Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Council of the Law Society of NSW v Zhukovska [2019] NSWCATOD 66 Hearing dates: 7, 17 and 18 December 2018, 18 January 2019 Date of orders: 08 May 2019 Decision date: 08 May 2019 Jurisdiction: Occupational Division Before: J S Currie, Senior Member M Sindler, Senior Member J Schwager, General Member Decision: 1. Myroslava Zhukovska is guilty of professional misconduct in respect of her conduct described in Grounds 4, 6, 7, 11 and 12 of the Application. 2. Myroslava Zhukovska is guilty of unsatisfactory professional conduct in respect of her conduct described in Grounds 2, 3, 5, 8 and 10 of the Application. 3. The matter is to be set down for directions and for fixing the date of a hearing to determine the disciplinary orders to be made. Catchwords: PROFESSIONAL DISCIPLINE- Legal Profession-Solicitors- preparation of general power of attorney for client of advanced years: adequacy of solicitor's assessment of capacity of principal - absence of independent advice to principal where solicitor to be appointed as attorney- necessity of estate-management structures, (including trust, incorporation of trustee, deed of successor appointor and provisions for transfer of residuary estate), were necessary- absence of independent advice as to effect of deed of successor appointor – alleged breaches of Legal Profession Act, 2004 (NSW) ss 254,479, 674 and NSW Solicitors' Professional Practice and Conduct Rules, Rule 12.3-whether solicitor arranged loans including unsecured loans without knowledge or consent of client, personally borrowed from trust, disclosed receipt of trust money to Law Society. Whether solicitor overcharged. Whether solicitor preferred her own interests to those of client. FIDUCIARY DUTIES- solicitor- identification of client – continuation of duties to client of advanced years notwithstanding creation of trust for purposes of estate management for that client- whether solicitor preferred her own interests to those of client. Legislation Cited: Legal Profession Act 2004 (NSW) Legal Profession Uniform Law Application Act 2014 (NSW) Legal Professional Uniform Law (NSW) No.16a NSW Solicitors' Professional Practice and Conduct Rules Cases Cited: Allinson v General Council of Medical Education and Registration [1894] 1 QB 750 Briginshaw v Briginshaw and Another [1938] 60 CLR 336 Bronze Wing International Pty Ltd v SafeWork NSW [2017] NSWCA 41 Donaghy v Council of the Law Society of NSW (No. 2) [2015] NSWCA 224 In re a Solicitor; Ex parte Law Society [1912] 1 KB 302 Kennedy v Council of Incorporated Law Institute of New South Wales (1939) 13 ALJ 563 at 563 Law Society of NSW v Shehadie [2016] NSWCATOD 46 Legal Services Commissioner v Livers [2017] NSWCATOD 117 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd and others (1992) ALR 449 New South Wales Bar Association v Amor-Smith [2003] NSWADT 239 New South Wales Bar Association v Cummins [2001] NSWCA 284 The Prothonotary of the Supreme Court of NSW v Demetrios [2015] NSWCA 258 Category: Principal judgment Parties: Council of the Law Society of NSW (Applicant) Myroslava Zhukovska (Respondent) Representation: Counsel: S Barnes (Applicant) Solicitors: Law Society of NSW (E.Essey) (Applicant) HWL Ebsworth Lawyers (A.Cameron) (Respondent) File Number(s): 2017/00280701 REASONS for decision Background and the real issue Background 1. Ms Myoslava Zhukovska was admitted to practice as a solicitor in New South Wales on 3 July 2009. She was then aged 30 years. She worked as an employed solicitor at three law practices between July 2009 and July 2012. She has asserted that she did not have the benefit of good mentoring or supervision during her first two and a half years of practice. She then obtained an unrestricted practising certificate and in August 2012 commenced sole practice through an incorporated legal practice known as McMahon Todd Pty Ltd ("McMahon Todd"). 2. On or about 17 July 2013 Ms Zhukovska was introduced to a potential new client, Ms Dulcie Barbara Heane ("Ms Heane"). At that time Ms Heane was a resident, on respite care, at an aged care facility on Sydney's northern beaches. It seems to be accepted that she was of advanced years. 3. At that time Ms Heane's estate consisted of bank accounts, shares and a stamp collection valued in total at approximately $113,000 and a home unit at Collaroy ("the Collaroy unit"), which was subsequently sold, in August 2013, for $552,000. 4. Ms Zhukovska then undertook the following work for Ms Heane: 1. she prepared a standard cost agreement, standard costs disclosure and letter of instruction; 2. she prepared and witnessed a general power of attorney (that is, not an enduring power of attorney), under which she, Ms Zhukovska, was appointed as the attorney; 3. she consolidated Ms Heane's bank accounts into one account, for the purpose of using it to pay tradesmen to renovate the Collaroy unit prior to sale. Ms Zhukovska asserts that at this time she obtained Ms Heane's authorisation for her law practice to charge usual hourly rates for any attendances related to the renovation of the Collaroy unit including supervision time; 4. she obtained advice from Mr Christopher Charlton, chartered accountant about asset protection and as a result of his advice established a discretionary trust to be known as The Barbara Heane Trust ("the Trust"), 5. through Mr Charlton, she arranged the incorporation of a company, Dulbar Investments Pty Ltd ("Dulbar"), with Mr Charlton had herself as directors for the purpose of Dulbar acting as the trustee of the Trust; 6. she arranged for Mr Charlton to instruct another solicitor to prepare a deed of settlement to establish and to govern the Trust ("the Deed of Settlement" or "the Trust Deed"). The Deed of Settlement: 1. appointed Ms Heane as Appointor and the only member of the appointed class and described the General Beneficiaries of the Trust as "any charitable organisation which is a deductible gift recipient and has as its primary objective the care and welfare of cats or dogs or both."; 2. gave the Appointor the power to remove any trustee and appoint a new trustee; 3. gave the trustee of the Trust power to change the beneficiaries of the Trust and allowed any person other than a member of the Excluded Class to be nominated and to become a beneficiary of the Trust. Ms Zhukovska, others associated with her law practice and Mr Charlton were not members of the Excluded Class. 1. She caused to be prepared and to be executed by Ms Heane a deed of appointment of successor appointor in relation to the trust ("the Successor Appointor Deed"). The effect of the Successor Appointor Deed was to make Ms Zhukovska the Appointor of the Trust upon Ms Heane's death. 1. Ms Zhukovska caused her law practice to invoice fees for all this work, including supervision and other non-professional attendances in relation to renovation of the Collaroy unit, apparently at the hourly rates set out in the costs and engagement documentation. 2. Thereafter, Ms Zhukovska acted on the sale of the Collaroy unit and undertook certain actions in relation to Ms Heane's estate. Those actions included making loans to others from the funds held by Dulbar (those funds included the proceeds of the sale of the Collaroy unit) and Ms Zhukovska herself borrowing $150,000 from that source. 3. In August 2014 a former employee of McMahon Todd, Ms Lee Johnson, notified the Trust Accounts Department of the Law Society of what she believed to be a trust account irregularity at McMahon Todd relating to the affairs of Ms Heane. The notification was investigated by Mr Peter Edwards, a Trust Account Inspector of the Law Society. 4. On 16 October 2014 the Council of the Law Society resolved to suspend Ms Zhukovska's practising certificate pursuant to section 548 of the Legal Profession Act 2004 ("LPA") and on 11 December 2014 that Council resolved to appoint Ms Lucia Moliterno to investigate the affairs of McMahon Todd, pursuant to section 267 of the LPA. 5. On 15 September 2017 the Tribunal received from the Law Society an application for disciplinary findings and orders against Ms Zhukovska ("the Application"). The Application alleged that Ms Zhukovska was guilty of professional misconduct and sought orders that her name be removed from the Roll, that she pay the costs of the Law Society and any further or other order the Tribunal thinks fit. 6. The conduct of Ms Zhukovska which is said to constitute professional misconduct is described in 12 grounds set out in the Application ("the Grounds"). The issue for determination 1. Our task was to determine whether or not, on the basis of our findings in respect of each Ground and as to Ms Zhukovska's conduct as alleged in the Grounds as a whole, that conduct constituted either professional misconduct or unsatisfactory professional conduct. Structure of these Reasons 1. We have adopted a structure for the remainder of these reasons which is intended to facilitate an understanding of the whole of the course of Ms Zhukovska's conduct under consideration. 1. We open by noting the relevant legislation and the applicable law as to the meaning of professional misconduct and unsatisfactory professional conduct and we then identify the sources of evidence. 2. We then deal with each ground of complaint separately. We have done this because, although there are some important facts common to more than one ground, assertions were made by the Law Society and (in most cases) responded to by Ms Zhukovska on each ground separately. In dealing with each ground we have explained our findings and our conclusion as to whether or not Ms Zhukovska's established conduct amounts to professional misconduct or unsatisfactory conduct. Jurisdiction 1. It was common ground that the application stood to be determined under the Legal Profession Act 2004 and not the Legal Professional Uniform Law (NSW) No.16a ("the Uniform Law"), by operation of by operation of the Legal Profession Uniform Law Application Act 2014 (NSW) and Division 7 of Schedule 4 of the Uniform Law. Applicable legislation 1. For convenience of reference, the text of legislative provisions referred to in these reasons is set out in the Appendix. Professional misconduct and unsatisfactory professional conduct Professional misconduct 1. Professional misconduct is defined inclusively in section 497 of the LPA. It includes: 1. unsatisfactory professional conduct which involves a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence; and 2. conduct of an Australian legal practitioner which would justify a finding that he or she is not a fit and proper person to engage in legal practice (whether or not that conduct occurred in connection with the practice of law). 