Legal Practitioners Act 1970 and the Law Society of the Australian Capital Territory v Julian Christopher Oakley [1992] ACTSC 90; (1992) 110 FLR 9 (10 September 1992)

SUPREME COURT OF THE ACT

LEGAL PRACTITIONERS ACT 1970 and the LAW SOCIETY OF THE AUSTRALIAN CAPITAL
TERRITORY v. JULIAN CHRISTOPHER OAKLEY
S.C. No. 364 of 1991
Legal Practitioners - Misconduct, unfitness and discipline
[1992] ACTSC 90; (1992) 110 FLR 9

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY Miles C.J.(1), Foster(1) and Higgins(1) JJ.

CATCHWORDS

Legal practitioners - misconduct, unfitness and discipline - improper dealing with money - misappropriation of litigation loan funds - defalcation of trust moneys - failure to render proper accounts - failure to itemise interim bills - concealment of information from clients.

Misconduct, unfitness and discipline - improper dealing with money - failure to pay money over - failure to repay loans - concealment of information from clients - failure to advise clients of disposition of amounts of loans.

Misconduct, unfitness and discipline - statutory requirements as to accounts and trust moneys - maintenance of credit balances in office accounts - failure to keep proper trust accounts - withdrawal of cash from trust account.

Misconduct, unfitness and discipline - misleading conduct - neglect and delay - reckless conduct of clients' affairs - failure to handle clients' affairs with diligence and competence.

Misconduct, unfitness and discipline - breaches of Guide to Professional Conduct and Etiquette - breaches of undertakings.

Misconduct, unfitness and discipline - passing of valueless cheque - conflict of duty and interest.

Legal Practitioners Act 1970

Limitation Act 1969 (NSW)

Workers Compensation Act (NSW) 1926

Law Society's Guide to Professional Conduct and Etiquette

HEARING

CANBERRA
10:9:1992

Counsel for the Law Society of the ACT: Mr R.R. Stitt, QC and

Mr G. Lindsay

Solicitors for the Law Society: Abbott Tout Russell Kennedy

Counsel for the practitioner: Mr S. Finch and
Ms L. McCallum

Solicitors for the practitioner: Crossin Barker Gosling
(formerly Crossin Power
Haslem)

ORDER

The Court orders that:
1. The solicitor's name be removed from the Roll.

2. The order of 14 December 1990 that the name of the solicitor be not

published be vacated.

3. The solicitor pay the costs of the Law Society on a solicitor and client basis.

DECISION

1. Generally
This is an application by the Law Society seeking orders against a solicitor for professional misconduct.

2. The solicitor graduated as Bachelor of Laws from the Australian National University on 23 April 1976. He was admitted to practise as a barrister and solicitor by this Court on 20 February 1978. From then until 1981 he was employed by local firms. On 2 January 1982 he commenced practice solely as a solicitor and continued with an unrestricted practising certificate as the principal of the firm known as Julian Oakley and Co.

3. As a result of a previous application to the Court, a receiver, Ms. Jean Sayer, was appointed to the trust property of the solicitor on 29 May 1991 pursuant to paragraph 93(1)(a) of the Legal Practitioners Act 1970 (the Act).

4. The solicitor's practice was sold on 20 August 1991 and on the following day he was made bankrupt. Prior to the date of the hearing the solicitor was employed on a restricted practising certificate by the solicitor who had acquired his practice, but that employment had ceased by the date of the hearing.

5. The principal evidence presented against the solicitor was in the form of a report by Ms. Jean Sayer dated 3 December 1990 together with further reports dated 12 June, 18 September and 23 September 1991. The reports were supplemented by evidence in affidavit and oral form both in support of the application and in opposition to it.
2. Litigation loans: Misappropriation of loan funds and Overcharging

6. The major complaint against the solicitor related to his participation in a so-called litigation lending scheme. The solicitor had an arrangement with Westpac Banking Corporation (the Bank) whereby he was able to apply on behalf of a client for a loan to finance a claim for damages for personal injuries. In summary, what happened was that without specific instruction from the clients, the solicitor drew against the loan funds available to those clients and caused the amount so drawn to reduce his own overdraft account with the Bank. On a previous application by the Law Society for the appointment of a receiver of the trust property of the solicitor it was held that in relation to the affairs of one client, Mr Gary Harb, the drawing against Mr Harb's litigation loan account of the sum of $4,000 and the crediting of that amount to the solicitor's overdraft account gave rise to reasonable grounds for believing that a defalcation of trust moneys had been committed. Accordingly the order was made on 29 May 1991 by Miles C.J. that a receiver ought therefore be appointed. That decision to appoint a receiver was not challenged in the present application and was based in part upon the evidence comprised in the report of Ms. Sayer of 5 December 1990 which stated that "a loan of $4,000 was received from Westpac on 17 September 1986 and forms part of a total sum of $40,000 transferred from litigation loan accounts to the office account of Julian Oakley and Co. on that date."

7. The evidence before the Court on the present application as to the way in which the solicitor operated on the litigation loan accounts discloses a more complicated series of transactions and it is appropriate to describe afresh, in the light of the evidence in these proceedings, the working of the litigation lending scheme.

