Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Council of the Law Society of New South Wales v Bouzanis [2017] NSWCATOD 84 Hearing dates: 10 October 2016 and 7 March 2017 Date of orders: 26 May 2017 Decision date: 26 May 2017 Jurisdiction: Occupational Division Before: D Cowdroy QC ADCJ, Principal Member J Wakefield, Senior Member E Hayes, General Member Decision: 1. The Application filed by the Council alleging a breach of s255 and/or a breach of s254 of the Act is dismissed; and 2. Any application for costs should be notified to the registry within 14 days for listing by arrangement in default of which notification there will be no order as to costs. Catchwords: Civil and Administrative Tribunal (NSW) – Occupational Division - jurisdiction – misappropriation of trust monies – whether payment for unpaid counsel's fees is trust monies - s 246(4) Legal Profession Act 2004 - professional misconduct – removal from roll Legislation Cited: Legal Profession Act 2004 Cases Cited: Council of the Law Society NSW v Andreone (No 1) [2014] NSWCATOD 49 Law Society of the Australian Capital Territory In relation to the conduct of Robb and Rees BC 9602649 Law Society of NSW v Davidson [2007] NSWADT 264 Legal Services Commissioner v McCristal (Legal Practice) [2011] VCAT 231 Legal Services Commission v Russo [2016)NSWCATOD 42 Texts Cited: Nil Category: Principal judgment Parties: Council of the Law Society of New South Wales (Applicant) Peter Bouzanis (Respondent) Representation: Counsel: G Johnson (Applicant) P Strickland SC (Respondent) Solicitors: Council of the Law Society of New South Wales (Applicant) File Number(s): 2015/00383882 Publication restriction: Nil REASONS FOR DECISION 1. By Amended Application for Disciplinary Findings and Orders, the Council of the Law Society of New South Wales ("the Council") seeks orders that Peter Bouzanis ("the solicitor") be removed from the Roll; that the solicitor pay the Council's costs, as agreed or assessed, and for incidental orders. 2. The critical issue for determination giving rise to this application is whether the solicitor acted dishonestly or otherwise inappropriately in banking a cheque payable to him by his client into his general account, rather than his trust account, when such cheque was provided by the client in response to an invoice rendered by the solicitor for his professional costs and for disbursements which had been incurred by the solicitor. The essential facts are not in dispute. Facts 1. During 2011 and 2012 the solicitor acted for Mr and Mrs Setchell ("the clients") who were defendants in proceedings brought against them in the District Court arising out of a home building matter. The proceedings were contested and continued to completion. For the purposes of the defence, the solicitor engaged a consulting engineer namely BSPR Pty Ltd ("BSPR") and engaged counsel, namely Mr R. Parsons. The conduct of the litigation is not in question. 2. On 7 May 2012 the clients paid $27,400 into the solicitor's trust account on account of costs. On the 16 May 2012 judgement was delivered by the District Court which was adverse to the clients. 3. On 14 May 2012 the solicitor transferred $8,072 in part payment of his professional costs. 4. On 24 May a further sum, described in the trust account ledger as "balance of fees", in the amount of $7,768 was debited. Accordingly, the amount of $15,840 was paid by way of legal fees to the solicitor from the monies held in trust. 5. On 23 May 2012 the solicitor rendered a final comprehensive memorandum of costs and disbursements to the clients, recording all interim invoices rendered by the solicitor and the debits from monies already is received from the client. The final memorandum recorded and outstanding amount of $19,504.75 as owing. The debit owing did not relate to any further professional costs of the solicitor, but rather to disbursements which had been incurred and which remained unpaid. Those debits comprise the following: 1. fees payable to Mr Richard Parsons, as per his enclosed memorandum of fees: $22,068.75; 2. fees payable to Vecta Pty Ltd for a report: $1,369.50; 3. fees payable to BSPR Pty Ltd for Expert witness (invoice enclosed): $5,329.50; 4. Office disbursements and sundries (itemised): $757.00 1. The clients duly sent a cheque to the solicitor in the amount of $19,504.75. It appears that by this date the debt to Vecta had been paid, as this is not in question in these proceedings. However what is in question is the conduct of the solicitor after he received the cheque, which was banked into his office account on 21 June 2012. On the following day he allocated to himself the disbursements owing to him by the clients. 