1. As confirmed in Legal Services Commissioner v Livers [2017] NSWCATOD 117 at [138], it is accepted that the Parliament, in formulating a statutory definition of professional misconduct, nevertheless intended to preserve the common law meaning of the term. 2. The Tribunal in that case accepted that at common law professional misconduct was conduct that would be reasonably regarded as disgraceful or dishonourable by professional colleagues of good repute and competency. That is the test, commonly referred to as "the Allinson Test", derived from observations in Allinson v General Council of Medical Education and Registration [1894] 1 QB 750 at [758]. Although the statutory phrase under consideration in that case was "infamous conduct in a professional respect", being the phrase which appeared in section 29 of the Medical Act (21 and 22 Vict., Chapter 90) (UK), the Allinson test was extended and applied to the conduct of solicitors in In re a Solicitor; Ex parte Law Society [1912] 1 KB 302 at 311-312, where the issue was the definition of "professional misconduct" within the Solicitors Act 1988 (UK). A detailed examination of the history of judicial construction of the phrase was undertaken by Spigelman CJ in New South Wales Bar Association v Cummins [2001] NSWCA 284 at [37]. 3. In Kennedy v Council of Incorporated Law Institute of New South Wales (1939) 13 ALJ 563 at 563, Rich J observed that professional misconduct involved conduct which amounted to: " ..a grave impropriety affecting (the practitioner's) professionalism and character and was indicative of a failure either to understand or to practice the precepts of honesty or fair dealing in relation to the courts, his clients or the public. The particular transaction the subject of the charge must be judged as a whole and in the conclusion whether it betokeneth unfitness to be held out by the public as a member of the profession in whom confidence could be placed, or on the other hand, although a lapse from propriety, was not inconsistent with general professional fitness and habitual adherence to moral standards, (must) be reached by a general survey of the whole transaction." 1. More recently, Meagher JA of the NSW Court of Appeal has set out the relevant principles with reference to, but not restricted to, trust account obligations in The Prothonotary of the Supreme Court of NSW v Demetrios [2015] NSWCA 258 where he said: "Legal practitioners are expected to act and must act with scrupulous honesty when discharging their obligations generally and specifically with respect to the receipt and payment of monies on behalf of clients. There is an unqualified expectation that they will adhere to those standards. Unsatisfactory professional conduct 1. Under section 496 of the LPA unsatisfactory professional conduct is defined inclusively. It includes conduct of a lawyer occurring in connection with the practice of law which falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer. 2. In Donaghy v Council of the Law Society of NSW (No. 2) [2015] NSWCA 224 at [94], the Court of Appeal recognised that conduct involving a contravention of "legal profession rules" (that is, rules made under Pt 7.5 of the LPA "to promote the maintenance of high standards of professional conduct by Australian legal practitioners") may also constitute unsatisfactory professional conduct. The standard of proof 1. Any finding by us of professional conduct or unsatisfactory professional conduct must be made to the standard recommended in Briginshaw v Briginshaw and Another [1938] 60 CLR 336. In that matter Dixon J (as he then was), noted firstly, at 361 that: "The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality." 1. His Honour then discussed the dichotomy between the criminal and civil standard of proof and noted that at common law: He went on to expound what has become known as the "Briginshaw standard": "Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding our considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal." 1. In Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd and others (1992) ALR 449 at 450, the majority of the High Court, led by Mason CJ approved the Briginshaw standard, but noted that: "(T)he strength of the evidence necessary to establish a fact or facts on the balance of probabilites may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary 'where so serious a matter as fraud is to be found.(Rejfek v McElroy (1965) 112 CLR, at 521). Statements to that effect should not, however, be understood is directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct." 1. The approach to "the Briginshaw standard" adopted in the Neat Holdings case was more recently approved by Leeming JA in the NSW Court of Appeal decision of Bronze Wing International Pty Ltd v SafeWork NSW [2017] NSWCA 41 at [126]. The evidence 1. The following documentary material was tendered by the Law Society and admitted into evidence: 1. an affidavit of Anne-Marie Foord, the Law Society's Director of Professional Standards made on 14 September 2017; 2. an affidavit of Peter Leslie Edwards, Law Society Trust Account Inspector sworn on 8 September 2019; 3. an affidavit of Lucia Moliterno investigator appointed by the Law Society, sworn on 11 September 2017; 4. an affidavit of Richard John Neal, Solicitor sworn on 22 September 2019; 5. an affidavit of Gavin Taylor, sworn on 17 April 2018; 6. a second affidavit of Peter Leslie Edwards sworn on 18 April 2018; 7. an affidavit of Marcia Moulton sworn on 22nd of December 2015; 8. an affidavit of Leah Kathryn Johnson, solicitor, former employee of Ms Zhukovska's practice, sworn on 18 April 2018; 9. an affidavit of Jennifer Witkamp sworn on 23 April 2018; 10. an affidavit of Olivier Valente sworn on 23 April 2018; and 11. an unsworn statement by Leah Katherine Johnson made on 7 September 2018; which was subsequently provided as a sworn statement. 1. Ms Johnson, Mr Edwards, Ms Moliterno and Mr Neal gave oral testimony and were cross-examined. 2. The following affidavits were tendered on behalf of Ms Zhukovska and admitted into evidence: 1. an affidavit of Christopher Charlton, Chartered Accountant, made on 22 January 2018; 2. an affidavit of Ms Zhukovska made on 25 January 2018; and 3. a further affidavit of Ms Zhukovska made on 10 July 2018. 1. Additionally, a document prepared for the hearing containing reference material to be used for the purposes of cross examining Ms Johnson was marked for identification. 2. Ms Zhukovska and Mr Charlton gave oral testimony and were cross-examined. The Grounds 1. In its Application the Law Society asserts that Ms Zhukovska is guilty of professional misconduct by reason of her conduct referred to in each of the following grounds and further particularised in the Application. 1. She failed to take any reasonable steps to ensure that her client, Ms Heane, had sufficient capacity to understand the nature and effect of a Power of Attorney prepared by Ms Zhukovska before Ms Hearne executed the document on 17 July 2013. 2. She arranged the setting up for Ms Heane of the Trust and the incorporation of Dulbar (which was intended to be the trustee of the Trust,) in circumstances where there was no reasonable legal necessity to do so. 3. She prepared a Will for Ms Heane which she executed on 1 September 2013, which directed that Ms Heane's residuary estate be transferred to the Trust in circumstances where there was no reasonable legal necessity that that be done in order to give effect to Ms Heane's testamentary intentions. 4. She failed to ensure Ms Heane had received independent legal advice as to the effect of Successor Appointor Deed before Ms Heane executed the document on 14 November 2013. 5. She breached section 254 of the LPA. 6. She made two unsecured loans to a person from the funds of Ms Heane/Dulbar without the knowledge or instructions of Ms Heane 7. In or about March 2014 she advanced to one Vera McCann, a client of her law practice, the sum of $40,000 from Ms Heane/Dulbar without the knowledge or instructions of Ms Heane and failed to adequately secure the loan; and by so doing breached section 479 of the LPA. 8. She breached Rule 12.3 of the New South Wales Professional Conduct and Practice Rules 2013 9. She breached section 674 of the LPA. 10. She failed to disclose receipt of trust money to the Law Society. 11. She overcharged Ms Heane/Dulbar. 12. In so acting, Ms Zhukovska preferred her own interests to those of her client Ms Heane. consideration Ground 1. Failure to take reasonable steps to ensure Ms Heane had sufficient capacity to understand the Power of Attorney Uncontested facts 1. The uncontested facts the relating to this ground appeared to be these. 2. Ms Zhukovska first spoke to Ms Heane on 16 July 2013 by telephone and on the same day prepared for her a draft of a general power of attorney; that is, a power of attorney not in the form of an enduring appointment (one which would endure notwithstanding any loss of mental capacity by the principal). Under the draft instrument prepared on that day Ms Heane's neighbour was named as her attorney. 3. Ms Zhukovska then met Ms Heane, for the first time, on the following day, 17 July 2013 and apparently as a result of that meeting prepared for her a different general power of attorney nominating Ms Zhukovska as the attorney. ("the Power of Attorney"). Later that day Ms Zhukovska attended upon Ms Heane and Ms Heane executed the Power of Attorney 4. The Power of Attorney appointed Ms Zhukovska as the attorney and provided that that appointment would operate immediately. 5. Prior to Ms Heane's execution of the Power of Attorney she did not receive any independent advice (that is, advice from a person other than Ms Zhukovska) in relation to the instrument. The Law Society's case on Ground 1 1. As Mr Barnes on behalf of the Law Society contended, the significance of the Power of Attorney is that as a result of her appointment as attorney under it, Ms Zhukovska was able within weeks to transfer funds from Ms Heane's bank accounts to ensure payment of her firm's significant tax invoices for work relating to Ms Heane's affairs. 2. Ms Zhukovska's account is set out in her affidavit of 25 January 2018, particularly at paragraphs 28 to 31, in which she provides a detailed description of her discussions with Ms Heane at the time of taking instructions. 