8. The arrangement between the solicitor and the Bank relating to litigation lending loans appears to have come into existence towards the beginning of 1986. The solicitor said in his evidence that he could not remember exactly how the arrangement came about although he did remember another bank sending a circular promoting a similar scheme. The Bank supplied to the solicitor some documents which he used as precedents, apparently without modification except as to the name of the client and the amount sought to be borrowed. The case of client Harb may be used as an example. On 26 March 1986 the solicitor wrote a pro forma letter of application to the Bank on behalf of Mr Harb seeking "an advance for $6,000 plus interest to cover disbursements/legal expenses incurred by us on his behalf". The letter continued:

"Should the advance be approved, the balance of such advance,
together with interest and fees thereon, will become due and
payable by Gary Harb or failing him ourselves upon the happening
of one of the following events:
(i) Receipt of settlement proceeds;
(ii) Termination of the litigation without sufficient proceeds to
clear the advance;
(iii) If during the course of proceedings, we cease to be
solicitors acting on behalf of Gary Harb (upon our ceasing to so
act we will immediately advise the Bank thereof);
(iv) The expiration of four years from the date of drawing the
advance.
Mr Harb's signature appears at the foot of this letter in
confirmation of this request."

9. Following the signature of the solicitor, there appeared the following:

"I confirm the above request and note the terms and conditions
contained herewith.
Signed: Gary Harb"

10. The solicitor's letter to the Bank of 26 March 1988 attached an authority from the client addressed to the Bank, signed by the client on the same date, in the following terms:

"Re: Advances to Cover Disbursements/Legal Expenses
You are hereby irrevocably authorised and directed to pay all
moneys advanced to me by your Bank in respect of disbursements/legal
expenses required for the conduct of my matter to my Solicitors,
Julian Oakley and Co. or as they may direct.
My Solicitors have full discretion in respect of the disbursement of
proceeds of the advance and the Bank has no responsibility whatsoever
in respect of such disbursement."

11. On the same day, 26 March 1986, the client signed an authority addressed to the solicitor in the following terms:

"Re: Advances to Cover Disbursements/Legal Expenses
On completion of this matter, I hereby irrevocably authorise and
direct you or such other Solicitor as I may instruct herein to pay
any settlement or verdict moneys I may receive in relation to the
above claim as follows:
(i) To Westpac Banking Corporation, ......... Branch, the amount
of my fully drawn advance on account of disbursements/legal
expenses together with interest thereon.
(ii) To my solicitors in respect of all unpaid costs and
disbursements.
(iii) (The residue) to the credit of my Advantage Saver account
with Westpac Savings Bank Limited, ........ Branch.
This authority is for valuable consideration received, is
irrevocable and cannot be cancelled without the prior written
consent of Westpac Banking Corporation."

12. According to the evidence of the solicitor, he had a practice of discussing the matter of litigation loans with his clients before making application on behalf of a client. In those discussions he said words to the following effect:

"My bank Westpac has what is called a litigation lending scheme
which allows clients to borrow moneys to assist in the payment of some
of my legal costs and payment of some expenses such as medical
reports which can cost a deal of money. The bank obviously will
charge interest on these moneys but you will get the majority of this
back as part of your claim will be for the interest on the pain,
suffering and loss of enjoyment for (sic) life component from the date
of the accident up to the date of settlement of your claim. At least
you won't have to keep paying money out. You don't have to go and see
the bank, you only have to sign some documentation as the bank will
approve you on the basis of my introduction and the fact that I am
effectively guaranteeing it. Would this be okay?"

13. Having had the client sign the forms and having spoken to the client along the lines just mentioned, the solicitor then applied on the client's behalf for a litigation loan by sending the documents to the Bank. There is no evidence of when and how the Bank communicated to the solicitor that a litigation loan had been approved. Nor is there any evidence that the solicitor or the Bank took any steps to notify the client of the approval by the Bank of the application for the litigation loan. The absence of notification to the client of the Bank's approval is consistent with the conversation deposed to by the solicitor. We accept his evidence on this aspect so far as it goes.

14. Between 26 March 1986 and 2 June 1986 the solicitor made application for litigation loans on behalf of eight clients. There may have been others but the attention of the Court has not been drawn to them. The Bank approved of the eight loans and established a number of accounts, each account identified by the name of the client and the words "Term Loan Julian Oakley and Co Disbursement Loan Scheme" (the loan account). The exact amount applied for on behalf of each client, or approved, is not established on the evidence but the total available to all eight clients was at least $40,000. There was a series of transactions initiated by the solicitor on 17 September 1986. The overall effect of these transactions was that a total sum of $40,000 was drawn by the solicitor against the loan entitlements of the eight clients. The solicitor caused each sum making up that total to be credited to the loan account of the particular client and then transferred from the loan account to the solicitor's own overdraft account with the Bank, thus reducing that overdraft by $40,000.

15. On 28 October 1986 the solicitor caused to be placed in the file of each of the clients what purported to be a memorandum of fees, also referred to in the evidence as an interim bill of costs. The amount shown on the interim bill coincided exactly with the sum transferred from the client's loan account on 17 September 1986. In some cases, disbursements were included to make up the total of profit costs and disbursements equivalent to the sum transferred, in other cases profit costs alone were equivalent to the sum transferred. In no case was there a breakdown of how the profit costs were arrived at and in no case was a copy of the interim bill sent to the client.

