Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Law Society of New South Wales v Teys [2018] NSWCATOD 163 Hearing dates: 16 January 2018; 28 May 2018; 29 May 2018; 30 July 2018 Date of orders: 27 September 2018 Decision date: 27 September 2018 Jurisdiction: Occupational Division Before: K O'Connor, AM, ADCJ, (Deputy President) S Westgarth, (Deputy President) M Riordan (Senior Member) B Thomson (General Member) Decision: (1) The name of the Respondent be removed from the roll of local lawyers; and (2) The Respondent pay the costs of the Applicant as agreed or assessed. Catchwords: DISCIPLINARY APPLICATION – Legal practitioner - Professional misconduct – Failure to remit monies to Australian Taxation Office – Failure to pay superannuation entitlements - Intermixing trust monies Legislation Cited: Civil and Administrative Tribunal Act 2013 (No. 2) Evidence Act 1995 NSW Legal Profession Act 2004 NSW Legal Profession Uniform Law Act 2014 NSW Legal Profession Uniform Law Application Legislation Amendment Act 2015 NSW Cases Cited: A Solicitor v The Council of the Law Society of New South Wales [2004] 216 CLR 253 Allinson v General Counsel of Medical Education and Registration [1894] 1 QB 755 Barraket v Law Society of New South Wales [2014] NSWSC 773 Bechara v Legal Services Commissioner [2010] NSWCA 369 Council of the Law Society of New South Wales v Wehbe [2018] NSWCATOD 14 Council of the Law Society of NSW v Adams [2011] NSWADT 177 Council of the Law Society of NSW v Andreone (NO.1) [2014] NSWCATOD 49 Kennedy v The Council of the Incorporated Law Institute of New South Wales (1939) 13 ALJ 563 Kennedy v The Council of the Incorporated Law Institute of New South Wales (1939) 13 ALJ 563 Law Society of New South Wales v Jones (unreported) NSWCA 333 (1977), Law Society of NSW v Koffel [2010] NSWADT 149 New South Wales Bar Association v Cummins [2001] NSWCA 284 New South Wales Bar Association v Hamman [1999] NSWCA 404 Category: Principal judgment Parties: Law Society of New South Wales (Applicant) Michael John Teys (Respondent) Representation: Counsel: B Tronson (Applicant) Solicitors: Law Society of NSW (Applicant) Greg Walsh & Co (Respondent) File Number(s): 2017/00162479 Note: The Tribunal Panel was reconstituted under the Civil and Administrative Tribunal Act 2013, No.2 (NSW), section 52, by order of the President dated 9 April 2018. The Hon Acting District Court Judge Kevin O'Connor, Deputy President was replaced by Mr Stuart Westgarth, Deputy President. REASONS FOR DECISION Introduction and Grounds of the Application 1. The Law Society of New South Wales (the Applicant) has brought an application against the solicitor (the Respondent) seeking orders that: 1. The Respondent's name be removed from the roll of local lawyers; 2. The Respondent pay the costs of the Applicant as agreed or assessed; and 3. The Respondent be subject to any other order as the Tribunal deems fit. 1. The application alleges that the Respondent: 1. Failed to remit monies to the Australian Taxation Office (ATO); 2. Failed to pay superannuation entitlements; and 3. Breached s 260 of the Legal Profession Act 2004 (LP Act). It sets out the following particulars: Definitions Company The entity identified as ACN [number] Law Practice Means the incorporated legal practice known as Teys Lawyers Pty Ltd trading until and including 7 April 2014 as Teys Lawyers situated at [address], of which the Respondent was the sole legal practitioner director New Law Practice means the law practice commenced on 8 April 2014 trading under the name Michael Teys Lawyers, situated at [address], of which the Respondent was the sole principal Ref means reference to the location of the documents relied upon to support the pleaded particular Respondent means Michael John Teys, admitted to the Supreme Court of Queensland Roll on 17 December 1985 and the Supreme Court of NSW Roll on 24 February 2000; and at all material times the holder of an unrestricted practising certificate issued by the Applicant; and at all material times the legal practitioner director of the Law Practice and then the sole principal of the New Law Practice The Act Means the Legal Profession Act 2004 Background 1. On 25 September 2007 an entity was incorporated under the name Entinala Pty Ltd ACN [number] (Company). (Ref JM at pp 53, 194] 2. On 5 February 2010 the Respondent caused the Company to change its name to Michael Teys Strata Law Pty Ltd. [Ref JM at pp 53, 194] 3. On 12 March 2010 the Respondent caused the Company to change its name to Teys Lawyers Pty Ltd. [Ref JM at pp 53, 194] 4. At all material times, the Company's shareholder was Teys Services Pty Ltd [Teys Services]. [Ref JM at p 196] 5. At all material times the directors of Teys Services were the Respondent and Michelle Anne Teys. [Ref JM at p 202] 6. Michelle Anne Teys was at all relevant times the sole shareholder of Teys Services. [Ref JM at p 206) 7. Between 25 March 2014 and 3 April 2014 the Respondent caused the transfer of sums totalling $130,300.00 to be made from various Company bank accounts into the Law Practice trust account and opened or caused to be opened a trust ledger in the name of "Funds held in trust for client: Teys, Michael" [Ledger Account]. [Ref JM at pp 166-192 incl.] 8. By 3 April 2014 the Respondent had caused a total of $72,091.78 to be paid from the Ledger Account, which payments were there identified as either payroll or expenses. (Ref JM at p 167] 9. On 4 April 2014 the Respondent caused the Company to change its name to ACN [number] Pty Ltd. [Ref JM at pp 53, 194) 10. At all material times until and including 7 April 2014 the Company traded as the Law Practice. [Ref Ex AMF1 at p 2] 11. At all material times the Respondent was the director of the Company and the legal practitioner director of the Law Practice. [Ref JM at p 194; Ex AMF1 at p 2] 12. By virtue of section 140 of the Act the Respondent as the legal practitioner director of an incorporated legal practice: a. Was responsible for the management of the legal services provided in this jurisdiction by the Law Practice; and b. Was obliged to ensure that appropriate management systems were implemented and maintained to enable the provision of legal services by the Law Practice in accordance with the professional obligations of Australian legal practitioners and other obligations imposed by or under the Act, the regulations or the legal profession rules. 13. On 7 April 2014 the Respondent caused the Company to dispose of the Law Practice to him. 14. On 8 April 2014 the Respondent commenced practising as the sole principal of the New Law Practice. [Ref JM at p 53, Ex AMF1 at p 2] 15. On 8 April 2014 the Respondent caused the remaining sum of $58,208.22 to be paid from the Ledger Account to the New Law Practice for payments for essential services on its commencement, including a sum of $11,447.45 as payroll for the Respondent ($4,807.69) and employees retained up to and including 7 April 2014. [Ref JM at pp 167, 171, ExAMF1 atp78] 16. By director's resolution on 9 April 2014, Mr Ronald Dean-Willcocks of Dean-Willcocks Insolvency Solutions was appointed voluntary administrator of the Company. [Ref JM at pp 26. 34, 40] 17. On 9 April 2014 and 12 May 2014 the Respondent prepared a Report as to Affairs (RATA). [Ref JM at pp 113-126] 18. The RATA indicated a deficiency (subject to the costs of administration) of $867,467.00 including: a. A liability to the Australian Taxation Office (ATO) of $546,697.11 comprising interest and: [Ref JM at pp 6, 11, 72, 123, 214] i. PAYG Withheld $360,380.36 ii. Fringe Benefits Tax $11,226.00 iii. PAYG Income Tax $26,327.00 iv. GST $119,923.00 b. A liability to employees of $155,864.42 comprising: [Ref JM at pp 18, 70-71] i. Wages in the sum of $81,346.11 ii. Superannuation current as at 9 April 2014 but by 28 April 2014 owing in the sum of $39,893.76 iii. Annual Leave in the sum of $10,010.16 iv. Time in Lieu in the sum of $24,615.39 19. The Company's liability to the ATO increased from nil to $546,697 during the period 1 July 2011 to 9 April 2014. [Ref JM at pp 59 para 4.5(iv), 149, 160] 20. In his Report to Creditors dated 13 May 2014 Mr Dean-Willcocks wrote: 'My own limited review to date indicates that the Company's difficulties could be attributed to trading losses incurred in the period ending 9 April 2014 and distributions made to its shareholder, Teys Services Pty Ltd.' [Ref JM at p 55] 21. During the financial year ending 30 June 2013 the Respondent caused the Company to pay dividends to Teys Services in the sum of $309,167. [Ref JM at pp 63-64] 22. During the same period the Respondent caused the Company to forward the sum of $210,000 either to Ms Michelle Teys as a loan or to Teys Services as dividends. [Ref JM at p 63] 23. During the financial year commencing 1 July 2013 the Respondent caused the Company to pay dividends to Teys Services in the sum of $152,530, the last distribution being made in March 2014. [Ref JM at pp 63-64] 24. In the financial year ending 30 June 2013 the Respondent drew $208,333 in salary from the Company. [Ref JM at p 61] 25. In the period 1 July 2013 to 9 April 2014 the Respondent drew $202,564 in salary from the Company. [Ref JM at p 61] 26. On 9 April 2014 the Respondent was personally indebted to the Company in the sum of $44,543.08. [Ref JM at p 61] 27. As at 15 April 2014 the Respondent had a personal liability to the ATO of approximately $100,000. [Ref JM at p 102] 28. On 3 June 2014 Mr Dean-Willcocks was appointed liquidator of the Company. [Ref Ex AMF1 at p 15 para 53] Ground 1: Failure to remit monies to the ATO 29. In the circumstances described in paragraphs 18(a) and 19 to 23 inclusive above, the Respondent failed to remit and failed to cause the Company to remit monies to the ATO. Ground 2: Failing to pay superannuation entitlements 30. In the circumstances described in paragraphs 18(b) and 19 to 26 inclusive above, the Respondent failed to pay and failed to cause the Company to pay the superannuation entitlements of employees. Ground 3: Breaching s 260 of the Legal Profession Act 2004 31. In the circumstances described in paragraphs 7 to 10 and 13 to 15 inclusive above, the Respondent breached s 260 of the Act by intermixing trust monies. 