2. The solicitor claims that he did not realise until 26th June 2012 that the cheque had not been banked into his trust account, and was most concerned at his mistake. He then looked at the general account credit, and saw that, because of intervening debits on the general account, there were insufficient funds to meet the payments owing to Mr Parsons and to BSPR. However, to alleviate the debt to Mr Parsons, the solicitor drew a cheque on his general account in the amount of $12,068.75 in part payment of Mr Parsons' outstanding fees, leaving a debt owing of $10,000 to Mr Parsons. Mr Parsons has made no complaints concerning non-payment, and does not seek recovery of the fees owing to him until some future time when the solicitor might be in a financial position to make such payment. 3. The solicitor had no funds remaining in the general account to meet the debt of BSPR; however, he states that he intended to pay BSPR. In due course, namely on 20 May 2013, BSPR lodged a complaint with the Law Society concerning the non-payment of its fees. In January 2015 the solicitor paid BSPR a compromised sum of $4,040. Subsequently, when BSPR learned of the circumstances of non-payment, it claimed the full amount. During the course of the hearing the solicitor undertook to pay the remainder of the debt to BSPR within 14 days of the date of the hearing before this Tribunal. Council's claim 1. The Council submits that because the memorandum of fees rendered to the clients included amounts for unpaid disbursements, the solicitor was required to deposit the client's cheque into his trust account to enable the disbursements to be paid. The Council submits that the failure of the solicitor to do so constitutes a breach of s.255 of the Legal Profession Act 2004 ("the Act"), (now repealed but see below) or alternatively a breach of s 254 of the Act. Further, the Council claims that the solicitor is guilty of misappropriation. Section 255 of the Act provided: 255 Holding, disbursing and accounting for trust money (1) A law practice must: (a) hold trust money deposited in a general trust account of the practice exclusively for the person on whose behalf it is received, and (b) disburse the trust money only in accordance with a direction given by the person. (2) Subsection (1) applies subject to an order of a court of competent jurisdiction or as authorised by law. (3) The law practice must account for the trust money as required by the regulations. 1. Section 254 of the Act provided: 254 Certain trust money to be deposited in general trust account (1) Subject to section 258A, as soon as practicable after receiving trust money, a law practice must deposit the money in a general trust account of the practice unless: (a) the practice has a written direction by an appropriate person to deal with it otherwise than by depositing it in the account, or (b) the money is controlled money, or (c) the money is transit money, or (d) the money is the subject of a power given to the practice or an associate of the practice to deal with the money for or on behalf of another person. (2) Subject to section 258A, a law practice that has received money that is the subject of a written direction mentioned in subsection (1) (a) must deal with the money in accordance with the direction: (a) within the period (if any) specified in the direction, or (b) subject to paragraph (a), as soon as practicable after it is received. (3) The law practice must keep a written direction mentioned in subsection (1) (a) for the period prescribed by the regulations. (4) A person is an "appropriate person" for the purposes of this section if the person is legally entitled to give the law practice directions in respect of dealings with the trust money. 1. The Act was repealed, effective from 1 July 2015, as a result of the Legal Profession Uniform Practice Law Application Act 2015 ("the Uniform Law"). However, by virtue of the Savings and Transitional Provisions of the Uniform Law, the Act continues to apply to this matter. Accordingly the Tribunal has considered the solicitor's conduct under the relevant provisions of the Act. The parties do not assert otherwise. Solicitor's submission 1. The solicitor does not challenge the assertions that he is guilty of misappropriation, but submits that the misappropriation was not dishonest. Additionally, the solicitor does not challenge that the conduct complained of was unsatisfactory. However the solicitor states that the extent of the misappropriation is limited to an amount of approximately $6,000 in view of the fact that he paid $12,068.75 to Mr Parsons out of the amount wrongly credited to his general account. At the time he observed the mistake and in 26 June 2012 the general account had a credit of $14,090. After part payment of Mr Parson's fees, there was insufficient monies, due to other debits in the general account, to meet the invoice of BSPR. Assessment of Facts 1. When the cheque in payment was received by the solicitor he states that he "inadvertently" arranged for the payment of the amount of $19,504.75 (being the amount of the cheque from the client) to be paid into his general account. The solicitor says that such allocation was made when he handed to his paralegal, Ms Karen Cho, the deposit book for the office account instead of the trust account. 