16. The Court's attention was drawn to two other litigation loans, each of which was made subsequent to 17 September 1986. One was to client Ryder. The solicitor drew $15,000 against this loan on 24 October 1986 and transferred the sum of $14,979.30 to his office account on the same day. There was placed on the file an interim bill dated 24 October 1986 noting professional costs at $14,700 and disbursements at $279.30. Subsequently, Mr Ryder's claim was settled.

17. The other was a loan of $5,000 to client Beauchamp-Wood. The solicitor drew the amount of the loan and deposited it to his office account on the same day, 16 April 1987. On 1 July 1987 an interim bill for $5,000 was placed on the file. On 7 March 1988 the client requested "an account in respect of the disbursement of the $5,000 borrowed from Westpac". The client instructed another solicitor and on 15 September 1988 the litigation loan was repaid, the balance then due being $6,610.76. The evidence does not establish who it was who repaid the loan. The solicitor has not asserted that he paid it.

18. Except in the case of Ms. Beauchamp-Wood, the solicitor did not make the clients aware of the liability they had incurred under the litigation loans. At the time of the hearing the loans had not been repaid. The loans have continued to attract interest, thereby increasing the liability of the clients to the Bank. The position at 31 May 1991 may be summarised as follows:

Client Date Loan Date Amount Interim Profit Disburse- Amount
Applied Drawn Drawn Bill Costs ments Owing
For
Garrett 4.4.86 17.9.86 $ 4000 28.10.86 $ 4000 - $11329
Gurr 4.4.86 17.9.86 $ 4000 28.10.86 $ 4000 - $10951
Harb 26.3.86 17.9.86 $ 4000 28.10.86 $ 3850 $ 150 $11141
Kulczycki 10.7.86 17.9.86 $ 4000 28.10.86 $ 3000 $1000 $11476
Ottey 9.4.86 17.9.86 $ 4000 28.10.86 $ 4000 - $11330
Stent 16.4.86 17.9.86 $ 4000 28.10.86 $ 3400 $ 600 $11000
(est.)
Vlahos 26.5.86 17.9.86 $ 4000 28.10.86 $ 4000 - $11140
Webster 2.6.86 17.9.86 $12000 28.10.86 $ 6450 $5550 $30537
Beauchamp- 3.4.87 16.4.87 $ 5000 1.7.87 $ 5000 - Repaid
wood
Ryder 24.7.86 24.10.86 $15000 24.10.86 $14700 $ 279 $35567

19. The facts were not seriously disputed by the solicitor. Nor did he challenge the contention by the Law Society that the moneys received by him were trust moneys to be held by him to be dealt with as directed by the client. The case for the solicitor was simply that he had believed that he was entitled to appropriate the proceeds of the litigation loans for his own costs and disbursements already incurred, and that it was not until the judgment of Miles C.J. on 29 May 1991 that he realised that the proceeds of the litigation loans were received by him in trust for his clients. It follows that it was necessarily a part of the solicitor's case that he had carried out professional services on behalf of the clients to the extent that the items shown on the interim bills on the files represented a proper charge for those services. The solicitor conceded during the hearing that in four matters the amounts charged were excessive and that in three of those matters (Garrett, Stent and Vlahos) a proper charge would have been that which has been assessed by a legal costing assessor on behalf of the Law Society.

20. In relation to client Harb there is on the file an itemised account for work done to 17 September 1986 which shows that profit costs to which the solicitor was entitled as at that date amounted to only $1,362.93. The solicitor did not assert that the itemised account was not the proper basis for charging profit costs to Mr Harb.

21. The extent of over-charging in the four matters may be summarised thus:

Client Amount Charged Proper Amount
Harb $4000.00 $1362.93
Garrett $4000.00 $ 416.14
Stent $4000.00 $1338.08
Vlahos $4000.00 $1396.69

22. We are not prepared to accept the solicitor's evidence that in these four matters he believed on 17 September 1986 that he had incurred the profit costs for professional services in the amounts charged on the interim bills subsequently placed on the file. The substantial difference between the amounts charged and the profit costs properly assessed, the convenient rounding out of profit costs, or profit costs and disbursements, to $4,000, the complete failure in the interim bills to itemise any of the services rendered to or for the client and the other circumstances to which we shall refer, lead us to the conclusion that the solicitor's conduct in relation to the charging of costs in the interim bills was reckless, involving a realization that the amounts shown for profit costs might well exceed what he was entitled to charge, but a realization combined with a determination to proceed nevertheless, conscious that in the circumstances it was preferable to have some record on the file as to what was done with the proceeds of the litigation loans than to record nothing at all.

23. A consideration of the solicitor's evidence on the state of his belief does not convince us that he had a positive belief that the amounts which were available to be drawn against the litigation loan accounts of the clients were the solicitor's moneys to dispose of as he liked. At no time has he asserted that he gave any conscious consideration to his obligations under sub-s.46(1) of the Act, although reliance was placed on that sub-section on his behalf in the proceedings to appoint a receiver. Nor has he asserted that he believed that he was entitled under sub-s.46(2) to draw against the loan account of the particular client, whether or not costs were already due to him.