3. However by comparison with the detailed description on the affidavit, Ms Zhukovska's contemporaneous file note of the discussion on 17 July 2013 (which appears at page 185 of exhibit RN 1 to Mr Neal's affidavit) is relatively brief. Ms Zhukovska's affidavit, sworn over 4 years after her meeting with Ms Heane, recounts what was said in that discussion in July 2013 in far greater detail than appears in her contemporaneous file note. Understandably that discrepancy was challenged in Mr Barnes' cross-examination of Ms Zhukovska. Mr Barnes put it to Ms Zhukovska on a least two occasions that what she had said in the affidavit was untrue. She denied that that was so. As recorded at Transcript 17.12.18, p34.6 and page 36.4, the following exchanges took place: "[34.6](Mr Barnes): I'm suggesting to you that when you came to prepare this affidavit, which you swore 4 ½ years later, that basically you just made it up? (Ms Zhukovska): No, I didn't. (Mr Barnes): You had no other document to refer to, to refresh your recollection of what was discussed other than the file note? (Ms Zhukovska): No. I remember what I asked on what she told me. She told me many stories. I didn't have to write them down… [36.4] (Mr Barnes). Again, if you look at paragraph 31 of your affidavit, which extends for some pages. Again, I want to suggest to you that you just made that up when you've come to prepare this affidavit. (Ms Zhukovska) I don't agree. This is pretty much how it happened and that's how I remember." 1. The Law Society in its final written submissions asserts relies on the fact that the only contemporaneous document in relation to the making of the Power of Attorney is Ms Zhukovska's file note of 17 July 2013, but that that file note does not record anything about many of the matters which might be expected to have been raised, including: 1. any review of the Law Society Guidelines relating to assessment by a solicitor of the capacity of a person making a power of attorney to understand the nature and effect of the appointment or of other documents prior to the meeting; 2. relevant explanations made or questions put to Ms Heane by Ms Zhukovska to determine her capacity to understand the nature and effect of the Power of Attorney or Ms Heane's responses; 3. any explanation made by Ms Zhukovska the about the nature and effect of a power of attorney or what Ms Heane said to indicate that she understood; 4. Ms Heane's expression or instructions that she wanted Ms Zhukovska to become her attorney; and 5. any expression of advice by Ms Zhukovska to the effect that Ms Heane should not appoint her as her attorney until Ms Heane had first obtained independent legal advice or the rejection of that advice by Ms Heane. 1. The Law Society contends that the detailed account appearing in Ms Zhukovska's affidavit is a reconstruction. Ms Zhukovska denies this is so and she maintained her account despite properly vigorous cross examination. Our analysis and finding on Ground 1 1. Ultimately we could not be satisfied that sufficient doubt had been cast on the veracity of Ms Zhukovska's evidence in this regard for us to make a finding that she had failed to take reasonable steps to ensure that Ms Heane had sufficient capacity to understand the nature and effect of the Power of Attorney. 2. On balance, Ms Zhukovska had established to our satisfaction the following matters, which in our view were not undermined in cross-examination: 1. prior to meeting Ms Heane she had been to a lecture by Mr Neal, a recognised specialist in the area, and had taken notes and read articles by him relating to taking instructions from older people and powers of attorney 2. she recognised the importance of a solicitor ensuring that a prospective principal of a power of attorney has capacity to make the appointment; and 3. she had suggested to Ms Heane that she should obtain independent advice but Ms Heane had indicated that she did not need or wish to do this. 1. On her own admission, at the relevant time Ms Zhukovska clearly lacked detailed knowledge of the law relating to powers of attorney and had little experience in practice in this area. But we accept that she had made efforts to improve her knowledge of the area, including having consulted with a specialist in the area, attending some courses and keeping legal resources. 2. On the basis of all those considerations we could not be satisfied to the required standard that Ms Zhukovska had failed to take reasonable steps to ensure Ms Heane's capacity to understand the Power of Attorney and accordingly the charge of professional misconduct and any assertion of unsatisfactory professional conduct by Ms Zhukovska in relation to this ground must fail. 3. However, we cannot leave our consideration of this ground without making the following observations. 1. In appointing Ms Zhukovska as attorney in these circumstances, Ms Heane does not appear to have received complete advice on all the reasonably foreseeable implications of making that appointment. Although it may be the case that not all the implications could reasonably have been foreseen on the date of the execution of the Power of Attorney, many of them could. As well, standards of proper diligence required that a comprehensive file note be taken of the conference with Ms Heane. We believe that Ms Zhukovska can be criticised for substantial lack of diligence in this regard. 2. We note that, in the circumstances of the proposed appointment by Ms Heane of her solicitor Ms Zhukovska as attorney and the further developments regarding her estate as discussed below, it is most unfortunate that Ms Heane was not able to be persuaded to obtain independent legal advice. However those observations do not alter our conclusion as to this ground. Ground 2: Establishment of the Trust and incorporation of Dulbar Uncontested facts 1. The uncontested facts the relating to this ground appeared to be these. 1. As at July 2013 Ms Heane held assets which comprised a home unit property at Collaroy ("the Collaroy unit"), bank accounts with Westpac Banking Corporation totalling approximately $70,000, shares in a share fund with a value of approximately $8000, 6 term deposits with HSBC and St George Bank totalling approximately $31,000, an account with the National Australia Bank for approximately $3000, the proceeds of which were transferred to "unclaimed monies in May 2013 and a stamp collection worth approximately $150. The estate therefore consisted of approximately $113,000 plus the value of the Collaroy unit. 2. Ms Heane saw Ms Zhukovska at meetings on 17 July and 24 August 2013. 3. In or about late August 2013 Ms Zhukovska contacted a chartered accountant Mr Christopher Charlton seeking advice in respect of Ms Heane's property and estate generally. 4. On 1 September 2013 Ms Zhukovska met Ms Heane at the aged care facility and obtained instructions from her on a proposed trust structure and Ms Heane's signature appears on a typed letter of instructions addressed to Mr Charlton of that date (the full text of which is set out in the tendered document called Statement of Agreed Facts at paragraph 2.6.). This gave specific directions as to the creation of the Barbara Heane Trust ("the Trust"), the nature of the Trust's permissible investments in the application of capital and profit. The capital and profit was to be applied to allowing Ms Heane to stay at the aged care facility and for any other life expenses which she deemed necessary, for expenses after her death including her cremation and funeral service and disposal of her ashes. The profit only of the Trust was to be applied for the training, education and welfare of assistance dogs and any other animal charities related to dogs and cats. The Trustee was given absolute discretion to choose the appropriate charity. The trust was to continue after Ms Heane's death and be wound up when the capital and profit had been distributed. 5. In September 2013 Ms Zhukovska instructed Mr Charlton to establish the Trust and to incorporate Dulbar Investments Pty Ltd ("Dulbar") as its trustee. 6. The legal documents for establishment of the Trust were prepared by Brown Wright Stein Lawyers. 7. Ms Heane did not receive independent advice, legal or otherwise in respect of the Trust. Ms Zhukovska's case on this ground 1. On the basis of closing submissions made by her solicitor Ms Cameron, we understood Ms Zhukovska's case in relation to this ground to be as follows: 1. She accepts (as she put it to us: "with the benefit of hindsight") that she should have referred Ms Heane directly to a specialist in wills and estates to provide independent advice to her in relation to the Will and the Trust and that there was no reasonable legal necessity for trust to be set up for Ms Heane on the basis that it was, especially given that it was, in her words: "very unlikely" that there could be a family provisions legislation claim against Ms Heane's estate. 2. However at the relevant time (which we take to be the time immediately prior to and including the execution of the documents necessary to establish the trust and to incorporate Dulbar), Ms Heane was particularly concerned that a claim might be made and Ms Zhukovska thought that the trust structure was a way to alleviate those concerns. 3. It was because Ms Zhukovska thought there might have been a potential claim that she consulted Mr Christopher Charlton to seek advice in relation to asset protection. 4. It is submitted on Ms Zhukovska's behalf that the consultation with specialists is a relevant circumstances which we should take into account in determining our disciplinary finding. We agree. It is also contended that, as Ms Zhukovska is the only person who can give relevant evidence as to Ms Heane's understanding of the times, we should accept her evidence that Ms Heane understood, in simple terms, the trust structure and agreed to it. We acknowledge that. 5. Ms Zhukovska accepts that her conduct in respect of this ground fell short of what could be expected of a reasonably competent legal practitioner. That is, she accepts that her conduct constituted unsatisfactory professional conduct. However she maintains that her conduct in relation to this ground does not amount to professional misconduct. The Law Society's case 1. We understood the Law Society to maintain its position taken in the Application; that Ms Zhukovska's conduct amounted to professional misconduct. Mr Barnes on behalf of the Law Society pointed out that the Trust was set up and Dulbar incorporated in such a way as to separate Ms Heane from the process of giving instructions in respect of her assets, that a financial adviser should have been consulted in relation to her particular circumstances and that there was no reasonable legal necessity to set up the Trust or to incorporate Dulbar. 