) of that Regulation then requires that the instruction be confirmed in writing within 5 working days of the withdrawal, and this must be kept as a permanent record. 4. Ms Groenewegen submitted that even if the client verbally authorised the first transfer, the Solicitor failed to comply with cl 88(6)(5) of the Legal Profession Act Regulation. In the case of the other transfers, cl 88 of that Regulation does not recognise the mere dictating of an invoice as conferring authority on a Solicitor to transfer entrusted monies in payment of his costs. As a result, none of the transfers for costs were authorised as required by the 2004 Act and the Tribunal should be satisfied that ground 3 has been made out. 5. In relation to the matter generally, Ms Groenewegen submitted that no prudent solicitor would have recommended these loans to this client, particularly noting the evidence that he suffered from a mental disability in the nature of vascular dementia. This is apparent from the decision of the Guardianship Tribunal dated 30 November 2012, which indicated that a report from Dr Kelly indicated that the client suffers from a moderate to severe dementia, the onset of which occurred in 2006/2007, as well as severe hearing loss with consequential communication difficulties and a mild lifelong intellectual disability. The Guardianship Tribunal also referred to a report from Dr Cressey, which indicated that the client suffered from moderately severe cognitive impairment and had no idea about any of his finances. It also indicated that he was unable to do any form of arithmetic and was felt to suffer from moderately severe dementia. 6. The client's brother brought the existence of the First Loan to the attention of the Guardianship Tribunal, which noted that the Solicitor agreed that while he was managing the client's money, a loan had been made to a family member at 14.5% which had been repaid. The client's brother questioned the ethics of this and the Solicitor stated that he has had it checked out with the Law Society and it had been a properly documented loan arrangement. The Guardianship Tribunal concluded: On the basis of all of this evidence the Tribunal was satisfied that there is a need to appoint someone to manage [the client's] affairs and it is in his best interests that an order be made. He has now lost capacity and the General Power of Attorney cannot, therefore, serve as a legal mechanism whereby his finances can be managed. 1. It was not until after the decision of the Guardianship Tribunal that the Solicitor reviewed his records and discovered the incomplete repayment of the First Loan to the client and he wrongly deducted the sum of $4,000 (being repayment of the Second Loan) from the capital of the First Loan. As a result, the First Loan was not repaid until May 2013 and while the term of that loan was for 2 years, it was not repaid until 10 years later. 2. Ms Groenewegen submitted that the client's best interests are served by lending at the highest rate of interest, while the Solicitor's best interests are served by borrowing at the lowest rate of interest. As a result, there is an inherent conflict of interest where a solicitor borrows or assists an associate to borrow money from a client and the Solicitor is duty bound to identify and avoid that conflict. She submitted that the decision of the Court of Appeal in Bolster v Law Society of NSW (unreported, 20 September 1982) CA 233/1982, as authority for the proposition that there is a "fundamental requirement that a solicitor appreciate the duties owed to clients". 3. Ms Groenewegen also referred us to the decision of the Court of Appeal in Law Society of NSW v Harvey [1976] 2 NSWLR 154 ("Harvey"), which is the leading case in NSW involving a solicitor borrowing from a client. She also submitted that in Bolster, Moffit P commented that the decision in Harvey did not lay down any new law. 4. Ms Groenewegen also relied upon the decision of the Court of Appeal in Law Society of NSW v Moulton [1981] 2 NSWLR 736 ("Moulton"), which was considered and followed by Tribunal in Council of the NSW Law Society v Vaughan [2015] NSWCATOD 156 ("Vaughan"). 5. The submissions in the Solicitor's Affidavit, to the effect that the grounds of the Application should be dismissed, indicates that the Solicitor fails to appreciate the seriousness of his conduct, which amounts to professional misconduct pursuant to s 497(1)(a) of the 2004 Act. This defines professional misconduct as including unsatisfactory professional conduct of an Australian legal practitioner, where the conduct involves a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence. 6. Further, s 498(1)(a) of the 2004 Act provides that conduct consisting of contravention of the Act, the regulations or the rules is capable of being unsatisfactory professional conduct or professional misconduct. However, in the circumstances of this case and particularly the fact that the client was a vulnerable person, the conduct is sufficiently serious as to make