1. The particulars refer to ss 140, 143 and 260 of the LP Act, which provide: 140 Incorporated legal practice must have legal practitioner director (1) An incorporated legal practice is required to have at least one legal practitioner director. (2) Each legal practitioner director of an incorporated legal practice is, for the purposes of this Act only, responsible for the management of the legal services provided in this jurisdiction by the incorporated legal practice. (3) Each legal practitioner director of an incorporated legal practice must ensure that appropriate management systems are implemented and maintained to enable the provision of legal services by the incorporated legal practice: (a) in accordance with the professional obligations of Australian legal practitioners and other obligations imposed by or under this Act, the regulations or the legal profession rules, and (b) so that those obligations of Australian legal practitioners who are officers or employees of the practice are not affected by other officers or employees of the practice. (4) If it ought reasonably to be apparent to a legal practitioner director of an incorporated legal practice that the provision of legal services by the practice will result in breaches of the professional obligations of Australian legal practitioners or other obligations imposed by or under this Act, the regulations or the legal profession rules, the director must take all reasonable action available to the director to ensure that: (a) the breaches do not occur, and (b) appropriate remedial action is taken in respect of breaches that do occur. (5) A contravention of subsection (3) or (4) or both by a legal practitioner director is capable of being professional misconduct. (6) Nothing in this Division derogates from the obligations or liabilities of a director of an incorporated legal practice under any other law. (7) The reference in subsection (1) to a legal practitioner director does not include a reference to a person who is not validly appointed as a director, but this subsection does not affect the meaning of the expression "legal practitioner director" in other provisions of this Act. Note: The requirements of this section may be subject to audit under section 670. 143 Obligations and privileges of practitioners who are officers or employees (1) An Australian legal practitioner who provides legal services on behalf of an incorporated legal practice in the capacity of an officer or employee of the practice: (a) is not excused from compliance with professional obligations as an Australian legal practitioner, or any obligations as an Australian legal practitioner under any law, and (b) does not lose the professional privileges of an Australian legal practitioner. (2) For the purposes only of subsection (1), the professional obligations and professional privileges of a practitioner apply as if: (a) where there are 2 or more legal practitioner directors of an incorporated legal practice—the practice were a partnership of the legal practitioner directors and the employees of the practice were employees of the legal practitioner directors, or (b) where there is only 1 legal practitioner director of an incorporated legal practice—the practice were a sole practitioner and the employees of the practice were employees of the legal practitioner director. (3) The law relating to client legal privilege (or other legal professional privilege) is not excluded or otherwise affected because an Australian legal practitioner is acting in the capacity of an officer or employee of an incorporated legal practice. (4) The directors of an incorporated legal practice do not breach their duties as directors merely because legal services are provided pro bono by an Australian legal practitioner employed by the practice. 260 Intermixing money (1) A law practice must not, otherwise than as permitted by subsection (2), mix trust money with other money. Maximum penalty: 100 penalty units. (2) A law practice is permitted to mix trust money with other money to the extent only that is authorised by the Law Society Council and in accordance with any conditions imposed by the Law Society Council in relation to the authorisation. Reply 1. The Respondent filed a Reply, in which he acknowledges the relevant legislation and admits the definitions set out in the particulars. The balance of the Reply is as follows: …Background 3. The Solicitor admits that on 25 September 2007 Entinala Pty Ltd ACN [number] (Company) was incorporated. 4. The Solicitor admits that on 5 February 20I0 he caused the Company to change its name to Michael Teys Strata Law Pty Ltd. 5. The Solicitor admits that on 12 March 2010 he caused the Company to change its name to Teys Lawyers Pty Ltd. 6. The Solicitor admits that at all material times the Company shareholder was Teys Services Pty Ltd (Teys Services). 7. The Solicitor admits that at all material times the Directors of Teys Services Pty Ltd was himself and Michelle Anne Teys. 8. The Solicitor admits that Michelle Anne Teys was at all relevant times the sole shareholder of Teys Services Pty Ltd. 9. The Solicitor admits that between 25 March 2014 and 3 April 2014 he caused the transfer of sums totalling $130,000.00 to be made from various Company Bank accounts into the Law Practice trust account and opened or caused to be opened a trust ledger in the name of "funds held in trust for client: Teys, Michael" [Ledger Account]. I0. The Solicitor says that on or about 21 March 2014 he discussed the issue of a garnishee order by the ATO to Macquarie Bank (as to outstanding company tax, Teys Lawyers Pty Ltd) with John Knox, a person who from time to time gave advice to the Solicitor. Mr Knox advised the Solicitor to see an insolvency practitioner, Mr Dean­ Willcocks. II. On 24 March 2014 the Solicitor, together with a Mr Tollan, attended upon Mr Dean­Willcocks. At the meeting with Mr Dean-Willcocks, the Solicitor asked him for advice as to the ATO garnishee. Mr Dean-Willocks advised the Solicitor that the ATO would issue a garnishee to the Company's bank account and that it was important to preserve working capital and that monies should be transferred from the general account to the trust account. The Solicitor based on the advice from Mr Dean-Willcocks, an experienced insolvency practitioner, directed the transfer of the monies from the Company's general account to the trust account. 12. The Solicitor admits that by 3 April 2014 he had caused a total $72,091.78 to be paid from the ledger account which payments were identified as either payroll or expenses. 13. The Solicitor in so recording the payments in this way was relying upon the advice given by an experienced insolvency practitioner, Mr Dean-Willcocks. 14. Between 31 March 2014 and 7 April 2014 the Solicitor says monies were paid from the account towards wages and expenses. 15. On 4 April 2014, the Solicitor admits that he caused the Company to change its name to ACN [number] Pty Ltd and up to and including 7 April 2014 the Company traded as a law practice and at all material times the Solicitor was the director of the Company and the legal practitioner director of the law practice. 16. On 8 April 2014, he commenced practicing as a sole principal of the new law practice. 17. The Solicitor admits that on 8 April2014 he caused the remaining sum of $58,208.22 to be paid from the ledger account to the new law practice for payments for essential services on its commencement, including a sum of $11,447.45 as payroll for himself ($4,807.69) and employees retained up to and including 7 April 2014. 18. The Solicitor says that he caused the said payments to be made based upon the advice that he received from an experienced insolvency practitioner, Mr Dean- Willcocks. 19. The Solicitor further says that in conducting himself in the manner that he has conceded he otherwise acted at all times on the basis of the advice given by an experienced insolvency practitioner, Mr Dean-Willcocks and also consulted with Mr Knox who represented secured creditors namely Mr and Mrs Bean and a Solicitor, Mr Phil Parker of Bridges Lawyers and the Law Society of NSW ("Chris"). Particulars 20. The Solicitor will seek to rely upon an Affidavit setting out his information and belief and otherwise factual matters relied upon in support of his reply. 21. The Solicitor admits that by director's resolution on 9 April 2014, Mr Ronald Dean­Willcocks of Dean-Willcocks Insolvency Solutions was appointed voluntary administrator of the Company. 22. The Solicitor admits that on 9 ApriI 2014 and 12 May 2014 he prepared a Report as to Affairs (RATA) which indicated a deficiency (subject to the costs of administration) of $867,467 as particularised in the complaint. 22. The Solicitor admits that the Company's liability to the ATO increased from nil to $546.697.11 during the period of 1 July 2011 to 9 April 2014. 23. The Solicitor in preparing the RATA, consulted with and relied upon the advice of an experienced insolvency practitioner namely Mr Dean-Willcocks. Particulars i. On 3 April 2014 and 4 April 2014, the Solicitor met with Mr Dean­Willcocks and was provided with advice as to him practicing during the administration and collecting debts of the Company for the benefit of creditors. ii. The Solicitor honestly believed that Mr Dean-Willcocks sought and received advice from Mr Parker, an experienced Solicitor of Bridges Lawyers as to such issues. iii. That Mr Dean-Willcocks informed the Solicitor at the meetings on 3 and 4 April 2014 that Mr Parker had made enquiries of the Law Society of NSW and there was no reason why Mr Parker could not give advice to the administrator. Mr Dean-Willcocks informed the Solicitor that an insurance company would issue a new policy. He also instructed Mr Parker to prepare a licence agreement to permit the Solicitor to continue to use the firm name and website to conduct the business whilst collecting the debts for administrator. iv. The Solicitor sought no fee for collecting the debts on behalf of the administrator and in doing so it was the Solicitor's honest belief that superannuation payments could be paid when they fell due and otherwise minimise the sum that the Solicitor would need to find for a DOCA. v. The Solicitor during the period of voluntary administration believes that he collected $121,000 from debtors. This required him taking active steps by way of sending accounts, reminder letters, making calls, answering queries and enforcing liens. The Solicitor honestly believed that Mr Dean-Willcocks probably would not have been able to achieve the collection of such debts without the assistance of the Solicitor. vi. The Solicitor, to the best of his knowledge and belief, lodged all business activities, statements and tax returns as and when they fell due. The Solicitor sought to keep in communication with the ATO and in November 2013 a payment scheme was entered into. 24. The Solicitor admits that during the financial year ended 30 June 2013 the Respondent caused the Company to pay dividends to Teys Services in the sum of $309,167 and that the Solicitor had caused the company to forward the sum of $210,000 either to Michelle Teys as a loan or to Teys Services as dividends. 