2. Ms Cho states that she had worked with the solicitor for eight years prior to 2016. She explained that the solicitor kept bank books in his room in a drawer located behind his chair. She states that if the solicitor had time he would complete the bank book, place the cheques for banking in the front of the deposit slip and hand the bank books to her to take to the bank. If the solicitor was busy he would hand the bank books and cheques to her and she would fill out the deposit slip. She stated that usually around lunchtime each day she would ask the solicitor whether there was any banking for that day and she would then attend to it. She states that when cheques were received in payment of accounts for the firm's fees, the solicitor usually banked the checks into the general account. 3. There is no specific reference in the affidavit to the receipt and banking of the cheque received from the clients in payment of the account of 23 May 2012. However the solicitor has annexed to his affidavit the deposit slip dated 21 June 2012 which relates to the deposit of the subject cheque. The solicitor states that the deposit slip is not filled out in his handwriting, and Ms Cho confirmed that she wrote out the deposit slip. 4. The solicitor states that he did not turn his mind to the fact that the cheque so received included payment of Mr Parsons' fees and the fees of BSPR. He acknowledges that he should have deposited the cheque into his trust account or immediately transferred to those creditors the amounts which were owing to them. 5. The solicitor states that as at June 2012 he was not "thinking clearly" for several nominated reasons. He was concerned about his health following advice that he had a possible risk of developing cancer. He had been advised on 19 June 2012 by his medical practitioner, following a colonoscopy, that a pre-cancerous polyp had been located in his bowel and that he would need to be checked every two years. His grandfather had died from such disease years previously. 6. The solicitor had been hospitalised with an infection in 2012, and the evidence confirms that he spent from 9 April 2012 to 12 April 2012 at the Kareena Private Hospital and a further day on 6 June 2012. 7. The solicitor stated his finances were restrained due to a decline in profitability of his practice. His personal assistant, Ms Janey Camnow, required time off work for different periods of time because of her confinement, leading to an increased workload. 8. The solicitor stated he was very stressed and was not enjoying his work and that the relationship with his wife was severely strained. There is evidence which establishes that his marriage has since failed and that the solicitor is living in a rented apartment following his divorce in October 2016. 9. The solicitor states that he had no intention of misappropriating any funds that were paid to him by his clients. He states that when he discovered that his client's cheque had, by mistake, been banked into his office account between 21 June 2012 and 26 June 2012, the majority of funds in the office account had been depleted and he had no financial capacity to pay the outstanding amounts owing to Mr Parsons and to BSPR. 10. The solicitor has provided financial information concerning his financial affairs and his income for the year ended 30 June 2016. His net annual income was $65,251.17. He stated in the financial year ended 30 June 2012 his former wife was not working and he was supporting her and his two younger children, then aged 14 and 16 and his list of expenses showed that his outgoings were similar to his income. 11. The solicitor also refers to other matters which he states impacted upon his financial position. On 6 November 2012 he was ordered by the District Court of New South Wales to pay the costs of litigation in which he had become embroiled when he took over the operation of the business NCS Corporate Services Pty Ltd, which failed. A judgment was entered against that company in the District Court of New South Wales on 31 August 2012 in the amount of $200,808. In consequence the solicitor says he found it very difficult to obtain credit . In December 2013 a sequestration order was made against his estate and Bruce Gleeson of Jones Partners was appointed his Trustee. BSPR 1. It is necessary to consider the correspondence which passed between the solicitor and BSPR. On 6 June 2012 the solicitor wrote to BSPR requesting that company to wait for four weeks whilst payment was received from the client. On 31 January 2013 the principal of BSPR, Mr Art Candarakis, wrote to the solicitor, referring to the unpaid account and stated: "Following