it professional misconduct. Solicitor's Submissions in Response filed 27 August 2015 1. In his written submissions, the Solicitor took issue with the Law Society's submissions. In relation to Ground 1 of the Application, he submitted that the file was closed in or about 1994 and that it "will have been culled long ago." He stated: It is likely there was a file note with the name of the Society's officer and confirmation of the advice. I did not receive a letter from him or the Society. And further: …I am not seeking to escape liability for my conduct. I am setting out as a matter of fact what occurred. My conduct was not the inevitable result of the advice I received from an officer of the Law Society. I chose to follow that advice, knowing that it may not be accurate in view of the requirement of independent advice for loans from clients to practitioners. I am not seeking to pass responsibility for my conduct onto the person to whom I spoke. I am simply reciting what I remember having happened. I accept responsibility for what I have done. I am only questioning whether, in all of the circumstances which led to my conduct, what I did amounted to professional misconduct. 1. The Solicitor asserted that he did not know that independent advice was required in the case of a loan from the client to his wife, but he conceded that Grounds1 and 2 of the Application had been made out. In relation to ground 3, he disputed the conclusions that the Law Society drew from his responses. He submitted that there was no discussion about the loans during the 5 inspections referred to because they were not the most immediate inspections after the loans were made. He stated: I do not remember the conversations I had with inspectors in or about 1994 and 1995, but believe the loans were disclosed at the most immediate inspection. As for sub-paragraph (37)(b), I am not suggesting it is up to the investigators to 'discover' the loans. It is, however, clear that one or more of them knew of the loans, because the ledger cards contain some green ticks from an inspection… 1. While the Solicitor stated that he accepted that ground 3 had been made out, and stated that he appreciates the need for practitioners to comply with the rules and regulations, he asked to the Tribunal "in all the circumstances" to find that he was not engaging in professional misconduct. He also stated: I am very conscious of the seriousness of my conduct. I have acknowledged from the outset that all three grounds have been made out. I have accepted that a reprimand mat be an appropriate disposition of these matters. I have simply had difficulty in accepting that, in all the relevant circumstances, I have been engaged in professional misconduct… Law Society's Submissions in Reply filed 2 September 2015 1. On 2 September 2015, the Law Society lodged submissions in reply to the Solicitor's submissions, in which it noted that the Solicitors' submissions contradicted the evidence that he deposed to in his Affidavit and it observed that the Solicitor had not accepted from the outset that all three grounds of the Application had been made out. Further submissions were made in response to the Solicitor's assertion that he was prepared to sign a Statement of Agreed Facts, but as no such document was produced we do not consider those matters to be relevant to the issues to be determined in these proceedings. Oral submissions at the hearing 1. At the hearing of the matter, Ms Groenewegen spoke to her written submissions and confirmed that in addition to a reprimand, the Law Society also sought an order for costs as no exceptional circumstances had been made out on the evidence before the Tribunal. 2. The Solicitor made oral submissions that responded to the Law Society's submissions in reply. He stated that he did not initially acknowledge that he had breached strict liability provisions of the Act, but that in correspondence he accepted that he had done so. However, he had difficulty accepting that his behaviour towards the client comprised professional misconduct. 3. The Tribunal asked the Solicitor whether the conflict of interests had occurred to him and he replied 'yes' and said that this was why he contacted the Law Society and that he was advised that a loan to his wife would be 'OK', even though she was an associate. He agreed that she should have accepted that there was a potential conflict of interest. 4. The Tribunal observed that there was more than a mere potential conflict of interest and that the conflict was clear. The Solicitor did not concede this point and stated that the client was quite anxious to help himself and his wife out financially when their son came back to live with them and he made rambling submissions concerning all of the work that he had done for the client over the years in order to protect his money from other people. The Tribunal then observed that the one person from whom the Solicitor had not protected his client was himself. 