25. The Solicitor admits that during the financial year commencing 1 July 2013 he caused the Company to pay dividends to Teys Services in the sum of $152,530, the last distribution being made in March2014. 26. The Solicitor admits that in the financial year ending 30 June 2013 he drew $208,333 in salary from the Company. 27. In the period of 1 July 2013 to 9 April 2014 the Solicitor drew $202,564 in salary from the Company. 28. On 9 April 2014 the Solicitor admits that he was personally indebted to the Company in the sum of $44,543.08.18. 29. The Solicitor admits as at 15 April 2014 he had a personal liability to the ATO of approximately $100,000.19. 30. On 3 June 2014 Mr Dean-Willcocks was appointed liquidator of the Company. 31. The Solicitor says that in respect of the background matters referred to in paragraphs 20-28 that he had at all times acted on the basis of advice from Mr Dean-Willcocks, an experienced insolvency practitioner. Particulars i. The Solicitor attended upon and received advice from Mr Dean-Willcocks, an insolvency practitioner. ii. Mr Dean-Willocks was appointed voluntary administrator of the Company on 9 April 2014 and liquidated the Company on 3 June 2014. iii. The Solicitor entered into a payment scheme with the ATO on November 2013 with an agreement to pay $20,000 per month from January 2014. The Company paid approximately $15,000 on 31 January 2014 and a further $15,000 on 5 February 2014. It is the Solicitor's case that these payments were below the agreed amount of repayments but it was his honest belief that the Company could trade out its debts. iv. The Solicitor in the course of the investigation by the Law Society and in particular the trust account inspection and report of Mr Michalski learnt of a schedule of debt owed by the Company to the ATO. The Solicitor was unaware of the Practice Statement Law Administration issued by the ATO and the practice of allocating payments to the earliest debts. In this regard, the Solicitor caused a letter to be forwarded to Mr Michalski on 3 December 2014 and this is referred to in his Affidavit as to evidence and attachments to the said Affidavit. v. The Solicitor accepts that he was mistaken as to the practice of allocating ATO payments but says there is evidence on the ATO business portal printout of payments equivalent to the employee PAYG withholding tax being paid. It was the Solicitor's honest belief at the time that this would result in reduction of the PAYG withholding tax. vi. The Solicitor has done his very best to maintain payments to the ATO by way of his personal tax returns and liability. Ground 1: Failure to remit monies to the ATO 32. The Solicitor says that at all times he acted in good faith and in accordance with advice given to him by an experienced insolvency practitioner and also after consulting with a Mr Knox, Mr Phil Parker of Bridges Lawyers and Miles Tollan. 33. The Solicitor says that the failure to remit monies to the ATO occurred in the circumstances which will be set out in his Affidavit filed in response to the application by the Council of the Law Society. The Solicitor also seeks to rely upon the attachments to the said Affidavit. 34. The Solicitor says that he has at all times acted based upon advice from experienced persons and did not act dishonestly. Ground 2: Failure to pay superannuation entitlements 35. The Solicitor repeats his reply referred to as to Ground 1 and relies upon that reply. Ground 3: Breaching s.260 of the Legal Profession Act 2004 36. The Solicitor admits a breach of s.260 of the Legal Profession Act 2004, however he says that he acted at all times in good faith and honestly and based upon advice from experienced persons including Mr Dean-Willcocks and Mr Phil Parker. 37. The Solicitor will seek to rely on his Affidavit and attachments filed in response to the application. Applicant's Evidence 1. The Applicant tendered the following evidence: 1. Affidavit of John Michalski sworn 18 May 2017 (Exhibit A1); 2. Affidavit of Anne Marie Foord sworn 22 May 2017 (Exhibit A2); 3. Affidavit of Anne Marie Foord sworn 14 December 2017 (Exhibit A3); 4. Affidavit of Anne Marie Foord sworn 15 January 2018 (Exhibit A4); 5. Supplementary affidavit of Anne Marie Foord sworn 15 January 2018 (Exhibit A5); 6. Affidavit of Anne Marie Foord sworn 17 April 2018 (Exhibit A6) (inclusive of documents in two folders marked AMF 3); 7. Affidavit of Michelle Anne Teys sworn 28 March 2018 (Exhibit A7); and 8. A bundle of bank statements for Teys Statutory Trust Account (Exhibit A8). The Respondent's Evidence 1. The Respondent tendered the following evidence: 1. The document at Annexure A to Exhibit A7 (Exhibit R1); 2. Affidavit of J E Bartholomeusz undated (Exhibit R2); 3. His statement exhibited to the Affidavit of Anne-Marie Foord (Exhibit A2 at pp 7 to 20) (Exhibit R3); 4. His Affidavit filed 29 September 2017 (Exhibit R4); 5. His Affidavit filed 19 December 2017 (Exhibit R5); 6. His Affidavit filed 16 January 2018 (Exhibit R6); 7. Affidavit of the J H Knox filed 19 December 2017 (Exhibit R7 – although paras 19 to 26 inclusive were objected to and Mr Walsh did not press them); 8. Affidavit of C M Smetsers filed on 6 January 2018 (Exhibit R8); 9. Affidavit of the Respondent undated (Exhibit R9); 10. Affidavit of James Greenwood filed 16 January 2018 (Exhibit R10); (11) His Affidavit dated 7 May 2018 (Exhibit R11); 11. A bundle of documents marked Exhibit R12; and 12. A Letter from John Knox to Mr Walsh (the Respondent's solicitor) dated 24 May 2018 (Exhibit R13). The Hearings 1. The hearing on 16 January 2018 was concerned only with an adjournment application. Towards the conclusion of the hearing, the Applicant tendered several documents without objection. 2. Because of the ill health of the Presiding Member, the Tribunal was reconstituted without objection from the parties. On 28 and 29 May 2018, we heard evidence including cross-examination and re-examination and made directions for the parties to file and serve written submissions. The matter was listed for further hearing on 30 July 2018 to enable to the parties to make any oral submissions. Relevant legislation 1. The Applicant submitted that the provisions of the LP Act apply to these proceedings rather than the Legal Profession Uniform Law Act 2014 (NSW) (the Uniform Law). Although the Uniform Law commenced on 1 July 2015, the Legal Profession Uniform Law Application Legislation Amendment Act 2015 (the Uniform Law Amendment Act) provides that complaints and investigations that were commenced but not completed before that date would continue to be subject to the LP Act: see cl 26 of Sch 4 to the Uniform Law Amendment Act. We note that the investigation commenced before 1 July 2015 and we are satisfied that the relevant legislation is the LP Act. 2. Section 497 of the LP Act provides: 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. The Applicant's Submissions 1. The Applicant submitted that the definition of professional misconduct is, for all intents and purposes, open ended and there is no finite list of conduct that may constitute professional misconduct. We summarise its submissions as follows: 1. The common law concept of professional misconduct includes conduct in pursuit of professional activities that would reasonably be regarded as disgraceful or dishonourable by professional colleagues of good repute and competency: see Allinson v General Council of Medical Education and Registration [1894] 1 QB 750. 2. There is a wide breadth of the concept as observed from the judgment of McClellan CJ at CL in Bechara v Legal Services Commissioner [2010] NSWCA 369 [44]. Similarly, in the High Court decision in Kennedy v The Council of the Incorporated Law Institute of New South Wales (1939) 13 ALJ 563, Rich J stated that a charge of misconduct as relating to a solicitor need not fall within any legal definition of wrong doing. It was enough that it amounted to grave impropriety affecting his professional character and was indicative of a failure either to understand or to practise the precepts of honesty or fair dealing in relation to the Courts, his clients or the public: With respect to the charge of professional misconduct in the context of the failures to remit monies to the ATO and to pay superannuation, the Applicant relied upon the decision of Mason P in New South Wales Bar Association v Hamman [1999] NSWCA 404, which found this to constitute professional misconduct: His Honour stated, relevantly: I emphatically dispute the proposition that defrauding "the Revenue" for personal gain is of lesser seriousness than defrauding a client, a member of the public or a corporation. 