Re the Legal Practitioners Act 1970 and Re An Application By the Law Society of the Australian Capital Territory In Relation To the Conduct of Brendan Lee Grosse [1996] ACTSC 5 (22 February 1996)

SUPREME COURT OF THE ACT

IN THE MATTER OF THE LEGAL PRACTITIONERS ACT 1970
AND IN THE MATTER OF AN APPLICATION BY THE LAW SOCIETY OF THE AUSTRALIAN
CAPITAL TERRITORY IN RELATION TO THE CONDUCT OF BRENDAN LEE GROSSE
No. SC 134 of 1995
Number of pages - 9
Legal Practitioner - Professional Misconduct

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
MILES CJ, GALLOP AND HIGGINS JJ

CATCHWORDS

Legal Practitioner - application for removal from the Roll of Barristers and Solicitors - misappropriation of fees and disbursements payable to the firm of barristers and solicitors - failure to account for moneys so received - failure to disclose income to the Commissioner of Taxation - relevance of the confidence of the practitioner's partners that he will not repeat his conduct - duty of the court to measure the practitioner's behaviour in the scale of conduct deserving of disciplinary action

Professional Misconduct - deliberate and systematic misappropriation of costs and disbursements - deliberate and systematic understatement of taxable income - deliberate and systematic misleading of clients - weight to be attached to those facts in determining fitness to practise

Legal Practitioners Act 1970, ss.67 and 73

Re Davis [1947] HCA 53; (1947) 75 CLR 409

Ziems v Prothonotary of the Supreme Court of NSW [1957] HCA 46; (1957) 97 CLR 279
Street v Queensland Bar Assn [1989] HCA 53; (1989) 168 CLR 461; 88 ALR 321
Cook v Administration of Norfolk Island [1992] FCA 594; (1992) 111 ALR 453
Harvey v The Law Society of NSW (1975) 49 ALJR 362; 7 ALR 227
Ex parte Attorney-General (Cth); Re a Barrister and Solicitor (1972) 20 FLR

234

Re Guild (1979) 32 ACTR 13
The Law Society of NSW v Bannister (1993) 24 NSW Dis R 24
Ex parte Macaulay (1930) 30 SR(NSW) 193
Dupal v The Law Society of NSW (unreported, 26 April 1990)

HEARING

CANBERRA, 29 January 1996
22:2:1996

Counsel for applicant: Mr G.C. Lindsay QC

Solicitor for applicant: Abbott Tout Harper Blain

Counsel for respondent: Mr G.B. Hall QC

Solicitor for respondent: Crossin Barker Gosling

ORDER

THE COURT ORDERS:

(1) that the name of Brendan Lee Grosse be removed from the
Roll of Barristers and Solicitors; and

(2) that the practitioner pay the costs of these proceedings
on a solicitor/client basis.

DECISION

MILES CJ, GALLOP AND HIGGINS JJ By notice of motion dated 3 March 1995 the Law Society of the Australian Capital Territory (the Law Society) seeks an order that Brendan Lee Grosse (the practitioner) show cause why he should not be dealt with by the Court for misconduct or conduct unbefitting a barrister and solicitor, upon the grounds appearing from the affidavit of Christine Susan Harvey sworn 27 February 1995. The motion came on for hearing on 29 January 1995. The Court reserved its decision.

Disciplinary Powers of the Court
2. The disciplinary powers of the Court are prescribed by s 67 of the Legal Practitioners Act 1970 in the following terms:

"67. (1) If, on a report under section 62 or otherwise,
the Supreme Court is satisfied that a barrister and solicitor is
guilty of professional misconduct or unsatisfactory professional
conduct, the Court may, by order, do all or any of the
following:
(a) direct that his or her name be removed from the Roll of
Barristers and Solicitors;
(b) suspend for such period as the Court considers appropriate
his or her right to practise in the Territory as a barrister, as
a solicitor or as a barrister and solicitor;
(c) impose on him or her a fine not exceeding $20,000.