24. Those sub-sections provide as follows:

"Moneys received by solicitor to be held in trust
46.(1) All moneys received by a solicitor, in connexion with his
practice in the Territory, from, or on behalf of, a client of the
solicitor shall, for all purposes, be deemed to be held in trust for
that client to be disbursed, or otherwise dealt with, by the solicitor
in accordance with the instructions of the client.
(2) Subsection (1) of this section does not apply to moneys received
by a solicitor for or on account of his legal costs, whether already
due or to become due."

25. The importance and effect of s.46 for present purposes was the subject of the decision of Miles C.J. on 29 May 1991 and there is no need for us to reiterate what was said: see [1991] ACTSC 33; (1991) 103 ACTR 1.

26. According to his own evidence the solicitor never drew against the account of any client the whole of the funds available to that client under the litigation loan arrangement with the Bank. Further, he stated that he believed in each case that the client was already indebted to him for at least the amount which he drew down against the client's litigation loan account and transferred from the client's trust account. This belief does not sit easily with the contention that he also believed that the funds to be drawn down were not to be held in trust. If they belonged to the solicitor it is difficult to see why it was necessary for him to consider whether the client was in debt to him at all.

27. Further, it is a matter of record that the records of the Bank include statements of account in relation to each litigation loan addressed to the solicitor and bearing the name of the client and the title or heading "Term Loan Julian Oakley and Co. Disbursement Loan Scheme". The characterization by the Bank of the loan as a loan made for the purpose of disbursements by the solicitor on behalf of the client is inconsistent with the solicitor's claim that he believed that the proceeds of the loan were his to be used by him as he saw fit. The bank statements on their very face indicate that the accounts were trust accounts. The solicitor has not contended that he never received, or was unaware of the contents of the statements of account. The statements of account all bear dates after 17 September 1986 and the solicitor cannot be fixed with knowledge of their contents as at that date. However, his failure to comment on them either to the Bank, or to the Court, also does not sit easily with his claim that the proceeds of the litigation loans belonged to him and not to the clients.

28. The overall circumstances lead us to conclude that the solicitor acted in deliberate disregard of his obligations in relation to his clients' funds. We reject the submission that there was an innocent misappropriation in the genuine belief that the funds belonged to the solicitor. We are convinced that the solicitor acted recklessly with regard to his clients' interests and to his own responsibilities. He recognized that at the very least there was a question about the propriety of what he was doing and realized that the funds might not be his to dispose of as he liked. Accordingly, after transferring the funds from the clients' loan accounts and having them credited against his own overdraft account with the Bank, he caused the so-called interim bill to be placed in each file, which, as it happened, was for an amount of costs or, in some cases, costs and disbursements, coinciding with the amount drawn against the client's litigation loan account and transferred from the client's trust account. In doing this the solicitor clearly put his own interests before those of his clients. His conduct fell well short of the standard expected of an officer of the Court. Intervention by the Court would be justified by reason of the solicitor's misconduct in relation to these matters alone. But there are other matters.
3. Litigation loans: failure to repay loans and advise clients

29. Under the terms of the litigation loans, the loan became due and payable to the Bank by the client, or, failing payment by the client, then by the solicitor, upon receipt of the proceeds of settlement of the client's claim or the occurrence of any of the other specified events. On 21 February 1990 the solicitor paid into his office account the sum of $11,260 for moneys received by him upon settlement of the claim of Mr Vlahos. In September 1990, after receiving the proceeds of the settlement of the claim of Mr Webster, the solicitor held a credit balance in his office account in relation to this client in the sum of $8,130.60. In neither case did the solicitor pay out the loan or account to the client for receipt of these funds.

30. In the matter of Harb, the solicitor failed to carry out his obligation under the terms of the arrangement with the Bank to notify the Bank upon ceasing to act for Mr Harb. When Mr Harb instructed another firm of legal practitioners to act for him, the solicitor refused to release the client's file until he was paid a further sum of $5,314.50, which he claimed as his costs and disbursements to 24 November 1988. The solicitor did not acknowledge to Mr Harb or to Mr Harb's new solicitors the previous appropriation of $4,000 for costs and disbursements from the trust account, being the proceeds of the litigation loan. He did not account to Mr Harb for the $5,314.50 which remained a credit in the solicitor's office account.

31. In these three matters of Vlahos, Webster and Harb, the receipt of the proceeds of settlement meant that the loans were due and payable to the Bank, yet the solicitor did not pay out the loans or advise the client that they had become repayable. The clients' liability for accruing interest continued. In all the other cases involving litigation loans, although the loans had not become repayable, the solicitor failed to advise the clients that they had incurred liability for accruing interest. The solicitor's conduct in relation to the Harb loan was particularly reprehensible in that he concealed from the knowledge of Mr Harb's new solicitors the previous appropriation of $4,000 for his own costs.