5. The Solicitor conceded that he is not aware of any authorities that support a submission that his conduct in relation to borrowing money from his client does not amount to professional misconduct. He said that he does not blame the trust account inspectors for not picking up the existence of the loans, but stated that if they asked him about them, he would have told them the truth about the loans. The Tribunal noted that the Law Society does not allege that he actively concealed their existence from the trust account inspectors. 6. In relation to the transfers from the trust account in payment of his costs, the Solicitor stated that these occurred at a time when the client was in a nursing home. He said that he had done a lot of work for his client and kept him informed of what was going on because 'his relatives were bothering him' and the client appointed him as his Attorney. The client instructed him to pay himself for the work he had done and this was covered by the first invoice and trust transfer. 7. The Tribunal noted that the Law Society's case was not that the Solicitor was not entitled to charge costs, or that the amounts charged were excessive, but that he had not complied with the 2004 Act and Regulation in transferring trust moneys in payment of his costs. 8. In relation to the issue of costs of the proceedings, the Solicitor submitted that he has a limited ability to pay costs as much of his practice is Legal Aid work and his income is not that great. Jurisdiction 1. The Law Society's submissions invited the Tribunal to make orders under the Legal Profession Uniform Law (NSW) ("the Uniform Law") and the Legal Profession Uniform Law Application Act (NSW) 2014 ("the Application Act"). However, we note that the proceedings were commenced by an Application filed on 11 March 2015, before the 2004 Act was repealed, although the Tribunal heard it after the commencement of the Uniform Law and Application Act. 2. We are satisfied that pursuant to sch 4 cl 26 of the savings and transitional provisions to the Application Act, the Uniform Law does not apply to this matter as the proceedings were commenced by way of a complaint made under Chapter 4 of the 2004 Act, but they were not disposed of before 1 July 2015. Therefore, where the Tribunal makes a finding of professional misconduct or unsatisfactory professional conduct, its power to make orders continues to arise under s 562 of the 2004 Act. Discussion and Findings 1. We have considered of all of the evidence in this matter and have applied the principles expressed in Bolster, Harvey and Moulton to that evidence as follows. 2. We note that in Harvey, Street CJ stated (at p170): Where there is any conflict between the interest of the client and that of the solicitor, the duty of the solicitor is to act in perfect good faith and to make full disclosure of his interest. It must be a conscientious disclosure of all material circumstances, and everything known to him relating to the proposed transaction which might influence the conduct of the client or anybody from whom he might seek advice. To disclose less than all that is material may positively mislead. Thus for a solicitor merely to disclose that he has an interest, without identifying the interest, may serve only to mislead the client into an enhanced confidence that the solicitor will be in a position better to protect the client's interest. The conflict of interest may, and usually will, be such that it is not proper, or even possible, for the solicitor to continue to act for and advise his client. A solicitor, who deals with his client while remaining his solicitor, undertakes a heavy burden. Where a solicitor discovers that continuing to act for his client will, or may, bring the interests of his client and his own interests into conflict, it will be a rare case where he should not, at least, advise his client to take independent legal advice. 1. We note that in Bolster, the solicitor borrowed moneys from his clients placing them into a finance company in which he had an interest and which then made advances to himself and his family and companies in which he or they had an interest. He acted as solicitor for his clients in these transactions without making a full and proper disclosure of his interest and without advising his clients to take independent legal advice. The solicitor conceded that his conduct was "improper" but submitted that it was not unprofessional. He also submitted that, "after certain matters published in a Law Society Journal came to his notice in early 1979 … he became aware that his conduct in the investment of clients' money, so they were used for his benefit, was contrary to what appeared in the Journal (and that as a consequence) no further lending in the same fashion of clients' money occurred (and) that about two years later by the time the proceedings before the (Statutory) committee were pending, all clients moneys so lent had been repaid (such) that no client lost any money and that the transactions were not unfair to clients and that clients' investments were not at risk because he was a very wealthy man and his ventures were financially secure." 