1. The Applicant also relied upon the decision in Council of the Law Society of New South Wales v Wehbe [2018] NSWCATOD 14 (Wehbe). In that case, the Tribunal held that professional obligations of a legal practitioner director of an incorporated legal practice are the same as those of a sole practitioner: at [115]. The Tribunal held at [118] – [136]: The authorities to which we have referred have determined that legal practitioners carrying out legal practice on their own account or in partnership or as legal practitioner directors of an ILP are under an obligation to ensure that certain statutory fiscal liabilities of a practice including the payment of GST, PAYG, income tax and staff superannuation contributions are met. It is plain from the authorities that such an obligation exists alongside and is to be distinguished from any legal liability for debt although in the case of sole practitioners or partnerships the practitioners are subject to both. This obligation is referred to variously as a "civic responsibility" (contrasted with a legal obligation) in Vosnakis [Law Society of New South Wales v Vosankis [2007] NSWADT 42] (referring to Cummins) [New South Wales Bar Associations v Cummins [2001] NSWCA 284], "fiscal responsibility" in Bouzanis [Law Society of New South Wales v Bouzanis [2006] NSWADT 55], "legal and civic duty" in Adams [Council of the Law Society of New South Wales v Adams [2011] NSWADT 117], "fiscal/revenue responsibilities" in Koffel [Law Society of New South Wales v Koffel [2010] NSWADT 149], "financial responsibilities" in Delpopolo [Law Society of New South Wales v Delpoplo [2014] NSWCATOD 55] and "civic duty" in Andreone (No.1) [2014] [Council of the Law Society of New South Wales v Andreone (No 1) [2014] NSWCATOD 49]. The Tribunal's decision in Gillroy [Law of Society of New South Wales v Gillroy [2010] NSWADT 232] and referred to in Dalla [Council of the Law Society of New South Wales v Dalla [2011] NSWADT 130] accepted the characterisation of such an obligation as a "professional obligation" although its ultimate determination in terms referred to breach of a statutory obligation. The Tribunal in McHugh [Council of the Law Society of New South Wales v McHugh [2014] NSWCATOD 37] also recognised the existence of an obligation upon a legal practitioner director to ensure that an ILP satisfied its revenue obligations. 1. In Wehbe, the Tribunal held that there is an obligation upon an Australian legal practitioner, whether as a legal practitioner director of an incorporated legal practice or in sole practice or in partnership, arising as a professional matter to ensure that statutory debts of the legal practice to revenue authorities are paid [155]. This "obligation arises as a professional matter whether the directorship is maintained or the subject company goes into liquidation": see Council of the Law Society of NSW v Andreone (No.1) [2014] NSWCATOD 49 (Andreone). 2. A failure to remit payments to the ATO can involve a legal practitioner preferring their own interests "including continuance of the law practice" and "receiving reductions in [a] loan account": see: Andreone at [112]. 3. It noted distinctions between the Tribunal's decisions in Wehbe and Law Society of NSW v Koffel [2010] NSWADT 149 (Koffel), as follows: 1. In Koffel there was no "systemic course of conduct which extended over a long period of time": at [337]; 2. Mr Koffel "made meaningful changes to the law practice to mitigate its financial activities" and "voluntarily acknowledged the responsibility to pay and guaranteed to pay outstanding superannuation entitlements and by the time of the hearing in 2010 had largely done so": at [336]; and 3. Unlike the position in Koffel, "there was no evidence of any reasonable or other steps taken by Mr Wehbe to ensure that the company met its revenue responsibilities apart from seeking to refinance and make instalment arrangements with the ATO": [339]. 1. The findings in Wehbe can be summarised such that the solicitor's failure to ensure that the law practice met its statutory obligations constituted professional misconduct (even if his preference of his own interests were to be disregarded), particularly having regard to the period (nearly two and a half years) and the sum of money involved (in the order of $300,000.00). 2. The Respondent preferred his own interests to those of Teys Lawyers' employees and the ATO over a considerable period. This is a significant reason why his conduct constitutes professional misconduct and is an important matter to consider when determining whether a protective order is appropriate. The Applicant argued that a breach of s 260 of the LP Act has been held to constitute professional misconduct. While the case law relates to instances of intermixing where trust money was paid into a non-trust account, s 260 has a broader application. 3. In Law Society of New South Wales v Jones (unreported) NSWCA 333 (1977), 27 July 1979, Street CJ (with whom Reynolds and Samuels JA concurred) expressed the following statement of principle: Reliability and integrity in the handling of trust funds are fundamental prerequisites in determining whether an individual is a fit and proper person to be entrusted with the responsibilities belonging to a solicitor. Members of the public, many of them wholly inexperienced or unskilled in matters of business or law, inevitably must put great faith and trust in the honesty of solicitors in the handling of moneys on their behalf. The Court must ensure that this trust is not misplaced. 1. The need to keep trust funds distinct from other monies is an important part of the management of trust funds as there is a legal requirement that trust funds are not available for the payment of debts of either the law practice or of a legal practitioner and they are protected from garnishee orders. It follows that depositing non-trust monies into a trust account permits the "overprotection" of those monies, which ought to be available for payment of the debts of the law practice. 2. Where a protective order is contemplated, the ultimate issue for consideration is whether the practitioner is shown not to be a fit and proper person to be an officer of the Court upon whose roll the local lawyer's name presently appears: see A Solicitor v The Council of the Law Society of New South Wales [2004] 216 CLR 253 at [15]. The question for the Tribunal is present fitness, that is, whether the Tribunal can be satisfied that the Respondent is presently a person who may properly be held out to a Court, the public and the legal profession as a fit and proper person to be entrusted with the duties and responsibilities of a solicitor. 3. It has previously been held that a solicitor's name should be removed from the roll where they were found to be guilty of professional misconduct because of their failure to pay tax debts or superannuation contributions: see New South Wales Bar Association v Cummins [2001] NSWCA 284. A key element in determining whether a protective order is appropriate appears to be the extent to which the solicitor either disregarded their financial obligations or preferred their own interests. 4. The current application alleges 2 broad categories conduct, namely: (1) The Respondent's failure to remit monies to the ATO (Ground 1) or pay staff superannuation entitlements (Ground 2); and (2) The Respondent's breach of s 260 of the LP Act (Ground 3). The Respondent has generally admitted the conduct alleged in the application and he is properly found guilty of professional misconduct in respect of all grounds. As a result, he is not a fit and proper person to remain on the Roll of local lawyers. 5. In relation to grounds 1 and 2, the evidence indicates that as at 9 April 2014 (the date of the voluntary administration), Teys Lawyers had a debt to the ATO of $543,252.75 (Exhibit A1, Annexure A, Attachment A (vii) at 160) and a liability for superannuation payable in respect of its employees in the sum of $39,892.76 (Exhibit A1, Annexure A, Attachment A (II) at 61), although that payment did not fall due until near the end of that month. It is significant that while these substantial debts were due, the Respondent preferred his own interests by: 1. Causing a significant sum of money to be transferred from Teys Lawyers to himself and Mrs Teys, including those distributions which ought to have been made via Teys Services Pty Ltd (Teys Services), an entity of which the Respondent was a director and his then wife was a director and sole shareholder but which appeared to have been made directly; and 2. Spending a significant sum of money on luxury items, an extravagant lifestyle and his own personal interests. 1. The money that the Respondent took from Teys Lawyers falls into 4 categories, namely: (1) money taken clearly as consultation fees or salary; (2) dividends paid to Mrs Teys (into the joint bank account) on behalf of Teys Services; (3) money taken through the sale of assets by the Respondent to Teys Lawyers; and (4) loans to the Respondent made by Teys Lawyers. 2. While the Respondent gave evidence that he did not take any income in the 2011 and 2012 financial years, it is clear from the evidence in Exhibit R3 at 9 [18], [21] and Exhibit AMF 1 to Exhibit A2 at [26], [33], [36], that his evidence was misleadingly and incomplete. 3. There was a net flow of money between the Respondent and Teys Lawyers during the period in which the firm operated, including in the 2011 and 2012 financial years, that was significantly in the Respondent's favour even without the dividends that were paid to Teys Services. While this might have been justified, or at the very least, did not breach the Respondent's professional obligations in the early stages of the law firm's operation, this conduct continued during 2012, 2013 and 2014 despite the dire financial situation and indebtedness of Teys Lawyers. 4. During the 2010 financial year, in which Teys Lawyers operated for only a few months, the Respondent took consulting fees of $56,000.00 (Exhibit A1, Annexure A, Attachment A (ii) at 61). In the 2011 financial year, while he did not take a salary or consulting fees, he sold assets to Teys Lawyers (Exhibit A1, Annexure A, Attachment A (ii) at 64-65). The purchase price was $380,000.00, of which $256,053.84 was paid to him during that year and the balance of $123,946.16 was allocated to the loan account between the Respondent and Teys Lawyers. 