32. The solicitor claimed in his evidence that he understood that it was he and not the client who was responsible, upon settlement of the client's claim or other specified event, for repayment of the loan and interest. We find it difficult to accept that a solicitor could be so misinformed about the respective liabilities of himself and his clients when those liabilities were so clearly set out in documents of which he had knowledge. As we are reluctant to believe that the solicitor was deliberately trying to mislead the Court, we can only conclude that this attitude was again one of recklessness, a recklessness which has resulted in the individual clients, on whose behalf $4,000 was borrowed, becoming liable for repayment in excess of $11,000. If the solicitor were now in a position to discharge the joint and several liability to the Bank which he shares with his clients, then their loss might be mitigated. However, now that he is bankrupt there is no practical prospect of this occurring. The Bank appears to have reserved its position on whether it will take action against the clients in order to recoup the loans. The misbehaviour of a solicitor in failing to advise the clients of the disposition of the amounts of the loans, and in some cases in failing to take steps to repay the loans out of the proceeds of settlement of the clients' actions, in our view, amounts to serious professional misconduct.

33. Before leaving the subject of litigation loans, we should record that in December 1991 the Law Society amended its Guide to Professional Conduct to include s.11A, a series of guidelines to be observed by solicitors in the conduct of litigation lending accounts. It is not necessary for us to discuss these guidelines except to say that in the Court's view solicitors would be prudent to pay close attention to their observation.
4. Misleading conduct: Ottey

34. Mrs. Esther Ann Ottey instructed the solicitor to take proceedings on her behalf in respect of an injury she had sustained on 28 March 1982 whilst working as a nurse in Queanbeyan. (The solicitor was also admitted in New South Wales and held a NSW practising certificate.) Mrs. Ottey gave those instructions in April 1984. According to her evidence, she was still receiving periodic payments from the workers compensation insurer when she first gave instructions. Those payments ceased in October 1990. It was not until the day when she gave her evidence at the hearing in this Court that she learned that no proceedings had been commenced on her behalf. She remembered that when she first gave instructions she signed several pages of documents which the solicitor told her were necessary to obtain documents from doctors and hospitals and "whatever was needed to put the case together". She spoke to the solicitor infrequently between then and about 1989 by which time she was becoming concerned. The solicitor began to avoid her telephone calls and would cancel appointments which she made to see him.

35. In October 1988 the solicitor advanced to her the sum of $1,000. In 1989 he advanced further sums of money. When the payments by the insurer ceased in October 1990, he told her that he would advance her $500 per month to assist her in her financial difficulties. He gave her to understand that these payments were to be repaid out of an eventual award of compensation.

36. The solicitor's explanation for all this, as he gave it in evidence, was that he thought that he could "appropriate" his costs out of an award of compensation in Mrs. Ottey's favour in due course. It was not clear whether he was talking about workers compensation or damages. He said that he realised that her claim would have been statute-barred by June 1989 and, for reasons which he did not express, he decided not to apply for an extension of time on her behalf. He denied that he made the monthly advances to Mrs. Ottey to keep her "quiescent". He said that he notified his own professional indemnity insurer of the situation in mid-1991.

37. We find the solicitor's explanation totally unconvincing. Apart from misappropriating his client's money, he failed in his duty to her in at least three other respects. He failed properly to explain to her the nature of the litigation loan. If he was instructed to take action to claim damages (as he appeared to accept), he failed to commence action within the statutory period of six years from the date of injury: Limitation Act 1969 (NSW), s.14. He failed to notify the client that he had allowed the action for damages to become statute-barred. We are unable to dissociate the advances to the client from the solicitor's own realization of his failure and a desire to postpone the date of the client's discovery of that failure.

38. In appropriating $4,000 for his costs, the solicitor, who held a New South Wales practising certificate as well as an ACT practising certificate, was in breach of sub-s.56(2) of the Worker's Compensation Act (NSW) 1926. That sub-section prohibits the charging of professional costs to a worker seeking compensation under that Act. Charging professional costs in breach of the Act is considered to be professional misconduct in New South Wales: Law Society of New South Wales v. O'Keefe (unreported, New South Wales Court of Appeal, 15 November 1989). Conduct within the ACT on the part of an ACT practitioner which relates to legal proceedings in New South Wales and which contravenes a New South Wales statute, may constitute misconduct for which the practitioner may be dealt with by this Court, and no argument of a jurisdictional nature was put on behalf of the solicitor.

39. The solicitor's handling of Mrs. Ottey's affairs of itself is sufficient to justify a finding of professional misconduct against him.

40. It is appropriate to add that the one bright spot in Mrs. Ottey's otherwise sad story may arise from the solicitor's own incompetence. We do not know enough about the circumstances of her injury to be able to form a view about whether she was likely to have had any prospects at all in an action for damages against her employer. Hence there may have been no cause of action which the solicitor allowed to become statute-barred. On the other hand, Mrs. Ottey may have a claim to workers compensation following the cessation of payments in October 1990. It may be that that right has not been extinguished. No doubt she should seek advice from a practitioner with knowledge and experience of the workers compensation system in New South Wales where she received her injury.
5. Breaches of the Legal Practitioners Act 1970