(2) In addition to the powers vested in the Supreme Court under
subsection (1), the Court may exercise all the powers of the
Professional Conduct Board under section 58 as if -
(a) each reference in that section to an inquiry were a
reference to proceedings on a report under section 62; and
(b) each reference in that section to the Board were a
reference to the Court.

(3) Where the Supreme Court makes an order under paragraph
(1)(b) in respect of a barrister and solicitor, the Court may
also order that the barrister and solicitor may be employed in
the practice of another barrister and solicitor for such a
period and on such conditions as the Court considers
appropriate.

(4) The Law Society is entitled to be represented in
proceedings for an order under this section."

3. In addition to those powers, the inherent power of the Court is preserved by s 73 which provides:

"73. This Division is not to be taken to restrict or limit in
any way the jurisdiction and power that the Supreme Court has,
apart from this Act, in relation to the control and discipline
of barristers and solicitors."

4. The inherent power of a Supreme Court of a State or Territory to control the right of persons to appear before it is undoubted: Re Davis [1947] HCA 53; (1947) 75 CLR 409; Ziems v Prothonotary of the Supreme Court of New South Wales [1957] HCA 46; (1957) 97 CLR 279; Street v Queensland Bar Assn [1989] HCA 53; (1989) 168 CLR 461; 88 ALR 321; Cook v Administration of Norfolk Island [1992] FCA 594; (1992) 111 ALR 453. The power extends to the admission, disciplining and disbarring of practitioners and has done so from colonial times: Street's case per Brennan J at CLR 495.

5. The practitioner was first admitted to practise as a solicitor in New South Wales on 21 December 1978. He was admitted to practise as a barrister and solicitor of this Court on 12 May 1981.

6. The professional conduct of the practitioner was brought to the notice of the Law Society on 3 January 1995 by Ross Reid, a senior partner of the firm Vandenberg Reid, of which the practitioner was also a partner, in a letter dated 23 December 1994 with annexures being a statement of facts, advice of senior counsel, a letter from a registered company auditor and a letter signed by Reid on behalf of the practitioner.

7. The statement of facts recites that at all material times the practitioner was a partner in Vandenberg Reid. The following facts are taken from the statement of facts furnished by Reid to the Law Society.

8. On 8 September 1994 an inspector from the Australian Taxation Office attended the Canberra office of Vandenberg Reid without warning and advised that the practice was being audited to establish whether there had been any undisclosed income in the practice. The inspector indicated that the focus of the investigation was to discover whether moneys received by way of cash had not been banked in the normal course of business. During the initial meeting with Reid as the senior and managing partner, the inspector was assured that there was no prospect that the partnership had failed to account for any income received.

9. After the investigation began, another partner, Archie Tsirimokos, advised Reid that he had uncovered some information which was giving him some concern, namely that there appeared to be an irregularity in relation to the billing of four or five larger clients. As a result of that conversation, Tsirimokos and Reid began to investigate certain dealings involving those clients.

10. On Saturday, 17 September 1994, the practitioner went to the home of Reid and disclosed that he had received money by way of payment for fees rendered from a number of clients of the firm which he had not banked in the partnership accounts. Prior to that disclosure, Tsirimokos and Reid were unaware that the practitioner had done that. The practitioner made a full disclosure of the relevant transactions and subsequent inquiries did not reveal any further irregularities. The practitioner's revelation to his partner may have actually occurred one week earlier on 10 September 1994, as stated in evidence by Reid and Tsirimokos.

11. The transactions disclosed by the practitioner revealed that he had not paid into the partnership accounts the following moneys:

(a) for the year ended 30 June 1992: $6,902.48
(b) for the year ended 30 June 1993: $36,864.83
(c) for the year ended 30 June 1994: $34,801.39
(d) for the period ended 17 September 1994: $11,925.00.

Those figures total $90,493.70, being fees payable to the firm Vandenberg Reid and not received by the firm.

12. The information given to Reid by the practitioner was then communicated to the other partners and it was resolved to report the matter to the Australian Taxation Office and to obtain advice from senior counsel in relation to the obligations of the partners to the Australian Taxation Office and the Law Society. A subsequent audit of the firm's accounts did not reveal any other irregularities or any undisclosed amounts other than those in question.