2. In his closing submissions, Mr Barnes for the Law Society relied heavily upon the evidence of Mr Richard Neal and Ms Zhukovska's eventual concession that there was no reasonable legal necessity to set up the trust (Transcript 17.12.18, page 77.9) Mr Barnes pointed out that Ms Zhukovska, having initially conceded that she had failed to ask whether any of the persons whom Ms Heane feared would make claims were members of the household, went on to give implausible evidence that she could not remember whether or not she had done this. Mr Barnes contended that Ms Zhukovska's recollection of events indicates her failure to be frank and candid with the Tribunal. Our analysis and finding on Ground 2 1. We found the evidence of Mr Neal, an independent expert witness with a substantial practice in this area, to be reliable and persuasive. We placed substantial reliance upon it. 2. In his oral evidence Mr Neal expressed the opinion that a person in the position of Ms Zhukovska should have been familiar with the requirements for making a Family Provision claim and the definition of "eligible person" and should have been aware that the people described by Ms Heane as causing her concern in this regard did not fall within the definition. We accept that that sets what might at first appear to be a high standard, particularly for a solicitor with limited overall experience. However: 1. we note that Ms Zhukovska in cross-examination left an unclear impression about whether or not she knew the definition of "eligible person" at the time and we agree with Mr Barnes that her testimony in this regard was most unconvincing; 2. it would not have been unreasonable to expect Ms Zhukovska to disclose to Ms Heane that she lacked familiarity and expertise with Family Provision claims and with the establishment of trusts generally. She failed to do so; and 3. it seems to us curious that Ms Zhukovska did not consult Mr Neal himself about these matters, given that she related to us that she had attended his seminars and consulted him on a previous Will or estate planning matter. 1. Additionally, we find it significant that in her Reply at [2.5] and [2.6] Ms Zhukovska said that she relied upon advice from Mr Charlton in relation to the appropriate structure to achieve what she took to be Ms Heane's instructions and that Mr Charlton had recommended the trust structure. Mr Charlton in his affidavit at [15] asserted that he could not recall whether he or Ms Zhukovska suggested Trust. Yet the Law Society's appointed investigator Ms Lucia Moliterno appeared to have a clear recollection that when she interviewed Mr Charlton in February 2015 he told her that Ms Zhukovska had suggested to him that the Trust be established. That is a position which would be consistent with Ms Zhukovska having previously acted on at least one estate planning matter (the one on which she consulted Mr Neal). 2. We accepted Ms Moliterno's evidence as that of a practitioner with substantial experience and we placed considerable reliance upon it. On that basis we concluded that the most likely occurrence is that indeed Ms Zhukovska initiated with Mr Charlton the suggestion that the trust be established. 3. We find that Ms Zhukovska's conduct in respect of this ground clearly fall short of the standard of competence and diligence which the public is entitled to expect from a reasonably competent practitioner and is therefore unsatisfactory professional conduct. However, even if, as appears likely, Ms Zhukovska's recollection and account of who instituted the idea of a trust was deficient, we are not persuaded that her conduct as related in this ground: 1. involves a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence or that it is conduct which would justify a finding that Ms Zhukovska is not a fit and proper person to engage in legal practice, and so is not statutory professional misconduct under s 497 of the LPA; or 2. is something which would reasonably be regarded as disgraceful and dishonourable by members of the profession of good repute and competency (the Allinson test) set out at [17] above or 3. is a grave impropriety affecting Ms Zhukovska's professional character or indicative of a failure by her to understand or to practice the precepts of honesty or fair dealing in relation to the courts her clients or the public (the test from Kennedy, set out at [18] above). 1. It follows that Ms Zhukovska's conduct covered by this Ground constitutes unsatisfactory professional conduct but not professional misconduct. Ground 3: Direction in the Will that the residuary estate be transferred to the Trust, where there was no reasonable legal necessity for that. Uncontested facts 1. The uncontested facts the relating to this ground appeared to be these. 1. Ms Zhukovska prepared for Ms Heane a Last Will and Testament ("the Will") which Ms Heane signed on 1 September 2013. 2. Under the Will, Mr Charlton, who Ms Heane had not met, was appointed her executor and trustee and Ms Heane bequeathed the whole of her estate to her trustee, firstly to pay debts, funeral and testamentary expenses and then to pay the residue to the Trust; and 3. the Will replaced a previous will which Ms Heane had executed in July 1998. Under the previous will the Permanent Trustee Company Ltd was appointed executor and trustee and Ms Heane's wishes for her estate to be distributed in equal shares to the Salvation Army and a charity caring for dogs, in equal shares, upon her death. Ms Zhukovska's case 1. Ms Zhukovska says that, having set up the Trust, it was not unreasonable for the Will to provide for the transfer of the residual estate to the Trust. 2. In the closing written submissions made on her behalf she conceded that this ground should be treated together with Ground 2. She accepts that her conduct in respect of Ground 2 fell short of what could be expected of a reasonably competent legal practitioner but does not appear to make that concession expressly in relation to Ground 3, even though she agrees that they should be "treated together". We will analyse the Ground on the basis that unsatisfactory professional conduct is not admitted. The Law Society's case 1. The Law Society relies on the evidence of Mr Neal. In essence he says that, having regard to the size of Ms Heane's estate and the absence of any eligible person likely to bring a successful family provision claim, there was no reason to establish the Trust and that a Will along the lines of Ms Heane's previous Will would appear to have been sufficient. More pertinently, Mr Neal was of the view that advice should have been given by Ms Zhukovska to Ms Heane about the selection of suitable charities so that direct gifts could have been made by her Will. To achieve this by means of a long-term trust or an income-only trust was in his view inappropriate because of the size of the estate. Our analysis and finding on Ground 3 1. It seems to us that Ms Zhukovska's conduct in arranging the redirection of the residuary estate to the Trust is a distinct set of conduct from the establishment of the Trust. Although duplicity of pleading was not specifically submitted to us, for avoidance of doubt we state our view that there is no such duplicity in pursuing Ground 3 as a separate complaint. 2. The actions of Ms Zhukovska in arranging for the residuary estate to be transferred to the Trust is in our view conduct which, like the conduct referred to in Ground 2, falls short of what could be expected of a reasonably competent legal practitioner but that it does not constitute professional misconduct as described at [17]-[19]. 3. It follows that Ms Zhukovska's conduct covered by this Ground constitutes unsatisfactory professional conduct but not professional misconduct. Ground 4: Failure to ensure that Ms Heane obtained independent legal advice as to the effect of the Successor Appointor Deed Uncontested facts 1. The uncontested facts the relating to this ground appear to be these. 1. On 14 November 2013 Ms Zhukovska and Ms Heane signed the Successor Appointor Deed. 2. The effect of that deed which was that Ms Heane nominated Ms Zhukovska as her successor as Appointor of the Trust, effective on the date of her death. 3. The Trust Deed empowered the Appointor of the Trust to change the beneficiaries of the Trust. 4. Prior to executing the Successor Appointor Deed Ms Heane did not receive independent legal advice as to the nature and effect of the Successor Appointor Deed or the Trust Deed, or their combined effect as summarised at (2) above. Ms Zhukovska's case 1. In her closing written submissions Ms Zhukovska says that she now accepts, having obtained legal advice in relation to the Deed, that she should have referred Ms Heane directly to a specialist in wills and estates to provide independent legal advice in relation to Ms Zhukovska's own appointment as successful appointer. 2. Her submissions at [7.1] go on to indicate, apparently by way of mitigation, that: "… The evidence shows that the Deed was prepared by a wills and estates specialist on instructions provided by Mr Charlton. (Ms Zhukovska) had no reason to suspect that the Deed was anything other than what was necessary and appropriate to ensure that the assets of the Trust were distributed in accordance with Ms Heane's wishes after her death." 1. Our reaction to that submission is that it appears to completely miss the point. In our view any reasonably competent solicitor who was seeking to act exclusively in his or her client's interests without any regard to his or her own, would have realised the stark possibility of a conflict of interests arising for them upon execution of a deed in that form. It does not matter that the Successor Appointor Deed was prepared by a specialist. It does not matter that Ms Zhukovska has the view that the deed was necessary or appropriate. Quite clearly she should have recognised the potential for conflict between her own interests, particularly as they would arise upon Ms Heane's death and her consequent substitution as appointor, and those of her client Ms Heane. 2. As submitted by the Law Society at [94] of its closing submissions: 1. the Successor Appointor Deed put Ms Zhukovska in a completely controlling position in relation to Ms Heane's assets; 2. additional beneficiaries could be appointed by being nominated by the trustee, Dulbar, which itself was controlled by Ms Zhukovska and Mr Charlton with the written consent of Ms Zhukovska. We add that fact should have made it abundantly clear to Ms Zhukovska that the provision considerably enhanced her position in a way which gave rise to a conflict of her interest and her duty to preserve the interests of Ms Heane; 3. significantly, it was quite possible for Ms Zhukovska to become a beneficiary of the trust; and 4. in all these circumstances Ms Zhukovska should have ensured that Ms Heane received independent legal advice as to the nature and effect of the Successor Appointor Deed and the Trust Deed, prior to her executing those instruments. Our analysis and finding on Ground 4 1. Ms Zhukovska concedes in her closing written submissions that she accepts that her conduct in relation to this ground fell short of what could be expected of a reasonably competent practitioner and it is therefore unsatisfactory professional misconduct. 