41. In addition to the matters already referred to there were several breaches by the solicitor of the Act.

(a) Maintenance of credit balances in office accounts
The solicitor did not challenge the findings made by Ms. Sayer in
her first report that the solicitor maintained credit balances in the
office accounts of four clients in the following amounts:
Harb - $5,314.50
Vlahos - $2,052.64
Webster - $8,130.60
Door - $8,839.70
Unless the credit balances represented costs properly rendered or
moneys received pursuant to some retainer agreement justifying the
solicitor's appropriation thereof, the maintenance of those credit
balances would be evidence of breaches of s.46(1) and s.48 of the Act.
Moneys received for or on behalf of a client, even if they are
expected to be appropriated in due course on account of costs and/or
in reimbursement of disbursements incurred, are trust moneys until
that appropriation has been properly made with the client's consent.
In the matters of Harb and Vlahos, the appropriation was not
warranted by the value of costs and disbursements incurred and
properly due or by some other proper agreement with the client.
Indeed, in the matters of Harb and Vlahos, the amount appropriated
exceeded the sum properly due, even if an account could then and there
have been properly rendered. In those cases the excess was so gross
that it was clear that the solicitor had not seriously considered
whether the sum appropriated was then and there due and owing.
In the matters of Harb, Vlahos and Webster, the client's consent was
not obtained to the appropriation of the litigation loan funds, which
were, in reality, then trust funds of those clients.
In the matter of Door, a credit balance of $8,839.70 stood in the
Office Ledger Account of Mr Door between 22 December 1983 and 25 June
1986. On that latter date a bill of costs was prepared by the
solicitor in the sum of $8,839.70 and the amount debited to the Office
Ledger Account thus eliminating the credit balance which had remained
in the account from 22 December 1983. In the absence of an
explanation by the solicitor of why the credit balance remained in
the Office Ledger Account for that time, we can only conclude that the
sum represented client's moneys that should have been placed into the
solicitor's trust account and kept there until a proper bill of costs
was rendered.
(b) Failure to keep records relating to trust moneys:
The solicitor failed to keep records disclosing particulars of all
trust moneys received or paid by him by failing to keep office ledger
cards in respect of each client and by failing to keep a list of
disbursements made on behalf of each client. That failure constituted
a breach of sub-s.55(1) of the Act and insofar as it meant that the
trust account could not be conveniently or properly audited, it
involved also a breach of para.55(2)(b).
(c) Withdrawal of cash from trust account
On 11 August 1989 the solicitor withdrew cash of $2,646.48 from the
trust account of Luranna Pty. Limited. This constituted a breach of
sub-s.51(1) of the Act.
(d) Other matters
There were several other allegations made against the solicitor.
Some of these we do not find established. Others, although the
subject of evidence, are so overshadowed by the seriousness of the
misconduct already referred to that we do not find it necessary to
make findings on the details of this further alleged misconduct. Some
of the matters involved breaches of the Law Society's Guide to
Professional Conduct and Etiquette. The Court is not bound by the Law
Society's Guide to find that breaches of it necessarily involve
professional misconduct but they may do so. Practitioners who ignore
the Guide do so at their own risk. In declining to make express
findings in relation to the solicitor's breaches of the Guide, we in
no way wish it to be understood that we consider the Guide to be other
than a binding code of conduct which solicitors have set for
themselves in the interests of the public and in the interests of the
maintenance of proper standards within the profession. Ordinarily the
Court would give careful consideration to treating breaches of the
Guide as instances of professional misconduct.

42. We would also mention the evidence relating to breaches of undertakings given by the solicitor to other practitioners. A failure to honour undertakings of this nature may itself constitute misconduct. In the matter of Harb, the solicitor failed to honour an undertaking given to Messrs. Romano and Co. and to Mr Harb that the solicitor would upon payment to him of his costs discharge Mr Harb's liability on the litigation loan. We find that the undertaking was given in relation to a substantial and serious matter, and that without it, the new solicitors were not likely to enter into the arrangement to pay the solicitor what he claimed were his costs. The failure to honour the undertaking also meant that Mr Harb's liability for accruing interest continued. The solicitor's failure to honour the undertaking amounted to professional misconduct. We make no positive findings in relation to the other breaches of undertaking alleged.
6. Misappropriation: Sims

43. The solicitor's accounting methods made the evidence in this matter hard to follow. Mr Sims had a claim for personal injuries which was settled for $23,000 together with costs. The solicitor deposited to his trust account a cheque for that amount received from the defendant's solicitors on 18 October 1990. The solicitor appropriated to himself the sum of $1,619.75, a further sum was paid out to "Canberra C.T." and the balance was paid to the client.

44. The defendant's solicitors accepted an assessment of party and party costs of $5,336.79, and disbursements of $2,230. The solicitor received a cheque for the total of $7,566.79 on 2 January 1991 and deposited that cheque directly into his general account. The ledger card shows three debits (one wrongly entered in the credit column). Two of the debits refer simply to "motor vehicle accident". The other refers to "reimbursement" of $1,740.29. The three debits reduced the credit on the ledger card to nil.

45. In the files made available to Ms. Sayer, there was no accounting to the client of how the amount of either debit was disbursed. There was no documentation in those files as to how the amount of $1,619.75 which the solicitor appropriated to himself from the proceeds of the settlement was made up. Since the proceedings have commenced, however, the solicitor has discovered a memorandum of fees dated 20 November 1990 marked "interim account" in which professional services are noted at a round sum of $1,600 and disbursements at $19.75.