2. Moffit P stated: The more his case based on claims of ignorance is pressed in defence of him, as it has been in respect of the period up to 1979 and to some degree thereafter, to the point where the ignorance is of the elementary but critically important obligations of a solicitor and person in a position of trust in relation to his clients, the more his case establishes that he has such a lack of appreciation of his duty as a solicitor that he is unfit to be such .. in so far as his case cannot be pressed that far so he did have the understanding of these elementary matters that one would expect of a solicitor, particularly one of thirty years standing, then he is left in a position that he must have knowingly disregarded the standards in order to serve his own financial interests by large sums of moneys of his clients being made available for his ventures, by such moneys being advanced to the finance company and then by it to him, his family and his companies without security at either step so that he as a borrower had a reservoir of money without being put to the expense of meeting the cost of providing proper securities or having the inconvenience and restriction of securities upon his assets or affairs. 1. Moffit P also commented that the solicitor either, …lacked the most elementary knowledge and understanding of his duty as a solicitor or, being aware of it, he disregarded it because clients' money provided a convenient source of finance for his own ventures. Many decisions of this Court in recent years … make it clear that the solicitor's case is quite untenable, whatever way it be put and whatever be the precise conclusion proper to be come to as to the state of awareness of the solicitor of his duty… 1. His Honour also stated: …A solicitor cannot justify failure to perform his duty to his clients, including that not to intermingle his affairs with theirs, by claiming that he was ignorant of Harvey's decision or the elementary principles there stated or that he misunderstood or was unaware of the many warnings to solicitors by the Law Society in its publications since Harvey's case. A claim such as the solicitor makes, even if fully accepted, is a confession of ignorance of his fundamental duty as a solicitor and hence of his unfitness to be a solicitor. Any solicitor should acquaint himself concerning his duty as a solicitor. There is no excuse at all for not doing so for a solicitor so long as in practice as the solicitor in the present case, who has had such extensive dealings. A breach of duty does not cease to be such because the solicitor is ignorant of his duty. Lack of awareness of what he does is misconduct does not make it otherwise. And further: The fact that the solicitor did not act fraudulently or that clients did not lose money does not prevent the solicitor of being found guilty of professional misconduct. .. true it is that no client in fact lost his capital and that the risk of that occurring was small. … for reasons which earlier appear I am quite unpersuaded by the case sought to be made (by the solicitor) that the advances were in terms which the client would have accepted, if they had had independent advice". The President said that the solicitor "was guilty of a sustained course of conduct deliberately embarked on and pursued for his own advantage which was professional misconduct which rendered and renders him unfit to be a solicitor. 1. In Vaughan, this Tribunal determined as follows: 31 In the 1981 decision of the Court of Appeal in Law Society of NSW v Moulton (1981) 2NSWLR 736. Mr Moulton was a solicitor. He was found by the Solicitors Statutory Committee in disciplinary proceedings to have been guilty of professional misconduct by way of borrowing from clients. The loans were to him or his company which he controlled and in which he had a substantial interest. The Statutory Committee held that his conduct constituted professional misconduct and fined him $1,000.00. On appeal, the Court of Appeal held that the relevant professional misconduct rendered him unfit to remain on the roll and he was struck off… 33 Hope JA, with whom Reynolds JA agreed, said: In cases such as the present one, it is essential to remember, indeed to emphasise, that a solicitor stands in a fiduciary relationship to his clients. If he is to have business dealings with them on his own account, and in particular if he is to borrow money from them, the requirements of the law are rigorous. The need for that rigour is obvious. Commonly, to great extent, always to some extent, the solicitor is in position of special influence in respect of his client. Clients must be able to rely upon the professional advice of their solicitor and to place in him the fullest confidence that he will protect them and handle their affairs in their interests. Where a solicitor wishes to borrow from a client, the client must be put in a position to make a free and informed