2. But in our view her liability is greater than that. As a result of the matters related above, the conduct of Ms Zhukovska in relation to this Ground : 1. would be regarded by members of the profession of good repute as disgraceful or dishonourable; 2. involves a failure either to understand or to practice the precepts of honesty or fair dealing in relation to her clients, that being the formulation adopted by Rich J in Kennedy v The Council of the Inc Law Institute of New South Wales , as cited at [18] above; and 3. involves a substantial failure to reach or maintain a reasonable standard of competence and diligence 1. The conduct is therefore professional misconduct. Ground 5: breach of s 254 of the LPA Uncontested facts 1. The uncontested facts the relating to this ground appeared to be as follows. 1. Ms Zhukovska acted for Ms Heane on the sale of the Collaroy unit. 2. On 16 September 2013, Ms Zhukovska sent a letter to the conveyancers acting for the purchasers of the unit, directing the payment of bank cheques on settlement and that included a direction to pay Dulbar $420,000 and to pay two cheques to Ms Heane totalling $61,557.58. 3. The signature of Ms Heane appears on a document titled "Settlement Adjustment Sheet" which is stated to have been "adjusted at 17 September 2013". This settlement adjustment sheet records the following cheque to be received on settlement of the transaction: "4. The Barbara Heane Trust: $481,557.58". That amount is the sum of the amounts directed to be paid respectively to Dulbar and to Ms Heane as per (2) above. 1. On 17 September 2013 the sale of the Collaroy unit was settled and on settlement Ms Zhukovska received, among others, a cheque drawn in favour of Dulbar for $420,000 ("the settlement money"). 2. The settlement money constituted "money entrusted to a law practice in the course of or in connection with the provision of legal services" for the purposes of the relevant definition of "trust money" in section 243 of the LPA. 3. Ms Zhukovska did not deposit the settlement money into the trust account of her law practice. 4. On the same day, 17 September 2013, an account was opened with the Commonwealth Bank in the name of Dulbar ("the Dulbar cheque account"). In the title of the Dulbar cheque account there was no reference to Dulbar acting in the capacity of truste The signatories to that account were Ms Zhukovska and Mr Charlton only (the directors of Dulbar) or either of them. 5. On 20 September 2013, Ms Zhukovska deposited the settlement money into the Dulbar cheque account. The same day, Ms Zhukovska deposited into the trust account of the law practice the two cheques received in favour of Ms Heane, as referred to in (2) above totalling $61,557.58. The position of each party on this ground 1. The Law Society pleaded that Ms Zhukovska's conduct in failing to deposit the settlement money into the trust account of her law practice breached section 254 of the LPA. 2. Ms Zhukovska in her Reply denied that she had breached section and in effect asserted that she had complied with it, as she did have a written direction from Ms Heane to deal with the proceeds of sale otherwise than by depositing them into her trust account. The written direction was said to comprise a settlement adjustment sheet signed by Ms Heane on 15 September 2013. The evidence of Mr Peter Edwards of the Law Society was to the effect that he had not seen that document or an amended document prior to 7 December 2018 (the date of his evidence on the first day of our hearing). He pointed out that Ms Zhukovska did not deal with the proceeds of sale in accordance with that document in any case. 3. His view was that the document purportedly signed by Ms Heane was not a sufficient written direction for the purposes of section 254. 4. We agree. We think it beyond dispute that there was no "direction" for the purposes of the section and that the section has clearly been breached by Ms Zhukovska. Our analysis and finding on Ground 5 1. In her closing submissions at [2.5) Ms Zhukovska concedes that what she did fell short of what could be expected of a reasonably competent legal practitioner. We agree. Ms Zhukovska's concession amounts to an admission of unsatisfactory professional conduct and we find that that is what the conduct constituted. We do not believe that her conduct as established falls within the formulations of professional misconduct which are discussed in more detail cited at [17] to [19] above 2. It follows that in relation to this ground there will be a finding of unsatisfactory professional conduct but not of professional misconduct. Ground 6. Unsecured loans to clients without instructions or knowledge of Ms Heane Uncontested facts 1. The uncontested facts the relating to this ground are as follows. 1. In or about March 2014 Ms Zhukovska advanced $10,000 to a Mr St Clair from the funds of Ms Heane/Dulbar by way of unsecured loan and in or about August 2014 made a further advance to Mr St Clair from that source of $5000, again by way of unsecured loan. 2. Those advances were made without the knowledge or the instructions of Ms Heane. The position of each party on this ground 1. The Law Society pleads that the above actions constituted professional misconduct by Ms Zhukovska. 2. In the closing written submissions made on behalf Ms Zhukovska she asserts that there is no basis for any disciplinary action in respect of this ground. She asserts that while these funds were "ultimately" Ms Heane's money, Dulbar held the funds and had the right to make decisions with respect to the investment of them. It is said on behalf of Ms Zhukovska that she had no requirement whatsoever to consult with Ms Heane with respect to all investment decisions made by the Trust, because she and Mr Charlton had been authorised to do this. Ms Zhukovska does allege that she spoke in general terms to Ms Heane about the loans and that Ms Heane "did not object to that form of investment." 3. However in cross-examination Ms Zhukovska appeared eventually to accept that a solicitor should not make an unsecured loan of a client's money to another person without the client's express instructions (Transcript of 17.12.18, page 117.6) and that to do with this was "a very unwise thing"; that having been suggested to her by Counsel for the Law Society. (Transcript of 17.12.18, page 118.5). Our analysis and findings on Ground 6 1. It was alleged by the Law Society and appeared to be accepted by Ms Zhukovska that the documentation for these loan transactions consisted merely of email exchanges. That, together with the risks involved in making an unsecured loan in our view clearly constitutes conduct that falls short of the standard of competence and diligence that any member of the public is entitled to expect of a reasonably competent Australian legal practitioner, so it constitutes unsatisfactory professional conduct 2. But in our view Ms Zhukovska's conduct on this aspect is worse than that and can properly be categorised as professional misconduct. We base that conclusion on her failure to obtain proper instructions from her client Ms Heane, being instructions based upon a reasonable explanation of the matter and the risks involved. Ms Zhukovska's case is that she mentioned this type of loan to Ms Heane (a client of advanced years) in what were admitted to be "general terms" and, having heard no objection to them, proceeded with the loan on an unsecured basis. That cannot be regarded as having properly obtained instructions. 3. We fundamentally disagree with Ms Zhukovska's contentions that her only client at this stage was the Trust (or perhaps Dulbar as trustee). and that as submitted at [9.1] of the closing submissions, there was no requirement for her to consult with Ms Heane with respect to all investment decisions made by the Trust, including what is now conceded to have been "a very unwise" decision to proceed with this loan. (As to Ms Zhukovska's identification of her client at various stages, see further [142]- [143] below. 4. In our view, if regard is had to the whole of Ms Zhukovska's course of action in relation to this aspect, solicitors of good repute and competency would regard her actions as disgraceful and dishonourable. For completeness we confirm that that would be the result even if no fees were charged in respect of this transaction, that particular point having been left unclear in Ms Zhukovska's answers in cross-examination. (See Transcript 17.12.18, page 119.5). 5. In addition we believe that Ms Zhukovska's conduct, when the transaction is surveyed as a whole, amounts to a grave impropriety affecting her professional character and is indicative of a failure either to understand or to practice the precepts of honesty or fair dealing in relation to her clients. (See the analysis of professional misconduct adopted in Kennedy, noted at [39] above). 6. It follows that we find that Ms Zhukovska's conduct in relation to this ground amounts to professional misconduct. Ground 7. Breach of s 479 of the LPA. (Advance of $40,000 as an unsecured loan to a Ms McCann without Ms Heane's knowledge or instructions). Uncontested facts 1. It appears to be uncontested that in or about March 2014 Ms Zhukovska arranged for the advance to a Ms McCann, one of her clients, of $40,000 from Ms Heane/Dulbar without the knowledge or instructions of Ms Heane. It appears to be admitted that the loan was made without Ms Heane's knowledge or instructions. 2. Ultimately Ms Zhukovska accepted and conceded that what she had done breached section 479 of the LPA. 3. As to whether the loan was in fact unsecured, Ms Zhukovska's position changed. In her Reply, at [7.2] (a), she asserted that: "the loan…was secured by an unregistered mortgage and a caveat over the property owned by Ms McCann". 1. However under cross-examination she conceded that by lending the money by way of an unregistered mortgage she breached section 479 (see Transcript 17.12.18, page 123.3). As to whether the loan was actually secured, the position ultimately adopted by Ms Zhukovska under cross-examination was that the mortgage was indeed unregistered but that account should be taken of the fact that the security could have been perfected at any time by her arranging to have the mortgage registered. See (Transcript 17.12.18, page 123.3 to 123.6). When asked whether the breach of section 479 concerned her, Ms Zhukovska answered: "Well, of course it concerns me. It concerns me but at the time I thought, all I have to do-I had the title and I had all the documents. I can just walk up to LPI and register it at any point…. I thought, since I have the transaction in my hands, I didn't think it was absolutely required." 