13. Subsequent to the disclosure by the practitioner on 10 or 17 September 1994, arrangements were made by the partners of the firm for lodgment of amended returns as required by the Australian Taxation Office. Amended assessments for the years ended 30 June 1992, 1993 and 1994 have subsequently issued.

14. The method by which the practitioner rendered accounts, collected payment and appropriated the payments to his own use was set out in the practitioner's affidavit sworn 28 November 1995:

"2. During the period in question, I was retained by a
number of successful high volume builders and clients in
Canberra.

3. When a memorandum of my fees for work I had undertaken on
behalf of the client was generated, I usually delivered these
memoranda personally to the client and collected their payments
from them in satisfaction of the account. Those moneys were
banked directly by me into my personal banking or credit
account.

4. No copy of the account was filed in the office fee account
system so that there was never a record of the account being
billed, paid or outstanding."

15. In his oral evidence he said that the invoices to clients were always on standard firm letterhead and at his request the cheques in payment of the invoices were made payable to him in his personal name. The client kept the original invoice. No copies were retained in the firm's files. That occurred on 40-45 occasions in respect of some 300 transactions. There were about four or five builder clients and about 15 other clients involved. So far as the disbursements paid by the firm were concerned, they were included in the invoices paid by the clients and were also retained by the practitioner.

16. He took active steps to conceal the receipt of the moneys from his partners and deliberately concealed his receipt of those moneys from the Australian Taxation Office until the tax audit commenced in September 1994. He disclosed his receipt of the moneys to his partners only after he had become aware that the tax audit had commenced. He was not aware at that stage that Tsirimokos and Reid were making their own inquiries in relation to certain matters handled by him.

17. In the statement of facts furnished to the Law Society and in the evidence of Reid and Tsirimokos on the hearing of the motion, the partners affirmed their decision that they should accept the practitioner's explanation and his assurance that he did not intend to defraud the partnership and would have accounted for the moneys received by him as soon as he was able. Further, the partners have decided that they would prefer to continue in partnership with the practitioner. It was also established on the evidence that the practitioner was the firm's highest fee earner and that arrangements have been made for the firm to be reimbursed the amounts which the practitioner received and appropriated to his own use.

18. By letter dated 3 January 1995 to the Law Society, which was signed by Reid on the practitioner's behalf due to the practitioner's absence on leave, the practitioner agreed with the facts set out above.

19. In a letter from his solicitors to the Law Society dated 3 February 1995, the practitioner acknowledged that his actions were completely wrong and stated that he was deeply grateful for the charity shown to him by his partners in their attitude towards him both on a personal and on a financial basis. In that letter, he expressed his shame and regret for his actions. He gave evidence on his own behalf and again acknowledged his wrongdoing and expressed his utmost regret.

20. The practitioner also relied upon his affidavits sworn 30 March 1995, 28 November 1995 and 29 January 1996 and a number of affidavits in which the deponents in various ways attested to his professional integrity and reputation.

Personal Factors
21. The practitioner is married with four children aged 16, 11, 6 and 4 years. He claimed that his actions were a culmination of substantial and acute pressure in both his personal and professional life over a number of years. He expanded upon this assertion in his affidavit sworn 30 March 1995. He stated therein that he considered that having clients pay him professional fees that he had generated would be a loan to himself from the partnership income to be repaid when his personal and financial position improved. He said that he at all times considered that when the funds were repaid the partners would then share the income and the tax liability and that at no time did he intend to defraud the partners or to avoid his taxation liability.

22. It is clear from other evidence that the practitioner had usually been the highest fee earner in the firm's practice; further, that he had always been a trusted and important partner in the firm, regularly receiving accolades from other partners, staff and clients in relation to his performance as a lawyer and his friendly nature. Those characteristics influenced the partners to their decision to treat him leniently in the partnership and to support him in respect of this application by the Law Society.