46. The solicitor has also discovered the first page of a letter dated 16 January 1991 addressed to the client purporting to be the "final report" and enclosing an office account cheque for $1,355 and a further cheque for $385.29. The solicitor has stated in his evidence that this represents the sum of $1,740.29 shown alongside the item "reimbursement" in the general ledger card referred to above.

47. In the circumstances, although the solicitor's method of accounting and keeping records leaves much to be desired, we accept his evidence. We are not satisfied that there was any misappropriation or a failure to keep the client informed. We are, however, satisfied that there was a breach of sub-s.55(2) of the Act which required the solicitor to keep a record of all trust moneys received or paid by him in such a manner that they can be conveniently and properly audited. The solicitor did not keep those records, and whilst if it were an isolated transgression on his part it would not amount to misconduct, it is simply another example of his failure to maintain proper professional standards.
7. Passing of valueless cheque and associated matters: Ardesia Pty. Limited

48. This was a matter which concerned the behaviour of the solicitor as it related partly to his own affairs. There was also the question of a conflict of interests. To a lesser extent it related to the conduct of his client's affairs. The solicitor was one of two directors of a company called Ardesia Pty. Limited (Ardesia). They were interested in Ardesia acquiring the rights of the lessee under a lease to be issued by the Commonwealth of some land at Erindale. They thought that the land was suitable for development as a medical centre.

49. Ardesia had a cheque account with the Kippax branch of the National Australia Bank. On 17 May 1989 the account had a small debit balance.

50. Prior to that date the co-director, Wayne Kenneth Robertson, had approached an investor in Melbourne, Dr Bryan McGoldrick, with a view to obtaining funds for the acquisition of the lease at auction on 17 May 1989. Mr Robertson swore an affidavit and gave evidence to the effect that, immediately prior to the auction, he spoke from outside the auction room to Dr McGoldrick by mobile telephone. He further said that Dr McGoldrick told him that he would make up to $220,000 available that day for a period of two weeks. He further said that after the conversation with Dr McGoldrick he told the solicitor that the funds were available and that they could go ahead and bid for the land at the auction.

51. An unsworn statement signed by Dr McGoldrick is in evidence. He described approaches made to him by Mr Robertson for him to sublease the proposed medical centre or to operate and manage the medical centre. Dr McGoldrick denied that he ever expressed an intention to give financial backing to the acquisition of the lease or the development of the land by Ardesia and he denied promising to deposit a cheque into the Ardesia bank account on the day of the auction or at any other time.

52. The solicitor was in fact the successful bidder at the auction. He signed an acknowledgement to this effect. He also signed a cheque for $152,000, part of the purchase price, on the Ardesia account and handed it across immediately after the auction. The cheque was dishonoured on presentation on 22 May and on further presentation on 24 May. The solicitor knew that it would be dishonoured and took no steps to inform those responsible for issuing the lease that the cheque would be dishonoured. He did, however, take other steps to obtain finance, to which steps reference will be made.

53. On 13 July 1989 the solicitor wrote on his firm's letterhead to the Lands Branch, ACT Administration, apologising for the delay in "settling payment of the purchase of the Crown lease". He wrote again on 18 July 1989, offering "by way of compensation" interest at 18 percent which he calculated to amount to $4,560 and administrative and legal costs and expenses of $440. A cheque for a total of these two amounts, which happened to be $5,000, was enclosed and a request made in the earlier letter was repeated that "the Crown lease issue in the name of Luranna Pty. Limited, an associated company".

54. An unsworn statement signed by Mr Brian John Pettit is in evidence. Mr Pettit stated that the solicitor had acted for him on occasions before July 1989 and that about two months before that date the solicitor approached him about investing in a number of projects including the proposed medical centre at Erindale. Over those next two months there were continuing negotiations over the proposal. They culminated in Mr Pettit agreeing to provide finance for the purchase and some development expenses, the advance to be secured by second mortgage over the lease, and Mr Pettit to be allocated an effective half share in a company to be formed. In accordance with that agreement Mr Pettit paid $2,000 into the trust account of the solicitor on 13 July 1989 and a few days later, at the solicitor's request, a further $5,000 for "an additional fee by way of interest".

55. Mr Pettit said that he understood that the solicitor and Mr Robertson had "some legal right to settle on the block". Eventually the lease was issued to Luranna Pty. Limited and Mr Pettit acquired the complete beneficial interest in that company and hence in the lease.

56. The solicitor himself presented no evidence on this matter on his own behalf. When he gave evidence, he was cross-examined about it. He adopted the evidence of Mr Robertson and contended that he had reasonable grounds for believing what Mr Robertson told him and in particular that he believed that there would be sufficient funds placed in Ardesia's account on the day of the auction to cover the purchase price in the event of a successful bid.

57. The evidence on this matter is far from satisfactory. In the end, we are not disposed to reject the sworn evidence of Mr Robertson, and hence we conclude that when the solicitor handed over the cheque for $152,000 on 17 May 1989, he did so in the belief that funds to cover the cheque would be deposited that day. We do not believe, however, that in all the circumstances that belief on the part of the solicitor was a reasonable one. It amounted to little more than a hope. It was not a belief that a competent legal practitioner would reasonably hold. To hold such a belief was consistent with the recklessness that the solicitor displayed in relation to his clients' affairs to which we have already made reference.