a phone discussion with yourself on 11 October 2012, a 20% discount was applied to this invoice to reduce the financial hardship entailed by your client. This discount was applied on the condition that payment would be received within 60 days. As payment has still not been received, I have been left with no option but to now remove this discount and ask that payment (in an amount of $5,329.50) be made within seven (7) days." 1. By letter dated 25 April 2013, Mr Candarakis reported that he had spoken with the clients and that the clients had provided him with a copy of the costs and disbursements memorandum dated 23 May 2012 which was paid in full on 20 June 2012. The letter states: "I presume that this money was placed in trust. I can only assume that there was an "oversight when all professional fees were being disbursed. You are hereby advised that unless our account (reference K12/154) dated 15 May 2012 is paid in full by close of business on Friday, 3 May 2013, I will have no choice but to refer this matter to the NSW Law Society. I will also commence debt recovery proceedings for the full amount, plus interest." Submissions of the Council on orders to be made 1. In its submissions dated 8 September 2016 the Council has referred to the fact that the particulars of the alleged conduct are within a "narrow range". Essentially, it is alleged that the funds received from the client were appropriated, directed by the solicitor, or intermixed with other funds in his general account and used by him for the purpose other than that for which the funds were received. The Council charges that the respondent has been guilty of professional misconduct, within the meaning of s.497 of the Legal Profession Act 2004 as it then was. The Council submits that in accordance with the authorities referred to hereunder, the facts warrant removal of the solicitor from the Roll of Solicitors. 2. In its supplementary submissions dated 21 September, the Council has drawn the attention of the Tribunal to recent authorities. Solicitor's Submissions 1. The solicitor has readily acknowledged his parlous financial position; has stated that it was not his intent to defraud BSPR and that the failure to pay BSPR resulted from the mistake in crediting the client's cheque to his office account. 2. The solicitor is no longer practising as a sole practitioner but may be eligible to do so following his release from bankruptcy. He is currently working with the firm of Owen D. Hodge at Hurstville in an employed capacity. In his oral testimony the solicitor states that he is now enjoying his work as an employee and is avoiding the stress of a sole practitioner. He states he would never again seek to practise on his own account. 3. The solicitor states that when he discovered his mistake in banking the cheque to his office account: "I took immediate action to remedy the situation so far as it was reasonably within my financial capacity to do so, by drawing a cheque for $12,068.75 on my office account and forwarding it to Mr Parsons in part payment of his outstanding fees". 4. The solicitor discloses that on 22 February 2006 he was found guilty of professional misconduct for failing to pay superannuation to his staff. He states that he admitted such breach; received a reprimand and was ordered to pay costs. Further, he has had two convictions for drink-driving offences. The first was 10 years ago when he was convicted of low-range drink-driving and lost his licence for three months; the second was 3 to 4 years ago when he was convicted of mid-range drink-driving and lost his driving licence for six months. 5. The affidavit of Anne- Marie Foord sworn on 9 October provides more detail of the solicitor's past history with the Law Society. It confirms that the solicitor was admitted to practise on 20 December 1984, and attaches correspondence relating to the current proceedings. 6. The solicitor has now practised as a lawyer for approximately 31 years and since being admitted as a solicitor in 1984, his only viable means of earning a living has been the practice of law. The solicitor refers to the references provided. Such references refer to the fact that the conduct of a solicitor is out of character; that he has been a reliable and responsible practitioner; that there were family issues which have impacted upon the solicitor in about 2012. Significantly, Mr Parsons has provided statements in his affidavit which confirm that in all his dealings with the solicitor since the 1980s, when Mr Parsons was first briefed by the solicitor, he has always found him to be a wholly responsible practitioner. Further, Mr Parsons stated he would readily accept instructions from the solicitor and would trust his "competence and honesty, notwithstanding what has evidently transpired" concerning the complaint. Such assessment was supported by another legal practitioner who was conducting a practise nearby. Similar comments were made by numerous clients and business associates. Findings 1. The primary issue for determination by the Tribunal is the characterisation of the monies paid to the solicitor: that is, whether such monies comprised "trust" monies which necessitated the solicitor depositing the cheque in his trust account; or alternatively whether such monies were not so characterised in which case the solicitor was at liberty to deposit the monies in his general account. 