5. In cross-examination, the Respondent gave evidence to the effect that: (1) The assets he sold to Teys Lawyers had become his property as part of the winding up of Teys Lawyers and it was he, personally who received the money or the benefit of it; and (2) The plant and equipment that he sold to Teys Lawyers constituted part of the fit out for the new law firm. 6. It conceded that there was no evidence that the sale price was unreasonable, but the Respondent benefited financially from Teys Lawyers in the amount of $256,053.84 during the 2011 financial year. 7. During the 2012 financial year, there was a net debit movement (that is a net movement of money from Teys Lawyers to the Respondent) of $257,009.00 (Exhibit A1, Annexure A, Attachment A (ii) at 61). This is evidenced by a credit balance of $188,793.00 (i.e. money owed by Teys Lawyers to the Respondent) at the end of the 2011 financial year that became a debit balance of $68,216.00 (i.e. money owed by the Respondent to Teys Lawyers) at the end of the 2012 financial year. 8. It conceded that the sum of approximately $250,000.00 that the Respondent took from the law firm in the 2011 and 2012 financial years may not be considered an unreasonable financial reward for a legal practitioner director of a successful firm. It is of the same order of magnitude of the Respondent's salary in each of the 2013 and 2014 financial years, but is nevertheless, a significant sum of money. These sums need to be considered in the context of the timing of the accumulation of the debt owed to the ATO and the business portal records commencing at 149 of Exhibit A1, Annexure A, Attachment A (vii) demonstrate: 1. At the end of the 2011 financial year, Teys Lawyers had a nil balance in relation to money it owned to the ATO: at 149; and 2. By the end of the 2012 financial year, Teys Lawyers owed $126,869.00 to the ATO (noting that a payment of $10,000.00 was made on 12 July 2012): at 153. 1. At first blush, it might appear that as Teys Lawyers had a nil balance owing to the ATO at the end of the 2011 financial year, no issue can be taken with the Respondent taking money out of Teys Lawyers during that year. However, there are 3 broad reasons why it is appropriate to have regard to this aspect of the Respondent's conduct in determining whether he preferred his own interests: 1. It is part of an ongoing course of conduct; 2. It is the nature of tax debts that some of the debt to the ATO which was accumulated after the end of the 2011 financial year would have related to operations during the 2011 financial year; and 3. The Respondent, in an apparent attempt at mitigation, asserted that he did not take any income in the 2011 and 2012 financial years: see Exhibit R3 at 9 [18], [21]; Exhibit AMF1 to Exhibit A2 at 26 [33] and [36]. However, this is not a complete account of the financial picture between the Respondent and Teys Lawyers. 1. It is relevant to observe that if the money that the Respondent took out of Teys Lawyers during the 2011 and 2012 financial years (or a significant proportion of it) had been redirected to the debts of Teys Lawyers, those debts would have been much smaller as at 9 April 2014. This is further evidence that the Respondent preferred his own interests. 2. During the 2013 financial year, the Respondent took or caused to be taken from Teys Lawyers for the benefit of himself and his family, a total of $777,384.00, comprising: 1. his salary of $208,333.00 (Exhibit A1, Annexure A, Attachment A (ii) at 61); 2. his indebtedness to Teys Lawyers increased by $49,844.00 (the debit movement from a net balance of $68,216.00 (i.e. money owed by the Respondent to Teys Lawyers) at the end of the 2012 financial year to a debit balance of $118,060.00 at the end of the 2013 financial year); 3. he directed $309,167.00 be paid to Mrs Teys (into the joint account) as dividends (Exhibit A1, Annexure A, Attachment A (ii) at 63 - 64). In cross-examination, he accepted that it was irresponsible to take this amount by way of dividends from the law firm considering its profit before and after income tax in that financial year and his knowledge of its finances; and 4. during the 2013 financial year, he directed the payment of a further $210,000.00 to Mrs Teys into the joint account as dividends, which were incorrectly recorded as a loan. 5. These sums total $777,384.00. However, if the Respondent had taken his salary only (208,333.00), the difference of $569,051.00 would have cleared the debt owed to the ATO. 1. Notwithstanding that the superannuation debt to Teys Lawyers employees did not accrue until April 2014, taking an amount of $777,384.00 from the law firm would have clearly had an adverse impact on its cash flow. 2. In relation to the payment of $210,000.00 during the 2013 financial year, it noted that the Respondent told the liquidator that this was incorrectly recorded as a loan to Mrs Teys and taken as dividends (in addition to the dividend of $309,167.00). If that payment is disregarded, then the total financial benefit that the Respondent derived from Teys Lawyers in the 2013 financial year was $567,384.00. This must be considered in the context of the profit and loss position of Teys Lawyers at that time, which the Respondent described as follows: (1) The income for Teys Lawyers was $2,499,419.00; (2) The gross profit of Teys Lawyers was $2,308,136.00; but (3) profit before income tax was only $131,756.00. As a result, the dividends and loans that the Respondent took during the 2013 financial year significantly exceeded Teys Lawyers' pre-tax profit. 3. During the part of the 2014 financial year to 9 April 2014 (when voluntary administration commenced) the Respondent took or caused money to be taken from Teys Lawyers for the benefit of himself and his family as follows: 1. He took salary of $202,564.00. During that period, his indebtedness to Teys Lawyers decreased by $46,079.00, but he still took out a net amount of $156,485.00. 2. He directed a payment of $152,530.00 to Mrs Teys (into the joint account) as dividends (Exhibit A1, Annexure A, Attachment A (ii) at 63 – 64). During cross examination, he admitted that this was his decision and that it was irresponsible. 1. Therefore, during the 2014 financial year (to 9 April 2014), the Respondent received a net financial benefit from Teys Lawyers of $309,015.00 and he remained in debt to Teys Lawyers in the amount of $71,980.72: see (Exhibit A1, Annexure A, Attachment A (ii) at 61). However, at that time, Teys Lawyers owed a total of $546,697.11 to the ATD in respect of fringe benefit tax, PAYG income tax, GST and PAYG withholding tax: see (Exhibit A1, Annexure A, Attachment A (ii) at 72). That debt accumulated from the end of the 2011 financial year to 9 April 2014. 2. Teys Lawyers was also indebted for staff superannuation totalling $39,892.76: see Exhibit A1, Annexure A, Attachment A (ii) at 71. Additional sums were owed to or in respect of staff, comprising wages, annual leave and payments in lieu of notice: see Exhibit A1, Annexure A, Attachment A (ii) at 71. The Respondent assumed responsibility for the annual leave entitlements of employees who continued with his new practice: see Exhibit A1, Annexure A, Attachment A (ii) at 53. 3. The Respondent's own evidence indicates that he was aware of the extent of the indebtedness during the whole of the period concerned: see Exhibit R3 at 9 – 13 [19], [22], [31] – [33], [39] – [43], 15 – 16, [55] – [60], 17 [7]: Exhibit AMF 1 to Exhibit A2 at 26-34 [34] – [35], [38], [44], [47] – [48], [52], [57] – [58], [61] – [62], [66], [72], [83]: Exhibit R4 at 2 [6] – [7], [9] – [11]. 4. It is notable that the most recent liquidator's report that was before the Tribunal indicates that employees will receive 26% of their entitlement in respect of wages, superannuation, annual leave and payment in lieu of notice: see Exhibit AMF 1 to Exhibit A2 at 155. 5. The Respondent gave evidence that alternative sources of funds were available to him: see Exhibit R3 at 9 [18], [21]; Exhibit R4 at 2 [7] – [8]. 6. It is clear from the authorities that where there is a professional obligation to meet a debt, the Tribunal expects that the solicitor and their family will be the first to bear the brunt of any loss. This was recognised in Koffel and the fact that the solicitor complied with his obligations in that matter was a significant factor in the Tribunal's finding that he was not guilty of professional misconduct. 7. During the period in which Teys Lawyers operated, the Respondent engaged in extravagant expenditure and did not make any requests to his family to reduce their expenditure. He conceded that this expenditure was extravagant and that he could have made changes to this but he chose not to do so. 8. While the Tribunal may accept that the Respondent is now living on a smaller income and he is no longer required to support his former wife, these changes occurred well after the relevant debts were accumulated and after Teys Lawyers went into administration. 9. The Respondent's decision to continue to operate a law practice in circumstances of significant indebtedness, and to derive income from it, is clearly a decision that prefers the solicitor's own interests to those of their creditors. 10. The evidence indicates that both the Respondent's mother and sister provided him with considerable financial support and the availability of such support bears upon the Tribunal's assessment of the facts. Although the Respondent was not able to borrow money from his mother after the end of the 2012 financial year: see Exhibit R4 at 2 [8], the amount that the Respondent took from Teys Lawyers increased sharply from $257,009.00 (in the 2012 financial year) to a total of $777,384.00 or $567,384.00 (in the 2013 financial year). Also, in May 2013, he began a program of borrowing money from his sister, which continued for some years: see Exhibit AMF 2 to Exhibit A3 at 132 – 133. 11. The Respondent's evidence is that he received perhaps $480,000.00 from his mother during 2014. This is relevant as it could have made a significant contribution towards satisfaction of the debts that are the subject of Grounds 1 and 2. 12. The Respondent admitted that by moving non-trust monies into the law firm's trust account in March and April 2014, he sought to prevent the ATO having access to those funds: see Exhibit R3 at 13 [42] – [43]; AMF 1 to Exhibit A2 at 31 [61] – [62]. 13. The Respondent asserted to the effect that his attempt to have Teys Lawyers "trade out" of its financial difficulties was a type of mitigation of his conduct. The most significant decision regarding "trading out" was the expansion that began in the first half of the 2013 financial year (the year in which the Respondent derived a financial benefit from the firm of $777,364.00 or $567,384.00 (depending on the Tribunal's view of the matters outlined earlier)). However, the most important thing that he could have done to ensure the firm's financial success was to reduce his drawings. This did not occur. 