decision about the proposed transaction. Since in these circumstances the interest of the client and of the solicitor can and generally must conflict, the best and easiest way to achieve this result is to insist that the client have independent and informed advice .If this does not happen, a heavy burden indeed lies upon the solicitor to show that he has done everything in his power to protect the interests of his client and to ensure that the client is aware of every circumstance that is or might be relevant to his decision. If a solicitor wishes to use his client's money to finance some business he is carrying on, it is almost impossible to see how the client can be adequately protected and advised without insisting that he gets independent advice. Moreover it must be borne in mind that many clients are not able effectively to decide whether an investment is a prudent one, no matter what information is given to them, and that the greater the trust of the client in the solicitor the greater is the need for independent advice where a conflict of interest may arise." (Law Society of NSW v Moulton (1981) 2 NSWLR 736 at 739F to 740B) 34 His Honour also said (at 740B): "…in considering whether a solicitor has been guilty of professional misconduct in a dealing with a client, and in considering the gravity of that misconduct, the fact that the client , in the ultimate event, suffers no loss is of little, if any, relevance. If the acts or omissions of a solicitor constitute professional misconduct, they do so at the time when they occur." 35 His Honour also said (at 740D): "…. it is also necessary to say that none of the propositions I have stated is new law; they were not established for the first time by the decision in Harvey [1976] 2 NSWLR 154. Indeed they are expressive of a standard of behaviour which members of the public should be entitled to and expect without recourse to legal precedent of those whose probity as well as skill has been certified by the court. It is no answer to the charge of professional misconduct in relation to transactions with his client's money that the solicitor did not appreciate that what he was doing constituted misconduct." (Law Society of NSW v Moulton (1981) 2 NSWLR 736at 740 D to E). 1. Having applied these principles to the evidence in this matter, we are satisfied that each of the three (3) grounds pleaded in the Application have been made out and that the Solicitor is guilty of professional misconduct as defined in ss 497(1)(b) and 498 (1)(a) of the 2004 Act. Considerations as to Penalty 1. The well-established principle that the primary object of disciplinary proceedings against a legal practitioner is to protect members of the public from professional misconduct was stated by the High Court of Australia in Walter v Council of Queensland Law Society Inc (1988) 62 ALJR 153 at 157 (per by Mason CJ and Wilson, Deane, Toohey and Gaudron JJ). Further, in Smith v New South Wales Bar Association (1992) 176 CLR 256 at 270), Deane J stated: Disciplinary proceedings against a legal practitioner are primarily directed towards the protection of the public and not the punishment of the legal practitioner. 1. This principle was restated by Mahoney JA in Law Society of New South Wales v Foreman (1994) 34 NSWLR 408 (at 441-442) as follows: What, then, are the purposes of the orders to be made and the considerations to be taken into account? It has frequently been said that disciplinary procedures and the orders made in the course of them are directed not to the punishment of the solicitor but to the protection of the public. This, of course, is true. The protection of the public has been described as, for example, the primary purpose or a primary object of such proceedings: Walter v Council of Queensland Law Society Inc (1988) 62 ALJR 153 at 157E; 77 ALR 228 at 235; Smith v New South Wales Bar Association (1992) 176 CLR 256 at 270 per Deane J; or one of the primary objects of the proceedings and the orders made: see Wentworth v New South Wales Bar Association (1992) 176 CLR 239 at 251. In the relevant sense, the protection of the public is in my opinion not confined to the protection of the public against further default by the solicitor in question. It extends also to the protection of the public against similar defaults by other solicitors and has, in this sense, the purpose of publicly marking the seriousness of what the instant solicitor has done. 1. This is not a matter in which the Law Society is seeking a protective order and while we are not constrained by the orders sought in the Application, in the circumstances of this matter and noting that the Solicitor has accepted, albeit belatedly, that the established conduct amounted to professional misconduct, we are satisfied that a protective order is not warranted. 2. We are satisfied that a reprimand is appropriate in the circumstances of this matter. 