58. In relation to the Ardesia matter, we would also express the opinion that the solicitor failed to recognize the conflict between his own interests and those of his client Mr Pettit. He led Mr Pettit to believe that Ardesia had an interest in the lease. He failed to inform Mr Pettit that whatever interest Ardesia had had been sought to be acquired by a cheque that had been dishonoured. The solicitor proposed to Mr Pettit that he himself have a one-quarter interest in Luranna Pty. Limited without informing Mr Pettit of the relevant facts relating to Ardesia and the lease which still had not issued.

59. With regard to the passing of the valueless cheque, it needs to be said that solicitors occupy a privileged position in the community, and no less in the commercial section of the community. Members of the community ought to be able to rely upon a solicitor's cheque and ordinarily a solicitor who gives a cheque in the knowledge that there are insufficient funds to cover it will be hard pressed to deny misconduct. Whether the misconduct is of a professional nature and whether it is sufficient to justify disciplinary action will depend upon the circumstances. In some circumstances the misconduct might be purely personal. In others it will tend to reflect on solicitors generally and tend to lower the reputation of the profession generally. In the present case, the solicitor realised before the cheque was presented for payment that it would not be met, yet he did nothing to advise the payee. His motive in refraining from advising the payee was, we conclude, to retain whatever commercial advantage had been obtained for Ardesia by the solicitor successfully bidding at the auction and handing over the cheque despite the lack of funds to cover it. The solicitor used the time gained to secure on favourable terms an arrangement with Mr Pettit in which Ardesia, although insolvent, was used as the means of preserving the solicitor's interest in the lease to be issued. The apparently unsought offer of "compensation" to the ACT administration, was made by the solicitor on his firm's letterhead with the intention, transparent to us but not to the ACT administration nor to Mr Pettit, of retaining the advantage that the solicitor had improperly obtained on its behalf.

60. The solicitor's behaviour in relation to the Ardesia matter was, in our opinion, another example of professional misconduct on his behalf.
8. Personal factors

61. The solicitor produced a number of affidavits from other solicitors both within the ACT and outside. These affidavits contain statements by the other solicitors that in their opinion the solicitor is an honest and competent practitioner and that he is of good fame and character. We have no doubt that these views are genuinely held and are based upon the deponents' own knowledge and experience of transactions with the solicitor and in some cases on close personal acquaintance. It is to be expected that any legal practitioner, whose admission to practise has been a consequence of having satisfied the Court that he is of good fame and character, would be able to obtain some support of the nature of that contained in the affidavits filed in this case. By definition, upon commencing practice, a legal practitioner is a person of good fame and character. Furthermore, the educational qualifications which are required as a precondition to admission ensure a motivation and capacity in relation to the organization of affairs. Sadly, however, the conduct of the solicitor in the matters to which we have referred, whilst out of character in a general sense, indicates a lapse on the solicitor's part of such seriousness that it is impossible to overlook or condone it. It is of no assistance to the Court to be told by a former employee of the solicitor that in his opinion no client of the solicitor has suffered pecuniary loss as a result of any non-compliance with trust account requirements, or that any breach by the solicitor was "unwitting and not in keeping with this honest and open character". The Court might question the judgment of those who have sworn that, despite the present proceedings, their esteem for the solicitor remains unchanged.

62. We take into account the personal stress under which the solicitor was placed by the unexpected and extreme illness of his young son which is apparently such as to prevent his wife from working full-time. It is likely that this matter has prevented him from giving full and proper attention to his clients' affairs in recent times. However, it provides no explanation, let alone justification, for his conduct taken as a whole.

63. We note also that the solicitor has played an active role in community affairs, participating in the Law Society's free legal advice scheme and acting as honorary secretary of a cricket club for many years.
9. Orders

64. We are not able to accept the statement by the solicitor or the submission on his behalf that his misunderstanding of the nature and effect of the litigation loans was such as to substantially reduce the seriousness of his misconduct in relation to the appropriation of trust moneys. The misappropriation must be seen in the light of the accompanying failure to properly inform the clients of the requirements of the loan, the failure to prosecute the clients' claims with diligence in order to minimize their liability for interest and the failure in some cases to pay off loans with the proceeds of settlement. In his handling of the litigation loans the solicitor has indicated his unfitness to practise. This, taken together with the failure to keep some clients informed of the state of their affairs, the failure to handle the affairs of some clients with diligence and competence, the overcharging of some clients and the misleading conduct to which we have referred, leaves us with no alternative but to order that the solicitor's name be removed from the Roll. Whether or not he might at some future date demonstrate a newly acquired fitness to practise, is a matter on which we express no opinion. However, in the interests of the public and as a deterrent to others who might for whatever unfortunate reason permit their own standards of professional conduct to deteriorate to such an extent, an order for removal must be made. The Court so orders.

65. Although it appears that the bankruptcy of the solicitor stands in the way of enforcement of an order for costs, the usual order is that the solicitor pay the costs of the Law Society on a solicitor and client basis. We see no reason why such an order should not be made in the present case and we make that further order.