14. When all of the evidence is considered, the Tribunal is entitled to draw an inference that the Respondent's evidence that he sought to have the law firm "trade out" of its financial difficulties by expanding its operations to the Gold Coast and Melbourne, was an "expensive vanity exercise which did not assist the financial position of the firm at all". 15. During the hearing, the Respondent gave evidence that extravagant expenditure is a symptom of his Bipolar II Disorder. However, there was no expert medical evidence to support that assertion and the evidence from the treating psychiatrist indicates only that the Respondent suffers from that condition. Therefore, the Tribunal cannot be satisfied that extravagant expenditure is a symptom of Bipolar II Disorder generally or of the Respondent's condition. 16. However, the Tribunal can be satisfied that the Respondent's fundamental attitude was, and remains, that the lifestyle he funded in the manner indicated by the evidence was not extravagant but, rather just a reflection of what things cost. 17. The Respondent breached his statutory and civic obligations and his conduct would be regarded as dishonourable and disgraceful by his professional peers. In other words, his conduct constitutes professional misconduct at common law. 18. The Respondent clearly breached s 260 of the LP Act, but asserts that he did so after receiving advice from Messrs Dean-Willcocks and Parker. However, the fact that he may have acted upon advice does not excuse him from complying with his statutory and ethical obligations. 19. In cross-examination, the Respondent conceded that he knew that Teys Lawyers was in breach of its repayment arrangements with the ATO when he paid non-trust monies into the trust account. He said that some of this money was used to pay staff wages and some was applied to expenses of Teys Lawyers and Block Strata Lawyers (his new law practice). The fact that these monies were not wholly applied to the Respondent's personal benefit does not excuse the breach. 20. The Respondent's evidence regarding the personal crisis that he faced and his mental illness do not explain or excuse his conduct and it demonstrates that he has limited insight regarding the nature of his conduct. He has not demonstrated any robust course of action taken with a view to ensuring that he does not engage in similar conduct in the future. On the contrary, his apparent reliance upon his sister to oversee his financial affairs does not should give the Tribunal no comfort that there is some sustainable system in place to ensure that the Respondent can comply with his professional responsibilities or obligations. 1. In relation to the Respondent's character references, the Applicant made submissions to the following effect: 1. Ms Smetsers (affidavit exhibit R8) could not be treated as a truly independent witness because her affidavit was sworn before the Respondent and she had never been made aware of any observation that the Respondent was a person who spent excessively. Also, neither Ms Smetsers nor Ms Russell (affidavit exhibit R9) gave evidence that they were provided with, or read any of the evidence that is before the Tribunal. Each deposed that their understanding of the current proceedings is based upon the Respondent's explanation. 2. The evidence of Mr Knox (affidavits Exhibits R7 and R13) should be given little weight as he witnessed one of the Respondent's affidavits and he is not an independent witness. Further, the Respondent asserted that Mr Knox joined in the advice that he relied upon in moving monies into the trust account in March and April 2014. As a result, the Tribunal can have no confidence that Mr Knox understands the professional obligations that are relevant to the current proceedings. 1. In relation to the affidavit of Associate Professor Greenwood, the Applicant submitted that it is not clear whether this is provided as factual evidence from a treating medical practitioner or as expert psychiatric evidence or as character evidence or a combination. If it is to be regarded as expert medical evidence the Respondent has not complied with the Tribunal's Procedural Direction 3 and the document does not acknowledge the Expert's Code of Conduct. 2. The Applicant argued that all grounds of the application have been established. It conceded that the breach of s 260 of the LP Act would not, on its own, justify the making of a protective order, but that the Respondent's conduct in relation to Grounds 1 and 2 (individually or cumulatively) justify the making of a protective order. The evidence indicates that he so egregiously disregarded his professional, civic and moral obligations as to demonstrate his probable permanent unfitness to practise and there is no evidence of any meaningful change or rehabilitation since the conduct occurred. 3. The Applicant also sought an order for payment of its costs pursuant to cl 23(1) of Sch 5 of the Civil and Administrative Tribunal Act 2013 (NCAT Act). That clause provides that the Tribunal must make orders requiring a lawyer whom it has found engaged in unsatisfactory professional conduct or professional misconduct to pay costs unless the Tribunal is satisfied that exceptional circumstances exist. It argued that no exceptional circumstances exist in this case. Respondent's Submissions 1. The Respondent concedes that he has engaged in professional misconduct because he: (1) Failed to remit monies to the ATO (Ground 1); (2) Failed to pay Teys Lawyers' employees superannuation (Ground 2); and (3) Breached s 260 of the LP Act (Ground 3). He does not oppose the making of a costs order against him, but he does oppose the making of a protective order for the removal of his name from the roll. He also agrees that the provisions of the LP Act apply to this matter. 2. The Respondent submitted that the matter of Wehbe is distinguishable on its facts for the following reasons: 1. Mr Wehbe gave no evidence in the Tribunal; 2. There was no evidence as to any belief or circumstances by Mr Wehbe that he could trade out of his financial difficulties; 3. Mr Wehbe failed to pay superannuation for over two years, whereas the Respondent failed to pay superannuation for little over the "last" quarter; 4. There was no evidence of Mr Wehbe as to any insight as to his conduct, nor remorse. The Respondent submitted that he does have insight and he is remorseful for what has occurred; 5. He suffers from a longstanding Bipolar II Disorder. The fact of his marriage breakup, its timing and circumstances had a significant impact upon him; 6. The payment of monies to his wife and children was to their benefit. His former wife was living in rented accommodation with the children of the marriage. The children's education was very important to he and his former wife; 7. He sought and obtained advice from experienced and competent experts, including persons who were experienced in the operation of businesses, and experienced corporate and legal advisors; 8. He also reviewed the business' operations and took steps to reduce overheads and to introduce capital into the business by borrowing monies from his mother, Mr and Mrs Been and Mr Knox. He employed Mr Miles Tollan. The income of the legal practice was such that there was a real and proper basis for his decision to open offices on the Gold Coast and in Melbourne to capitalise on the Vesture Alliance; 9. He borrowed and otherwise obtained monies from Mr and Mrs Been, Mr Knox, his mother and sister to meet his statutory obligations; and 10. There is evidence as to his moral character. 1. The Respondent sought to distinguish his circumstances from those faced by the solicitor in Koffel, as unlike Mr Koffel, he had no home to sell in order to discharge his debt to the ATO. He suggested that the fact that his marriage ended and that he suffers from Bipolar II Disorder are further distinguishing factors. 2. The Respondent also sought to distinguish the matter of Council of the Law Society of NSW v Adams [2011] NSWADT 177 from his matter, as in Adams the solicitor failed to lodge personal income tax returns for 21 years. However, he did not fail to lodge a tax return. 3. The Respondent argued that the subjective issues that he was faced with were significant in the context of his long standing major depressive illnesses. However, he did not dispute that he breached s 260 of the LP Act or the Applicant's submissions in relation to ground 3 of the Application. 4. The Respondent's submissions deal at some length with the expenditure that he incurred in the period leading up to the liquidation of Teys Lawyers, including an average of $28,590.00 per month incurred by Mrs Teys and his children during the 2013 and 2014 financial years. He said that once school and university fees added on, he was paying approximately $30,000.00 per month. 5. The Respondent argued that the tribunal should be cautious in considering the Applicant's submission that he had displayed "over confidence" in cross-examination, as the context in which a witness gives evidence is very stressful. He said that the Applicant was armed with thousands of pages of financial records and thousands of transactions and it cross-examined him over a period of 1.5 days to demonstrate alleged inconsistencies in his evidence. The transactions about which he was cross-examined occurred between 23 June 2012 and 30 June 2014. 6. The Respondent also submitted to the effect that: 1. The net income of Teys Lawyers in the 2010 financial year was $789,033.00 and the profit after tax was $356,626.00. The fact that he took consulting fees of $56,000.00 is not evidence of either misleading conduct or professional misconduct. 2. The fact that he Respondent sold assets to Teys Lawyers during the 2011 financial year is not evidence of professional misconduct. 3. The fact that during the 2012 financial year there was a net movement of money from Teys Lawyers to him of $257,909.00 is not evidence that he acted improperly in any way or engaged in dishonest conduct. In the 2012 financial year, the net income of Teys Lawyers was $1,522,739.00 and the movement of $257,909.00 is not an unreasonable financial reward. 4. He received the following gifts/loans from his mother to reduce the law firm's tax liabilities: (1) 16 December 2011 - $82,025.00; (2) 24 October 2012 - $77,827.00; and (3) 26 August 2013 to 30 August 2013 - $130,130.00. By January 2013, the debt to the ATO had been reduced from $228,728.00 to $114,329.00. 