1. In its closing written submissions the Law Society pointed out that in order to make the funds available for this loan, break fees were incurred in relation to a term deposit made by Dulbar. That did not appear to be disputed by or on behalf of Ms Zhukovska. However when that was put to her in cross-examination she appeared to minimise the significance of it by referring to the comparatively low interest-rate available on the term deposit. 2. In our view, those remarks and those cited at [92] are not the remarks of a reasonably competent solicitor. The Law Society's case on this ground 1. The Law Society's case is that Ms Zhukovska's conduct in arranging this loan breached section 254 of the LPA and when taken as a whole (so as to include the fact that the loan was arranged without the knowledge or instructions of Ms Heane, that it was unsecured and that break costs were incurred in the term deposit), Ms Zhukovska's conduct constitutes professional misconduct. Ms Zhukovska's case on this ground 1. In her closing written submissions Ms Zhukovska accepted that what she did had occurred in the course making of a regulated mortgage and amounted to a breach of section 479 but she did not, at least expressly, concede that her conduct amounted to unsatisfactory professional conduct. Instead, she submitted that unlike in cases in which a finding of professional misconduct has been made for a breach of section 479, the facts in this case do not involve any misappropriation of funds, they reveal an isolated incident by a relatively junior solicitor with limited mortgage experience. Our analysis and findings on Ground 7 1. In our view Ms Zhukovska's conduct in relation to this ground is as serious and substantial a departure of the standards expected by the profession and the public as that pleaded in respect of ground 6. She failed her basic obligation to her client to ensure that she had proper instructions to proceed, that any loan would be secured, that it would not involve unnecessary costs or losses (such as the break fees) and that it would be undertaken in accordance with the LPA 2. In our view Ms Zhukovska's conduct: 1. would be regarded by members of the profession of good repute and competency as disgraceful and dishonourable; 2. if the alternative test of professional misconduct formulated by Deputy President O'Connor in Law Society of NSW v Shehadie [2016] NSWCATOD 46 at [60] is adopted, so that regard is had to how "ordinary and decent people" would review the conduct, it would be regarded as dishonourable; and 3. when the transaction is analysed as a whole, the conduct would also fail the test in Kennedy, as set out in [18] above. It would be regarded as constituting a grave impropriety affecting Ms Zhukovska's professional character and to be indicative of her failure either to understand or to practice the precepts of honesty or fair dealing in relation to her clients. 1. It follows that Ms Zhukovska's conduct in relation to this ground amounts to professional misconduct. Ground 8: Breach of Rule 12.3 of the Conduct and Practice Rules: loan to Ms Zhukovska herself of $150,000 Uncontested facts 1. It was uncontested that: 1. on or about 10 March 2014 Ms Zhukovska borrowed $150,000 from Dulbar; 2. the advance was used, at least in part, to undertake renovation work to a branch office of Ms Zhukovska's law practice; 3. the loan was made without the direct knowledge or the proper instructions of Ms Heane; 4. the term deposit made by Dulbar for a principal sum of $150,000 was closed before its maturity date; on 16 June 2014, so attracting a further break fee. Its closing balance was $130,000. That amount was deposited into a cheque account in the name of Dulbar and used to make the loan to Ms Zhukovska; 5. at all relevant times the sole directors of Dulbar were Ms Zhukovska and Mr Charlton; 6. as a result Ms Zhukovska breached Rule 12.3 of the New South Wales Professional Conduct and Practice Rules 2013. 7. The full amount of the loan was repaid to Dulbar, as trustee of the Trust, with interest. Ms Zhukovska's case on this ground 1. Ms Zhukovska accepts that her borrowing of funds from Dulbar was a breach of Rule 12.3, but asserts that she was not aware of that rule until after the investigation of the matters the subject of these proceedings had commenced. She accepted in cross-examination that she was "aware generally" of the rules as they were covered in the courses which she had attended, but she asserts that she was not specifically aware that she could not borrow funds from a client of the practice. 2. Ms Zhukovska relies on decisions such as Council of the Law Society of NSW v Doherty [2009] NSWCATOD 155 and Council of NSW Law Society v Pizzinga [2012] NSW ADT 211, where the Tribunal found that borrowing from a client on isolated occasions should be characterised as unsatisfactory professional conduct rather than professional misconduct. Ms Zhukovska contends that the breach was an isolated incident, was not intentional, did not cause loss and was made with the express authority of Mr Charlton and for those reasons should not be characterised as professional misconduct. The Law Society's case on this ground 1. The Law Society contends that the conduct of Ms Zhukovska in relation to this ground amounts to professional misconduct. 2. The Society points out that Ms Zhukovska had denied being made aware of the prohibition on borrowing from clients created by Rule 12 at the time of this transaction, but had become aware of the Rules during her legal education and was aware in particular of Rule 11 following a conversation with Ms Linden Barnes, the Ethics Officer of the Law Society, on 31 July 2013. The Law Society's contention is that even though Ms Zhukovska could not remember whether following her conversation with Ms Barnes she had read Rule 11, it is reasonable to impute that at that time she would have read Rule 11 and equally likely that she would have read Rule 12. Our analysis and findings on this ground 1. We cannot agree that the imputation which were we asked by the Law Society to make as set out in the previous paragraph is, in all the circumstances, a reasonable one. We accept therefore that at the time of undertaking this loan Ms Zhukovska lacked knowledge of the specific provisions of Rule 12. 2. Nevertheless we view most seriously Ms Zhukovska's conduct in arranging a loan of this amount in circumstances where there was a quantifiable loss to the assets of the Trust (being Dulbar's term deposit account) and a clear personal benefit to Ms Zhukovska herself and her practice at the expense of her clients Ms Heane and Dulbar. In our view it is a substantial departure from the standards of competence and diligence which a member of the public is entitled to expect of a reasonably competent legal practitioner. 3. However, we accept the that the oral evidence of Ms Zhukovska is consistent with the contemporaneous documentary evidence which indicates in general terms that in open correspondence with Mr Charlton she sought to borrow the funds from Dulbar, authorised a caveat to be lodged and agreed to provide a personal guarantee. When those factors are coupled with Ms Zhukovska's asserted lack of detailed knowledge of the relevant Rule (and notwithstanding our view of that as a serious failure of professional diligence) we are unable to conclude that her conduct amounts to something which would properly be viewed as disgraceful or dishonourable or that it would be professional misconduct as characterised in the case of Kennedy as cited at [18] above. 4. For those reasons in relation to this ground we find that Ms Zhukovska's conduct constituted unsatisfactory professional conduct but not professional misconduct Ground 9: Breach of s 674 of LPA: obstruction of or misleading an investigator Uncontested facts 1. The uncontested facts set out in relation to Ground 5, being those set out at [72] (1) to (8) above, apply to this ground. Ms Zhukovska admits that on 27 February 2014 Mr Edwards, a Trust Account Inspector from the Law Society, attended at her law practice. Ms Zhukovska's case on this ground 1. Ms Zhukovska admits that she had a telephone conversation with Mr Edwards on 27 February 2014, prior to the commencement of his inspection, when he asked her whether or not her law practice had received or held in trust money "pursuant to a power of attorney" and that she replied in the negative. However, she asserts that at the time she did not know or understand that the funds in question (that is the $420,000 received on account of the proceeds of sale of the Collaroy unit) were trust monies which were held "pursuant to a power of attorney" and so are answered the question honestly and correctly, based on her belief and her state of knowledge at the time. 2. It was contended on behalf of Ms Zhukovska that either: 1. her responses were not obstructive or misleading, particularly as she told the investigator that she did not understand or believe that the funds were trust money; or, in the alternative 2. her lack of knowledge and understanding that the funds were trust money constitutes a "reasonable excuse" for her conduct for the purposes of section 674 of the LPA. That section provides in subsection (1) that a person must not, without reasonable excuse, obstruct or mislead an investigator exercising a power under the Act and subsection (2) provides that "obstruct" includes hinder, delay, resist and attempt to obstruct. The Law Society's case on this ground 1. The Law Society contends that Ms Zhukovska misled Mr Edwards and therefore breached the section. 2. It was submitted on behalf of Ms Zhukovska that her responses to the investigator were not obstructive or misleading. In support of that contention, Ms Cameron for Ms Zhukovska drew to our attention the records of the meeting at the offices of the practice on 4 September 2014, which, it is asserted, are supported by Mr Edwards' report. In it, Mr Edwards asserts that: 1. when asked about the trust money the subject of this ground, Ms Zhukovska responded: "I'm not sure what you mean".; 2. Mr Edwards then explained his position with respect to the trust money. 