23. He was aware that he was one of the highest fee earners in the firm and part of his motivation for what he did was a belief that he should have been receiving a higher share of the partnership income. He acknowledged that he has been guilty of professional misconduct towards his partners, but he would not concede that he had been likewise guilty in relation to the profession at large. He accepted "with the benefit of hindsight" that he had been guilty of professional misconduct in deliberately and systematically understating his income to the Australian Taxation Office. He also accepted that he had misled those clients who had paid fees to him personally and had been guilty of professional misconduct in his dealings with them. He attributed his conduct to his own naivety in treating clients' funds as loan accounts to be repaid to the partnership when the income distribution justified or could substantiate it.

24. On the whole of the evidence there was no indication that, but for the tax audit, the practitioner would have revealed the repeated and systematic misappropriation of the moneys before he considered that he was ready to do so.

25. Reid gave evidence on behalf of the practitioner and re-iterated that it was the partners' wish that the practitioner be permitted to continue to practise as a partner and that, if the practitioner were struck off or his right to practise suspended, it would nevertheless be likely that the partners would employ him as a clerk, if they were permitted to do so. Tsirimokos' gave evidence to the same effect.

26. The Law Society made it plain that there was no suggestion of wrongdoing on the part of any person other than the practitioner. It is apparent on the evidence that over a period of about three years up to 17 September 1994 the practitioner, without the knowledge or approval of his partners, regularly and systematically appropriated for his own personal benefit moneys received by him from clients of the firm for costs and disbursements for work done by him as a partner of the firm. The total amount misappropriated as disclosed to the Law Society was $90,493.70. The misappropriations were first disclosed to the practitioner's partners on 10 or 17 September 1994 as a consequence of the unexpected and unannounced audit of the firm's accounts by an inspector of the Australian Taxation Office which commenced on 8 September 1994.

27. It may be, and the evidence is not clear on the subject, that the misappropriations were first disclosed to the partners on 10 September 1994, that is two days after the audit commenced. There was evidence from Reid and Tsirimokos to that effect. In our view it does not matter whether the disclosure was made on 10 or 17 September 1994. At the time of the disclosure there was undoubtedly disquiet arising from the fact that the partners Reid and Tsirimokos were making investigations into certain apparent irregularities in the billing of the four or five large clients. The practitioner had failed to disclose the misappropriated moneys to the Australian Taxation Office and concealed the extent of his income. Clients who paid the practitioner personally were not informed that their payments to him had not been or would not be banked to the credit of the firm. The practitioner contended that they were so informed but, in our view, nothing turns upon that issue of fact. It is clear that the clients were led to believe that in paying the amounts to the practitioner they were paying in an entirely regular manner. To that extent they were misled.

28. We turn to the submissions on behalf of the practitioner. First, it was submitted that the practitioner's failure to reveal his receipt of the fees payable to the firm to the Australian Taxation Office was personal and not professional misconduct. We do not accept that submission. It is obvious that his failure to disclose his total income to the Australian Taxation Office was a concomitance of his professional misconduct in appropriating the moneys to himself.

29. It was further submitted that his failure to account for the moneys received was not misleading so far as the partners were concerned. That likewise is plainly wrong. Fees and disbursements payable to the firm for professional work done were diverted from the firm to the practitioner's accounts, which misled the other partners as to the true professional returns of the firm.

30. It was urged on behalf of the practitioner that because he came forward before his failure to account was discovered and made a full and frank confession and further, that no person would suffer any loss because of the alternative arrangements that have been put in place, the Court should deal with the practitioner by way of fine only. The Court was asked to take account of his admission of guilt and the considerable saving in time and money on that account. It was urged that there is a public interest in keeping the practitioner in practice, the partners want him and are prepared to continue in practice with him, as are other members of the private profession.

Character Evidence
31. The character evidence on behalf of the practitioner confirms that he had not previously or otherwise engaged in dishonest, deceitful or other improper conduct. Opinions are expressed that the conduct complained of is out of character and not likely to be repeated. But, in the absence of some acceptable explanation of how greed and opportunity led the practitioner to deceive his partners and defraud the revenue, misleading his clients along the way, and to engage in a course of action which he must have known was dishonest and deceitful, repeatedly and systematically, character evidence is not particularly helpful in determining whether the practitioner is fit to continue in practice.