2. The secondary issue relates to the conduct of the solicitor in the past leading to the complaint and, significantly, the protection of the public and the maintenance of the standards expected of the profession. Were the monies "trust monies? 1. Section 243 (1) of the Act defines "trust money" as follows: ""trust money" means money entrusted to a law practice in the course of or in connection with the provision of legal services by the practice, and includes: (a) money received by the practice on account of legal costs in advance of providing services, and (b) controlled money received by the practice, and (c) transit money received by the practice, and (d) money received by the practice, that is the subject of a power,… to deal with the money for and on behalf of another person." 1. "Costs" is incorporated in the definition in the Act with the definition of "Legal costs" and is defined as follows: "Legal costs means amounts that a person has been or may be charged by or is or may become liable to pay, a law practice for the provision of legal services including disbursements but not including interest". 1. Section 246 (4) of the Act provides: "(4) Money received for costs not trust money Money received in the course of or in connection with the provision of legal services by a law practice for on behalf of another person for the payment of costs due to the practice ((including costs that have been awarded by a court, tribunal or other body that has power to award costs), is not trust money for the purposes of this Act." 1. The Council submits that the reference to "costs" is defined in s4 of the Act to mean "legal costs"; that is, monies that a person has been or may be charged by, or is or may become liable to pay to, a law practice for the provision of legal services including disbursements. Since the amount of $19,504.75 comprised disbursements paid to meet third-party expenses, it was not "for the payment of costs due to the practice" because the professional costs of the firm had already been paid. That is, the whole of the monies received were for third parties and were entrusted to the respondent for the purpose of meeting the itemised disbursements as shown on the final invoice and accordingly the whole of the monies were trust monies. With respect to the Council we cannot accept this submission. The definition of legal costs to which we have referred is not an amount "for the payment of costs due to the practice". Although the payment was to meet third party charges, in our view it falls within the definition of "legal costs" under the Act, being an amount that the client is liable to pay the law practice for the provision of legal services as a disbursement. 2. The solicitor submits that the operation of s 246 (4) has the consequence that the monies paid by the client did not constitute "trust monies"; that the term "disbursements" in the definition of "legal costs" in s4 does not include money paid to a law firm for counsel's fees: rather the word "disbursement" means the payment of money from a fund. No authority was supported for this proposition. There is no definition of the word "disbursement" in the Act. The Tribunal has previously accepted that the word "disbursement" includes unpaid counsel's fees; see for example The Law Society of New South Wales v Davidson [2007] NSWADT 264. The solicitor does not submit that the payment due to BSPR was not a disbursement. 3. The respondent acknowledges that he should have paid Mr Parsons and BSPR. However as he paid the majority of Mr Parsons fees, that is the disbursement of $12,756.25, there was no misappropriation of such amount. The only amount for which misappropriation (which was not dishonest) could be said to remain is the amount of $5991.50 being the amount remaining after payment of Mr Parsons fees, and payments of $757 for disbursements owing to the law firm. 4. The operation of s 246(4) has been explained by the Council in its submissions filed on 12 December 2016 as follows:– "20. It is not uncommon for a solicitor to issue an invoice to a client seeking payment of the solicitor's professional fee for work undertaken, as well as for disbursement, for instance, for Counsel's fees for work undertaken. In such cases when the client makes a full payment for the total amount of the solicitor's invoice, it is readily infer a ball, that the funds received by the client [sic from the client) ought to be apportioned for the solicitor's and counsel's fees. The question of apportionment in the general example given is important, because money paid by a client to a solicitor in respect of the solicitor's fees for services rendered is not trust monies: s 246 (4) but money paid by a client to a solicitor in respect of unpaid counsel's fees is trust monies under the Act: Council of the Law Society NSW v Andreone (No 1) [2014] NSWCATOD 49. It stands to reason that monies paid by our client to a solicitor for the purposes of paying a third party is not money that belongs to the solicitor, but is money entrusted to the solicitor for a purpose." 