1. In cross-examination, Mr Edwards accepted that he gave that explanation because he observed that Ms Zhukovska, in fact, did not understand that the money being referred to in this ground was trust money. Significantly Mr Edwards' notes then record that after his explanation was given Ms Zhukovska said that she was not "100% convinced" and Mr Edwards accepted in cross-examination that he understood from that that she still did not understand that the funds were trust money. (Mr Edwards' Report, exhibited to his affidavit, at pages 12 and 18). 2. We accept Mr Edwards' account of these matters as reliable. In the circumstances we have difficulty in characterising the responses given by Ms Zhukovska to him as being obstructive (within the extended meaning of "obstruct" for the purposes of the section) or of being misleading. 3. That does not mean that we approve of Ms Zhukovska's state of knowledge of her trust account obligations or regard her lack of knowledge and understanding as reasonable. In our view it fell well below the standard required. However, it must follow from our findings above that there has been no breach of section 674 in the circumstances. 4. Accordingly we make no finding of professional misconduct or unsatisfactory professional conduct in relation to this ground. Ground 10: Failure to disclose receipt of trust money Uncontested facts 1. The uncontested facts in relation to Ground 5 are relevant to this ground and in addition it appears to be uncontested that Ms Zhukovska did not disclose that her firm received trust money on 17 September 2013 in her "Law Practice Declaration and Trust Money Statement, Part B" for the period 1 April 2013 to 31 March 2014. The position of each party on this ground 1. The Law Society relies simply on the failure of Ms Zhukovska to disclose receipt of the trust money in the relevant declaration and Ms Zhukovska concedes that she engaged in a breach of her obligations, but says that the breach was a "technical" one. Nevertheless she accepts that her conduct fell short of what could be expected of a reasonably competent legal practitioner; that is that a finding of unsatisfactory professional conduct is open to the Tribunal. Our analysis and findings on this ground 1. We are reluctant to accept that the breach of any trust account rule or relevant regulation can be excused on the basis that it is "technical". Compliance with these rules is a foundation of proper practice and of a solicitor's fiduciary duties to his client. Lack of knowledge of them by the principal of the firm is a substantial failure of competence and diligence. The breach by this practitioner is not of the serious nature which in our view can properly be characterised as professional misconduct. However it is clearly conduct which falls short of the standard of competence and diligence which a member of the public is entitled to expect. 2. On that basis we find that Ms Zhukovska's conduct in relation to this ground constitutes unsatisfactory professional conduct. Ground 11:Overcharging Uncontested facts 1. It appears to be uncontested that: 1. Ms Zhukovska prepared a costs disclosure and agreement for Ms Heane on 17 July 2013 which estimated costs of $12,280 to $21,650. Updated cost estimates were not provided to Ms Heane. 2. A further costs agreement and disclosure was provided to Ms Heane for acting in relation to the sale of the Collaroy property. The costs agreement is not signed and the estimate of cost was $1350, exclusive of GST plus disbursements. 3. On 17 September 2013 a further costs agreement and disclosure was sent to Dulbar for acting in relation to the purchase of a property at Rylstone. The costs agreement was not signed. Estimated costs were $2500, exclusive of GST, plus disbursements. 4. No costs disclosure or cost agreement was prepared by the law practice for Dulbar for the services which the practice provided in relation to the Trust. 5. The fees of the law practice paid by Ms Heane and by Dulbar total over $76,000, in respect of an estate which, based on the Particulars of the Application had a total value of approximately $664,000. Between 29 July and 6 December 2013 the law practice issued 12 tax invoices to Ms Heane and they totalled $62,593.03. In addition the practice issued 7 tax invoices to Dulbar which totalled $13,930.26. These19 tax invoices were paid out of the funds of Ms Heane and Dulbar. 6. All work performed by the law practice was charged at the following rates: Ms Zhukovska $310 per hour, Ms Johnson (junior lawyer) $150 per hour and Mr Matic (paralegal) $220 per hour. Those rates were set out in the costs agreement. 7. A substantial amount of the work performed by the law practice and particularly by Mr Matic and to some extent Ms Johnson was not legal work and included supervision of tradesmen at the Collaroy unit. The Law Society's case on this ground 1. The Law Society in its submissions relied heavily upon the evidence of Mr Richard Neal, Solicitor. In Mr Neal's opinion: 1. it might be regarded as the "default position" for an attorney under a power of attorney that the work which he or she does is done gratuitously (unlike the position of an executor who has a statutory basis for charging fees). In Mr Neal's view there may, in particular circumstances, be some basis for an attorney to charge fees, but not at professional rates. Accordingly it was unreasonable for Ms Zhukovska and her employees to carry out work which was not legal work at professional charge rates; in particular overseeing renovations to the Collaroy unit; 2. that work was performed in an unreasonable manner by reason of the duration of attendances and the overall lack of benefit to Ms Heane; 3. the legal work which Ms Heane required properly consisted of the sale of the Collaroy unit, arrangements for her to move permanently into an aged care facility and the preparation of the Will an enduring power of attorney and possibly the appointment of an enduring guardian. It was difficult to imagine that there would be circumstances when a trust structure would be appropriate for an estate the size of MsHeane's and it followed that in his view the costs incurred in establishing the Trust and incorporating Dulbar were unnecessary; and 1. Mr Neal noted that an assessment of the overall costs must include the costs of Mr Charlton's firm. 2. The Law Society in its closing submissions contended that the extent and nature of the charges raised by Ms Zhukovska's firm constituted over-charging to the extent that a finding of professional misconduct should be made. Ms Zhukovska's case 1. In her Reply Ms Zhukovska denied that the facts alleged in respect of this ground justified a finding of professional misconduct. It was submitted on Ms Zhukovska's behalf that although Mr Neal was an accepted expert in relation to powers of attorney and trusts, he was not a legal costs expert. 2. However, under cross-examination of Ms Zhukovska appeared to accept Mr Neal's conclusions at least in part, as set out in the following sections of the Transcript of the hearing on 17 December 2018 1. page 61.2, where Ms Zhukovska accepts Mr Neal's view that fee should not have been charged for non-legal work; 2. page 63.6, where, when asked whether she maintained the view that charging for the work done in relation to the Collaroy unit was entirely reasonable, Ms Zhukovska replied: "I think, at the time it was reasonable. Today I think there should be another way to do it and I wouldn't do it again because it does sound unreasonable. When you look at it altogether it has this big pile-on effect. It just feels so huge… I know that there must be another way." 1. page 65.1, where Ms Zhukovska concedes that "at the end of the day" it did not appear to make any difference to the overall all proceeds of the sale of the Collaroy unit whether there was renovation done or not; 2. page 64.2, where Ms Zhukovska appeared to concede that the work done in supervising renovations and perhaps the costs involved were "unconscionable"; and 3. page 65.8 where she agreed that Ms Heane was worse off financially as a result of the sale of the Collaroy when the renovation costs and the legal fees charged by Ms Zhukovska's practice are taken into account. Our analysis and findings as to ground 11 1. We accepted Mr Neal's evidence as that of an expert suitably qualified to provide a specialist view of the usual work required in relation to power of attorney and trust matters and therefore qualified to provide reliable commentary as to the quantum of costs charged by Ms Zhukovska and her law practice. We gave Mr Neal's views on these matters substantial weight. 2. Ms Zhukovska did not adduce evidence which was sufficiently persuasive to dispel our initial view that the charges which were raised by her and her practice were considerably excessive. We accept that in special circumstances and with the informed consent of the client, it may be appropriate, particularly in the exercise of the power of attorney by a solicitor, for some non-legal work to be charged. However we agree with Mr Neal's conclusion that the magnitude and the scope of the charges raised in this case were substantially excessive. 3. We took into account the concessions made by Ms Zhukovska in cross-examination, as outlined at [127] above. We considered the authorities which were cited in the parties' closing submissions, many of which were considered by the Administrative Decisions Tribunal in New South Wales Bar Association v Amor-Smith [2003] NSWADT 239. That case considered in particular the circumstances in which overcharging could be characterised as professional misconduct, particularly in respect of clients who might be considered "vulnerable". In his reasons for decision in that matter, Deputy President Chesterman cited the following authorities: 1. Veghelyi v The Law Society of New South Wales (unreported, Court of Appeal NSW, 6 October 1995, BC 50549) in which Mahoney JA expressed the view that gross overcharging as such may constitute professional misconduct and it is not necessary to prove in addition that the lawyer was guilty of fraud or the like. 2. Re Vernon; Ex parte Law Society of New South Wales (1966) 84 WN (Part 1) (NSW) 136 and Evatt v New South Wales Bar Association (1968) 117 CLR 177, which were cited by Mahoney JA as authorities for the proposition that a solicitor's entitlement to remuneration is conventionally stated in terms of what is fair and reasonable in the circumstances. His Honour recognised that if the charges under consideration in a particular case were so far beyond that as to be grossly disproportionate, professional misconduct may be involved. 