32. It has been urged that the real victims of the practitioner's misconduct are his partners and they have supported him and kept him in the partnership, which is some evidence that they are satisfied that he will not repeat his conduct. That evaluation of the practitioner's conduct is not determinative of what action should be taken. It is the Court's duty to ensure that proper professional standards are maintained. The fact that the partners are compassionate and forgiving or have decided to support him because of his fee earning capacity cannot be permitted to predominate in the exercise of measuring the practitioner's behaviour in the scale of conduct deserving of disciplinary action by the Court or otherwise.

Professional Misconduct
33. (1) The practitioner deliberately and systematically misappropriated for his own personal benefit costs and disbursements due to the firm and in doing so he deliberately and systematically misled and defrauded his partners.

34. (2) The practitioner deliberately and systematically understated to the Australian Taxation Office both his taxable income and that of the partnership; and

35. (3) Although his clients appear to have suffered no loss in the sense that they paid fees and disbursements that they would have been required to pay to the firm in any event, the practitioner deliberately and systematically misled the clients to believe that their dealings with the firm were in all respects regular. They were led to believe that the moneys they were paying were being paid to the firm rather than being diverted by the practitioner to his own personal accounts.

The Power of the Court and the Proper Approach
36. It has been said over and over again by the High Court, the Supreme Courts of the States and this Court, that the object of disciplinary proceedings is the protection of the public and the maintenance of proper standards in the legal profession. Disciplinary proceedings are not taken by way of punishment (Harvey v The Law Society of New South Wales (1975) 49 ALJR 362 a 364; 7 ALR 227 at 230) or to exact retribution (Ex parte Attorney-General (Cth); Re a Barrister and Solicitor (1972) 20 FLR 234 per Fox, Blackburn and Woodward JJ at 244). In the former case Barwick CJ said that the function of the Court was "to examine the material proffered to it in order to determine whether that material establishes that the solicitor has failed, by action or inaction, to maintain in his conduct the standards required of him as a member of the profession. The Court's duty is to ensure that those standards of the profession are fully maintained". In the latter case, their Honours said that the object of disciplinary action is "to protect the public and the reputation of the profession". See also Re Guild (1979) 32 ACTR 13 at 35-36.

37. More recently, Sheller JA in The Law Society of NSW v Bannister (1993) 24 NSW Dis R 24 at 28 said: "... the primary consideration is to protect the public by preventing a person unfit to practise from holding himself or herself out to the public as a general practitioner in whom members of the public might repose confidence".

38. In Ex parte Macaulay (1930) 30 SR(NSW) 193 at 194, Street CJ said that where a solicitor had been proved guilty of theft he should not, unless in very exceptional circumstances, ever be allowed again to be held out to the public as a solicitor in whom confidence might be reposed. For present purposes, those observations are equally applicable to the misappropriations by the practitioner.

What Course Should the Court Take?
39. This is not a case of a practitioner who on the spur of the moment misappropriated his clients' money and then within a short time, overcome by remorse, made good the misappropriation. The practitioner's conscience was unmoved until the investigation by the Australian Taxation Office was commenced on 8 September 1994. He was then moved to make prompt confession to his partners.

40. The question is whether the practitioner is fit to be held out as a member of the legal profession. We have reached the firm conclusion that he is not and, notwithstanding the great deprivation to him, this Court must do its duty and the practitioner's name should be removed from the Roll.

41. To adopt the remarks of Handley JA in Dupal v The Law Society of New South Wales (unreported, 26 April 1990, at p.20): "any decision to the contrary would signal to the profession and the community that this Court was no longer insisting on solicitors maintaining the highest standards of personal honesty and integrity in their dealings with clients" and, we would add, their partners. "Sympathy for the (practitioner) and for the tragedy that he has brought on himself and his family by his inability to live up to the high standards which this Court and the profession demand of solicitors cannot be allowed to deflect this Court from doing its duty".

42. The Court orders:

(1) that the name of Brendan Lee Grosse be removed from the
Roll of Barristers and Solicitors; and

(2) that the practitioner be ordered to pay the costs of these
proceedings on a solicitor/client basis.