3. We do not consider that the Solicitor should be required to pay a fine in view of the evidence that he has fully accounted to the NSW Trustee in Guardian for the outstanding capital of the first loan together with interest. Costs 1. Sch 5, cl 23(1) of the CAT Act provides: 23 Costs consequent of adverse conduct findings (1) Despite section 60 of this Act, the Tribunal must make orders requiring a respondent lawyer whom it has found to have engaged in unsatisfactory professional conduct or professional misconduct to pay costs (including costs of the Commissioner, a Council and the complainant), unless the Tribunal is satisfied that exceptional circumstances exist. 1. As the Tribunal has found the solicitor guilty of professional misconduct, we must make an order requiring him to pay the Law Society's costs unless we are satisfied that exceptional circumstances exist. 2. The Law Society did not specifically refer the Tribunal to any case law in relation to this issue. However, we note that in the matter of Council of the New South Wales Bar Association v Miller (No 2) [2012] NSWADT 129 (at [44]), the ADT determined that 'not even bankruptcy alone will constitute exceptional circumstances' for the purposes of sch 5 cl 23(1) of the CAT Act. 3. We note that the ADT considered the question of 'exceptional circumstances' in the matter of Council of the Law Society of New South Wales v Hinde [2011] NSWADT 20. In that matter, it found the solicitor guilty of professional misconduct against and determined that as a result of 'exceptional circumstances', he should not be ordered to pay the Law Society's costs. It based that determination principally on the solicitor's poor financial circumstances and the fact that he was 82 years of age. It summarised its reasons as follows, at [32 – 33]: 32 The features of this case that support a finding of 'exceptional circumstances' are… the advanced age of the Respondent and his straitened financial situation. The relevant aspects of his financial situation are these: (a) he has a very small regular income, taking the form of a state pension; (b) he has no assets of significant value; (c) due in particular to his age, he has no significant prospect of obtaining gainful employment; and (d) any costs order against him could only be satisfied by small instalment payments commencing on a future date and lasting over a significant period of time. 33 In the context of disciplinary proceedings such as these, we are satisfied that these constitute 'exceptional circumstances'. They fall within the phrase 'out of the ordinary course, or unusual, or special, or uncommon', used in R v Kelly (Edward) [2000] QB 198 at 208 and adopted by the Queensland Legal Practice Tribunal in Legal Services Commissioner v Scott (No 2) [2009] QLPT 9 at [19]. The hearing of disciplinary proceedings against a legal practitioner who is both as far past the normal age of retirement and as impoverished as the Respondent is indeed a most unusual phenomenon. 1. In the matter of Council of the Law Society of New South Wales v Webb (No 2) [2012] NSWADT 212, the ADT held that an order for payment of only 50% of the Law Society's costs was justified in the light of 'exceptional circumstances'. At [52], it outlined these as follows: 52… The trial was longer than it need have been; the Solicitor remains liable to pay a very substantial sum towards the costs of the investigation of his practice; his financial circumstances are relatively poor… 53 We have decided that this is also a case in which 'exceptional circumstances' exist, but only to the extent of providing partial relief from liability for costs. 54 In so deciding, we take account of the following matters. The degree to which the Solicitor is impoverished is comparable to that of the respondent in Hinde. His prospects of re-employment, at least in the immediate term, are low and that they might be reduced by being ordered to make a significant payment on account of costs. He raised relatively little opposition to the case brought by the Law Society, though the opposition that he did raise inevitably contributed to the scale of the costs incurred by the Society. 55 Our order is that he is to pay the sum of $2,000 to the Law Society on account of costs. 1. In our view, the current matter differs from Hinde and Webb as the Solicitor has not filed any evidence that supports a finding that exceptional circumstances exist and we have determined that it is appropriate to make an order for payment of the Law Society's costs pursuant to sch 5, cl 23(1) of the CAT Act. Findings and Orders 1. We find the Solicitor guilty of professional misconduct pursuant to ss 497(1)(b) and 498(1)(a) of the 2004 Act. 2. Pursuant to s 562(2)(e) of the 2004 Act, we order that the Solicitor be reprimanded. 3. Pursuant to sch 5, cl 23(1) of the CAT Act, we order the Solicitor to the Law Society's costs, as agreed or assessed. I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal. Registrar ********** I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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. Decision last updated: 19 January 2016