3. Mahony JA went on to observe that gross overcharging was more likely to constitute professional misconduct where the clients concerned could be described as "vulnerable". His Honour said that there may be a presumption of influence upon the client which is: "… based at least in part upon the fact that when making decisions clients ordinarily or at least frequently place trust in their solicitors. They ordinarily are not in a position to know without investigation what work must be done and what charges are fair and reasonable; they ordinarily issued him that the solicitor will make only such charges. Solicitors are, on the other hand informed, or in a position to inform themselves, of what work may be required and what are fair and reasonable charges. They are, in that sense, in a position of advantage and trust is placed in them." 1. In our view, that is apposite and the pattern of fees charging which was adopted by Ms Zhukovska in relation to the affairs of Ms Heane betrayed the trust which Ms Heane placed in her as her solicitor and as her attorney. 2. We are satisfied that Ms Zhukovska's conduct in this regard would be regarded as disgraceful and dishonourable by practitioners of good repute and competency. It therefore constitutes common law professional misconduct within the meaning of the Allinson case. In our view it also constitutes professional misconduct under the formulations of that term cited at [18] and [19] above. In our view it also constitutes statutory professional misconduct within the meaning of section 497 (1) (a) of the LPA, in that it amounts to unsatisfactory professional conduct which involves a substantial or consistent failure to reach or maintain a reasonable standard of competence. 3. We find accordingly. Ground 12. Ms Zhukovska preferred her own interests to those of her client Ms Heane . 1. We understand from the way in which the Law Society's case was put to us that the Society relies upon the whole of Ms Zhukovska's conduct under consideration to establish that on a sustained basis she preferred her interests and those of her practice to those of her client Ms Heane. 2. The closing submissions for Ms Zhukovska focussed particularly on the allegations that she and her colleagues misused a painting called "Spectacular Sydney", which had been purchased on behalf of the Trust but used in some way to promote the law practice. We did not understand that particular allegation to be pressed by the Law Society and, as we say, we understood ground 12 to be based on the totality of Ms Zhukovska's conduct.. 3. In relation to Ms Zhukovska's conduct on that broader basis, it was submitted on her behalf that the evidence demonstrates that she believed at all times that she was acting in the best interests of her client. With great respect to the competent lawyers representing Ms Zhukovska in this matter, in our view the evidence simply does not bear that out. 4. It was further submitted on Ms Zhukovska's behalf that: "Unfortunately, due to a lack of experience and understanding she did, at times engage in conduct which fell short of what could be expected of a reasonably competent legal practitioner. However her conduct was not fraught with dishonesty or unfairness and does not evidence a calculated effort to prefer her own interests over those of her client." 1. We agree with the first sentence. However our conclusion on the evidence considered in respect of the 11 preceding grounds persuades us that in at times Ms Zhukovska's conduct was tainted with unfairness, a lack of frankness and candour and ultimately, a failure to have the proper regard to the interests of her client Ms Heane. Her overcharging is but one instance of this, but it demonstrates clearly a deliberate course of action by Ms Zhukovska which preferred her own interests and those of her legal practice to those of her client Ms Heane. 2. Her course of conduct when viewed as a whole breached expected standards of ethical and professional behaviour. 3. We find that Ms Zhukovska's conduct in the particular instances described above in Grounds 4, 6, 7, and 11 demonstrates that she preferred her own interests to those of her client Ms Heane. We reach the same conclusion in relation to Ground 8, even though, for the reasons set out at [107], we found that her conduct in relation to that ground did not constitute professional misconduct. 4. On the basis of the Allinson, Kennedy and Shehadie tests cited at [17], [18] and [98](2) respectively, Ms Zhukovska's conduct in preferring her interests and those of her firm to those of her client constitutes professional misconduct. Closing observations: Ms Zhukovska's fiduciary duty and her failure to preserve the interests of Ms Heane 1. There are some indications that the source of these failings on Ms Zhukovska's behalf, particularly her conduct involving preferring her own interests, or those of her law practice, to those of her client Ms Heaney, arose from her perception that, with effect from the execution of the Appointor Successor Deed or perhaps even upon the appointment of Dulbar as trustee of the Trust, Ms Heane had ceased to be her client. 2. Such a conclusion appears inescapable from her answers to questions by the Presiding Member at the conclusion of her testimony. As recorded at Transcript 17.12.18, page 149.5, the Presiding Member raised the identity of Ms Zhukovska's client and she responded as follows: "Yes, in my mind and I think this is-this was the understanding that I had with Chris Charlton, that Dulbar is the client. That-and that's how I thought Dulbar is the client so it was probably good practice me to inform Dulcie Heane and I did tell her generally about the-about the first loans, not my loan-but she wasn't interested. So yes I thought client was Dulbar and I didn't think [Dulcie] was a client at that point. (PRESIDING MEMBER): Sorry, [Ms Heane] was a client at that point? (MS ZHUKOVSKA): Was not a client any more… (PRESIDING MEMBER): When did she stop being a client? (MS ZHUKOVSKA):Well, after establishment of the trust there was no legal work to do to her. So, I can't remember exactly…. …. I still went and visited (her) at various points but because I didn't charge, I didn't perceive her as a client any more." 1. Ms Zhukovska's conduct in these instances as recorded above, particularly in respect of Grounds 4, 6, 7, 8, 11 and 12 constitutes a serious and substantial breach of her fiduciary duty as a solicitor and of her other professional obligations to her client Ms Heane. In relation to Ground 8 we say that notwithstanding that ultimately we found Ms Zhukovska's conduct constituted unsatisfactory professional conduct rather than professional misconduct. 2. Any explanation or excuse based on Ms Zhukovska's lack of experience in dealing with trusts, estates or trust money, or her misconception of the identity of her client, is palpably inadequate. Her conduct deserves to be roundly condemned. It would be regarded as disgraceful and dishonourable by solicitors of this State of good repute and competency. Orders 1. For those reasons we ordered as follows: 1. Myroslava Zhukovska is guilty of professional misconduct in respect of her conduct described in Grounds 4, 6, 7, 11 and 12 of the Application. 2. Myroslava Zhukovska is guilty of unsatisfactory professional conduct in respect of her conduct described in Grounds 2, 3, 5, 8 and 10 of the Application. 3. The matter is to be set down for directions and for fixing the date of a hearing to determine the disciplinary orders to be made. APPENDIX statutory provisions Legal Profession Act 2004 Section 240. "Trust money" (1) In this Part:…. 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 the 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, exercisable by the practice or an associate of the practice, to deal with the money for or on behalf of another person. Section 254 Certain trust money to be deposited in a 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. Maximum penalty: 100 penalty units. (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. Maximum penalty: 100 penalty units. (3) The law practice must keep a written direction mentioned in subsection (1) (a) for the period prescribed by the regulations. Maximum penalty: 50 penalty units. (4) (Repealed) (5) 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. Section 479 Conduct of mortgage practices (1) A solicitor must not, in the solicitor's capacity as solicitor for a lender or contributor, negotiate the making of or act in respect of a regulated mortgage unless: (a) the mortgage is a State regulated mortgage, or (b) the mortgage is a run-out mortgage, or (c) the mortgage forms part of a managed investment scheme that is operated by a responsible entity. (2) A solicitor must not, in the solicitor's capacity as solicitor for a lender or contributor, negotiate the making of or act in respect of a regulated mortgage except in accordance with: (a) the Corporations Act 2001 of the Commonwealth, or that Act as modified by any ASIC exemption or the regulations under that Act, and (b) this Act, the regulations and the legal profession rules. (3) A solicitor must not, in the solicitor's capacity as solicitor for a lender or contributor, negotiate the making of or act in respect of a regulated mortgage that forms part of a managed investment scheme unless the solicitor complies with any ASIC exemption that applies to managed investment schemes that: (a) have more than 20 members, and (b) are operated under the supervision of the Law Society in accordance with that exemption. This subsection applies even if the regulated mortgage forms part of a managed investment scheme that has no more than 20 members. (4) Subsection (3) does not apply if the managed investment scheme is operated by a responsible entity. (5) A solicitor who knows that an associate has contravened a requirement referred to in subsection (1), (2) or (3) must notify the Law Society Council of that fact in writing within 21 days after becoming aware of the contravention. (6) A contravention of this section is capable of being professional misconduct. Section 496 Unsatisfactory professional conduct For the purposes of this Act: unsatisfactory professional conduct includes conduct of an Australian legal practitioner occurring in connection with the practice of law that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent Australian legal practitioner. Section 497Professional misconduct 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. 674 Obstruction or misleading of investigator (1) A person must not, without reasonable excuse, obstruct or mislead an investigator exercising a power under this Act. Maximum penalty: 100 penalty units. (2) In this section: obstruct includes hinder, delay, resist and attempt to obstruct. 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: 08 May 2019