1. In Andreone the Tribunal found that since payment was made by the client to the solicitor for counsel's fees, such monies became trust funds and that if the monies were paid into an office account, there was misappropriation. Such analysis was followed by the Tribunal in Legal Services Commission v Russo [2016)NSWCATOD 42 where, at [26] the Tribunal concluded that where payment is made to a solicitor's firm for monies that included unpaid counsel's fees, "to the extent of the counsel's fees, the funds received by the law practice were trust monies". A similar conclusion was found in Law Society of NSW v Davidson [2007] NSWADT 264 at [50]. 2. It is not apparent that either Andreone or Russo considered the operation of s246(4) of the Act. No similar provision existed in the repealed Legal Profession Act 1987. The Tribunal notes that under the current uniform law, it is specifically provided that money received by a law practice for legal services that have been provided and in respect of which a bill of costs has been given to the client is not trust money for the purposes of that law: see s 129 (2). 3. Decisions have been made in respect of the equivalent legislation in both the Australian Capital Territory (see Law Society of the Australian Capital Territory In relation to the conduct of Robb and Rees BC 9602649) and in Victoria (See Legal Services Commissioner v McCristal (Legal Practice) [2011] VCAT 231 (10 February 2013). However those decisions related to legislation which did not include the equivalent to s 246 (4). The Tribunal has observed that in Law Society of New South Wales v Davidson [2007] NSWADT 264 (16 November 2007) a reference is made to s 264 (4) of the Act. The Tribunal observed that such section was not in force at the relevant time for those proceedings. It appears that the reference to that section is erroneous, and that it should have been a reference to s 246(4). Irrespective, the Tribunal does not consider that such decision assists in the absence of any considered argument in relation to it. 4. The Tribunal has considered the heading to s 246 (4) in the aid of its interpretation, as is permissible pursuant to s 35 (2) (a) of the Interpretation Act 1987 (NSW). Its intent is plain. Further, there is no mandate for any apportionment to be made as is suggested in the Council's submission. In the circumstances the Tribunal is driven to the conclusion that giving effect to the intent of s 246 (4), the monies received by the solicitor for disbursements already incurred by him did not constitute trust monies. Certainly a moral obligation existed on the solicitor to make payment of the disbursements, but this does not, in view of the subsection, rise to a legal obligation as between the client and the solicitor. Conclusion 1. The Tribunal concludes that the provisions of s 246 (4) must be given its natural and ordinary meaning. By applying such meaning to the facts in the present circumstances, the Tribunal concludes that the monies received from the client for disbursements which had already been incurred and the liability for which rested on the solicitor, not the client, were not trust monies as defined. In view of such finding there was no obligation on the part of the solicitor to deposit the cheque from the client in the solicitor's trust account. 2. The Tribunal notes the solicitor's submissions which acknowledge a degree of wrongdoing. However in the Tribunal's conclusion, the solicitor is in error in believing that he committed a breach of the Act. The Tribunal finds that there has been no misappropriation as alleged. In these circumstances, the principles relied on by the Council relating to a breach of the standards, and of the need to protect the public, have no application in this matter. 3. It follows from the Tribunal's conclusion that; 1. the Application filed by the Council alleging a breach of s255 and/or a breach of s 254 of the Act be dismissed; 2. Any application for costs should be notified to the registry within 14 days for listing by arrangement in default of which notification there will be no order as to costs. ********** 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: 26 May 2017