5. In relation to the future potential of Vesture Alliance he expressed the view that the income produced would be between $3,000,000.00 and $4,000,000.00 per annum: see par 5 of his Affidavit of 29 September 2017. He decided to expand the operations of the business to capitalise on the Vesture Alliance, which involved employing Miles Tollan as Practice Manager and opening offices in Melbourne and the Gold Coast. He consulted a business mentor and financier, John Knox and also took into account the financial support that his mother made available to him. 6. However, the interstate expansion failed and the Gold Coast office was closed in February 2014. In his primary statement to the Applicant, he set out his attempts to sell the company or at least its assets. 7. In the 2013 financial year, 12 payments of $10,000.00 each were made to the ATO. A further 4 payments of $2,500.00 were made in July and August 2013, 2 payments of $20,000.00 were made in September and October 2013 and 2 payments of $15,000.00 each were made in 2014. He believed that the company could meet its obligations because of the matters set out in his affidavit of 29 September 2017 at paragraphs 3 to 8. 1. The Respondent summarised the financial developments of Teys Lawyers from March 2010, as follows: 1. On 12 March 2010, Teys Lawyers acquired the assets and $1,800,000.00 in receivables of a competitor (Andreone), which was funded from a loan from private investors, Mr and Mrs Been. The initial loan was repaid; 2. In April 2011, Teys Lawyers established an alliance with Vesture Limited, a strata management company, which ran from April 2011 to April 2014. Teys Lawyers employed Wayne Butcher to handle office management, human resources, compliance, debtors, creditors and payroll. The income to 30 June 2010 was $789,033.00 and the profit after income tax of $356,626.00; 3. On 21 March 2011, Teys Lawyers employed Ms Hodges as the business manager to replace Mr Butcher. For the financial year ending 2011, gross income for the company was $1,934,375.00, but there was a loss after tax of $108,054.00. He lived off money borrowed from his mother and at the end of 2010/2011 financial year, all company tax, staff entitlements and superannuation had been paid; 4. In April 2012, he separated from his wife after 28 years of marriage. At that time, the integrated tax liabilities of Teys Lawyers were about $130,000.00; 5. In February and May 2012, Teys Lawyers borrowed $140,000.00 from Mr and Mrs Bean; 6. Income for the year ending 30 June 2012 was $1,522,379.00 and profit after income tax was $130,341.00. He did not take any income for that financial year and he and his family continued to live off borrowings from his mother; 7. From July 2012 to October 2012, the company traded with monthly revenue of about $260,000.00. Overheads of the practice grew and a cost cutting program was implemented, including the retrenchment of 3 lawyers; 8. He then made a commercial judgment to expand Teys Lawyers by opening offices in Melbourne and on the Gold Coast and employed a full-time practice manager, Mr Miles Tollan; 9. In May 2013, a solicitor was transferred from Sydney to Melbourne to open an office at Docklands. In July 2013, a second solicitor was employed in Melbourne; 10. The integrated tax liabilities of the company by 24 August 2013 was $433,530.00. The company paid $130,000.00 off the ATO debt in August 2013. Mr Knox was approached for further funding and a further loan of $75,000.00 was advanced in September 2013; 11. By November 2013 the debt to the tax office was about $360,000.00. Mr Tollan negotiated a repayment plan and monthly payments of $20,000.00 from 31 January 2014 were agreed upon between the company and the ATO. 12. At the end of the 2011 financial year Teys Lawyers had a nil balance owing to the ATO, but by the end of the 2012 financial year it owed $126,869.00 to the ATO. He argued that this evidence is not demonstrative of an ongoing course of conduct demonstrating largesse or preference of his own financial interests and that the Applicant is seeking to wrongly extend to the financial years of 2011 and 2012 an alleged course of misconduct on his part. 13. He argued that there were important circumstances that the Tribunal should consider regarding how and why the statutory debts increased over a relatively short period of time, which include: (1) The fact that the law practice consistently traded well; (2) His marriage had broken down in difficult circumstances; (3) He was a person who had a longstanding Bipolar condition and the breakdown of his marriage and its circumstances had a particularly significant impact; (4) The Vesture Alliance and its expansion was a proper and legitimate consideration to maintain the law practice; (5) He and his wife and children had been residing in the Gordon property for some time and renting, and in those circumstances, his motivation and state of mind of ensuring that his 4 children and his wife had stability could not be regarded as evidence that he was disingenuous, morally wrong or demonstrated unfitness; (6) He took steps to borrow monies from his mother, Mr and Mrs Been, Mr Knox and his sister and applied those monies in part to statutory obligations including the debt to the ATO; (7) He had acted based upon advice from people that he regarded as appropriately qualified, including a well-known liquidator, Mr Dean-Willcocks, Mr Knox and other staff; and (8) He agreed to a repayment plan with the ATO and made significant payments. 1. The Respondent conceded that during the 2013 financial year he took monies totalling $514,645.00 from Teys Lawyers for the benefit of himself and his family. He said that he he wanted to ensure that his former wife and children were properly financially supported in the context of the breakdown of his marriage. 2. The Respondent noted that Mr Dean-Willcocks had cast doubt on the accuracy of the company's records regarding the recording of loans, but he argued that his evidence is consistent with the primary records produced by the National Australia Bank. He denied attempting to mislead the Tribunal, but he did not agree that he had access to or otherwise received monies totalling $777,384.00 in the 2013 financial year. 3. The Respondent denied that his conduct in the 2012, 2013 and 2014 years was contrary to his professional obligations as a legal practitioner and motivated by self-interest. He argued that the Applicant's submission that all the monies that he borrowed from his mother, Mr and Mrs Bean and Mr Knox should have been applied exclusively to pay the ATO debt ignores the reality of his moral obligation to support his former wife and children. He formed an honest belief that he needed to support them. He also rejected the Applicant's criticism of his decision to expand the practice into the Gold Coast and Melbourne. 4. In relation to Dr Greenwood's evidence, he reported a history from the Respondent that at the age of 45 years, Dr Paul diagnosed Bipolar Mood Disorder type II and treated him with mood stabilising medication. He reported that the Respondent then came to a professional and personal crisis, with insurmountable debt in his business and personal recognition of his homosexuality, which he had attempted to suppress for most of his life. The likely effect this would have had on his wife and four children was an enormous burden on his mind. Dr Greenwood reported that since disclosing his homosexuality in 2012, he had treated the Respondent on a regular basis and he had been totally compliant with treatment and dealt with very difficult emotional business events in a very appropriate and mature way. The doctor was not required to attend for cross-examination and his evidence was admitted under s 79 (1) of the Evidence Act 1995. 5. The Respondent relied upon the decision in Barraket v Law Society of New South Wales [2014] NSWSC 773, in which Beech-Jones J found that the transaction in question did not involve the practitioner acting dishonestly. He conceded that he sought to explain his conduct by blaming others, but that it is appropriate for him to do so, as he employed qualified staff such as Mr Tollan and Ms Hodges, sought advice from Mr Knox, Mr Parker and Mr Dean-Willcocks. He also argued that the Tribunal should be satisfied that he has genuine insight and remorse for his conduct. 6. With respect to the character evidence, the Respondent submitted as follows: 1. He rejected the Applicant's criticism of the affidavits of Christine Smetsers and Philippa Russell, namely that he had not made full disclosure of the matters in these proceedings to them. He lodged a copy of a letter to Ms Smetsers, which attached relevant documents relevant to these proceedings. In relation to Ms Russell, he said that his solicitor sent her a letter and that he made an oral disclosure to her. 2. He also rejected the criticism of Professor Greenwood's evidence and stated that he has provided an acknowledgement of the Expert's Code of Conduct. 1. The Respondent concluded that his conduct does not justify the making of a protective order removing his name from the roll, and he submitted that conditions should be imposed upon his practicing certificate to the following effect: (1) That he be subject to supervision; (2) That he does not operate a trust account; (3) That he ensures the prompt payment of all statutory obligations including income tax, GST etc.; (3) That he provides a report from a qualified accountant to the Law Society every 3 months as evidence of compliance; and (4) That he continues to have psychiatric treatment. 2. On 30 July 2018, the Respondent submitted that it would be appropriate for the following conditions to be imposed upon his practicing certificate for a period of 5 years: 1. He is only entitled to practice only as an employed solicitor; 2. Within 28 days of commencing any employment as a solicitor, he must notify his employer of the conditions imposed upon his practising certificate and provide evidence of disclosure to the Director of Professional Standards of the Law Society; 3. He is not entitled to operate a trust account; and 1. The Respondent also proposed conditions that required him to continue to receive psychiatric treatment from Professor Greenwood and to authorise him to notify the Director of Professional Standards of the Law Society of any failure by to comply with clinical advice and/or medication or of any significant change or deterioration in his mental state. We do not feel it is necessary to record any further proposed conditions in these reasons. Determination 1. We find that the conduct of the Respondent constitutes professional misconduct. 2. For the following reasons, we are satisfied that the Respondent is not a fit and proper person to remain on the Roll of local lawyers and that we should make orders 1 and 2 that are set out in the application. 3. It is appropriate to set out some broad principles relevant to the allegations made against the Respondent, noting that the Respondent properly concedes that he has been guilty of professional misconduct, namely: 1. The statutory definition of professional misconduct is open ended and includes conduct justifying a finding that a practitioner is not a fit and proper person to engage in legal practice (s 497 of the LP Act); 2. The common law concept of professional conduct includes conduct in pursuit of professional activities which would reasonably be regarded as disgraceful or dishonourable by professional colleagues of good repute and competency (Allinson v General Counsel of Medical Education and Registration [1894] 1 QB 755; Bechara v Legal Services Commissioner [2010] NSWCA 369); 3. Professional misconduct includes grave impropriety affecting the practitioner's professional character indicative of a failure either to understand or to practise the precepts of honesty or fair dealing in relation to the Courts, clients or the public (Kennedy v The Council of the Incorporated Law Institute of New South Wales (1939) 13 ALJ 563); 4. A failure to pay monies to the ATO may constitute professional misconduct (New South Wales Bar Association v Hamman [1999] NSWCA 404); and 5. Legal practitioners, including those who are directors of an incorporated legal practice, are under an obligation to ensure that statutory fiscal liabilities of a practice are met. This obligation may be a legal obligation or a "civic responsibility" (Wehbe). 1. It is common ground that: 1. The Respondent was admitted to the roll of the Supreme Court of Queensland on 17 December 1985 and to the roll of the Supreme Court of New South Wales on 24 February 2000; 2. He held an unrestricted practising certificate and was a legal practitioner director of the incorporated legal practise known as Teys Lawyers Pty Ltd (trading as Teys Lawyers) which traded from 14 October 2009 to 7 April 2014; and 3. The shareholder of Teys Lawyers was Teys Services Pty Ltd and the directors of the latter company were the Respondent and his former wife, Michelle Teys. Its sole shareholder was Michelle Teys; 1. The Respondent does not dispute that as at 9 April 2014 (the date Teys Lawyers was put into voluntary administration) it owed a debt to the ATO of $543,252.75 and a liability for superannuation payable in respect of its employees in the sum of $39,829.76 (the figure of $543,252.00 was stated to be $546,697.11 in the Report as to Affairs prepared by the administrator). It is not disputed that the sum owed to the employees was not due for payment until the end of the month (i.e. after the date the company was put into voluntary administration). In addition, wages of $81,346.00 were owing to employees. 2. The evidence indicates that during the 2014 financial year, Respondent: 1. received a salary from Teys Lawyers of $202,564.00 or a net amount of $156,405.00 after deducting the amount of money he repaid to Teys Lawyers in reduction of his indebtedness to Teys Lawyers; 2. directed $152,530.00 be paid to Mrs Teys as dividends; and 3. remained indebted to Teys Lawyers in the sum of $71,980.72. 1. We are also satisfied that the evidence indicates that in August 2013, the ATO was owed $433,530.00 and that this had reduced to $360,000.00 by November. The Respondent was aware throughout of the debt due to the ATO. In August, he received approximately $130,000.00 from his mother and said that he used this to reduce the debt to the ATO. 2. However, in March 2014, the ATO issued a garnishee notice to Macquarie Bank in respect of the debt and to ensure that money was available for Teys Lawyers to pay its expenses, the Respondent decided to transfer a total of $130,300.00 into the trust account. This was intended to frustrate the garnishee order as it would not operate against monies held in the trust account. As at April 2014, he personally owed about $100,000.00 to the ATO. 3. In assessing the Respondent's conduct, it is relevant to consider the financial position of Teys Lawyers in the years leading up to its demise in April 2014. During the 2012 financial year he took a total of $257,009.00 from the business and by the 30 June 2012, it owed $126,569.00 to the ATO. 4. We are satisfied that the Respondent's conduct in the 2012 financial year evidences that he preferred the interests of himself and his family over his statutory obligations, including obligations of the company, particularly its obligations to pay tax. This conduct continued during the 2013 financial year, during which he caused a total of $777,000.00 to be paid his former wife and himself instead of paying the debts, and during the 2014 financial year. 5. We are satisfied that during the 2014 financial year, the respondent continued to take significant sums of money from Teys Lawyers and he continued to live an extravagant lifestyle without regard to the level of debt owed. He had control over his level of expenditure and the amount of payments made to his former wife and children and also had access to significant funds from his mother and sister. He could have taken reasonable steps to reduce the amount of money that he took from Teys Lawyers and to attempt to pay the debt to the ATO, but he said that he chose not to do so. 6. In our view, the Respondent's conduct is deserving of a higher level of criticism than might otherwise be the case because of the evidence that: 1. he had the benefit of considerable financial assistance from his mother and from his sister; 2. there is no evidence that he made any attempt to reduce the level of expenditure incurred by himself or his family; and 3. there is no persuasive evidence that he tried to reduce the expenses incurred by Teys Lawyers to any substantial extent. 1. We do not accept the Respondent's assertion that his propensity to engage in extravagant expenditure is a symptom of his Bipolar II disorder and there is no expert medical evidence that supports that assertion. 2. We are also satisfied that the Respondent breached s 260 of the LP Act, as alleged and that this constitutes professional misconduct. 3. However, if the breach of s 260 of the LP Act was the only matter before us, we would not contemplate making a protective order. 4. We accept the Applicant's submissions to the effect that this matter is distinguishable on its facts from Koffel, for the following reasons: (1) In Koffel, the Tribunal was satisfied that the solicitor had, as at the date of the hearing "paid almost all, or all, of the superannuation liabilities" [27]. We cannot say the same of the Respondent; and (2) In Koffel, the solicitor was found by the Tribunal to have done what "he could reasonably do in all the financial circumstances to meet his revenue responsibilities, thus demonstrating conduct in a professional (and personal) sense which was a commitment to pay the outstanding debts including the superannuation payments" [42]. We cannot say the same of the Respondent. 5. We consider that the Respondent's conduct is similar to that in the matter of Wehbe, in which the Tribunal noted that the failure to ensure payment of statutory fiscal obligations occurred over two and a half years. Here, the Respondent's similar conduct occurred over a similar period. In Wehbe, the Tribunal said at [33]: The conduct cannot be viewed as an isolated episode nor was there any evidence before us upon which we could determine that it was atypical or uncharacteristic of Mr Wehbe's normal qualities of character. The non-payment of statutory liabilities arose in the circumstances of the Company having exhausted other avenues of capital or debt funding for the purposes of maintaining the business activities of the law practice. This had the benefits to Mr Wehbe which we have identified. There is no evidence before us as to underlying qualities of character shown by previous or other misconduct or whether Mr Wehbe's conduct after the liquidation of the Company demonstrates that public and professional confidence might be reposed in him to uphold and observe the high standards of moral rectitude required of a legal practitioner. We adopt these comments and make the same findings in this matter. 1. We note that Mr Wehbe did not give evidence to the Tribunal and that there was no evidence that he believed that he could trade out of his difficulties and there was also no evidence of insight or remorse. In this matter, the Respondent gave evidence and was subjected to lengthy cross-examination. We accept that he has shown some limited insight into his conduct, in that he agreed in cross-examination that his expenditure was extravagant, but these factors do not cause us to doubt that he is not a fit and proper person to engage in legal practice. 2. There is no evidence before us that supports a finding that the Respondent appreciates the significance of his misconduct and/or that he has taken any action to address his behaviours with a view to ensuring that he will not engage in similar conduct in the future. Based upon the available evidence, we consider that he is likely to be permanently unfit to practice law. 3. As we have found that the Respondent guilty of professional misconduct, we are satisfied that it is appropriate to order the Respondent to pay the Applicant's costs as there is no evidence of any exceptional circumstances. Orders 1. The Tribunal makes the following orders: 1. The name of the Respondent be removed from the roll of local lawyers; and 2. The Respondent pay the costs of the Applicant as agreed or assessed. ********** 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: 27 September 2018