Law Society of New South Wales v Hannam [2006] NSWADT 24 (30 January 2006)

Last Updated: 30 January 2006

NEW SOUTH WALES ADMINISTRATIVE DECISIONS TRIBUNAL LEGAL SERVICES DIVISION

CITATION: Law Society of New South Wales v Hannam [2006] NSWADT 24


PARTIES: APPLICANT
Council of the Law Society of New South Wales
RESPONDENT
Robert Alexander Hannam



FILE NUMBERS: 052010

HEARING DATES: 27/09/2005

SUBMISSIONS CLOSED: 27/09/2005



DECISION DATE: 30/01/2006

BEFORE: Karpin A - ADCJ (Deputy President)Currie JS - Judicial MemberBubniuk L - Non Judicial Member





LEGISLATION CITED: Legal Profession Act 1987

CASES CITED: Law Society of New South Wales v. Doueihi [2002] NSWADT 265

APPLICATION: Professional Misconduct - breach of s. 61 of the Legal Profession Act
Professional Misconduct - breach of s. 62 of the Legal Profession Act
Professional Misconduct – fail to promptly pay monies

MATTER FOR DECISION: Principal matter


APPLICANT REPRESENTATIVE: APPLICANT
P Boyd, Solicitor

RESPONDENT REPRESENTATIVE: RESPONDENT
J Heazlewood, Counsel

ORDERS: 1. The Legal Practitioner is guilty of Professional Misconduct
2. The Legal Practitioner is fined $5,000 to be paid within 9 months of this date
3. If the Legal Practitioner fails to pay the fine in accordance with the terms of Order 2, the Legal Practitioner’s Practising Certificate is suspended from the date upon which payment is due, until the date upon which the fine is paid
4.The Legal Practitioner is publicly reprimanded
5. An audit of the Legal Practitioner’s Trust Account is to be carried out by an Independent accountant, appointed by the Legal Practitioner, as at 31 December 2005, and again as at 31 December 2006. Those audit reports are to be carried out and forwarded to the Proper Officer of the Law Society of New South Wales in each case not later than 31 March in the succeeding year. These audits are in addition to any audit required by the Law Society of NSW in connection with the annual renewal of the practitioner’s practising certificate. The Legal Practitioner will pay the costs of the independent accountant of and incidental to the preparation of such audit reports
6. The Respondent is to pay the legal costs of the Law Society, as agreed or assessed


Reasons for Decision:

REASONS FOR DECISION

Background

1 In January 2002, Trust Account Inspectors brought to the attention of the Respondent, breaches of section 61 Legal Profession Act 1987, arising from the payment into his Office Account of recovered out-of-pocket expenses, and his failure to pay those expenses out to those to whom they were due. In November 2002, the Respondent paid a number of the identified expenses from his Office Account.

2 On 16 January 2003, Jean Sayer, Chartered Accountant, was appointed investigator (‘the investigator") to the affairs of Robert Alexander Hannam ("the solicitor").

3 On 4 March 2003 Miss Sayer, by prior arrangement, attended the solicitor’s office and commenced her investigation. On 23 May 2003 Miss Sayer produced her report. In the course of the investigation she was faced with considerable difficulty owing to the non attendance of the solicitor, absence of some files and the inexperience of the solicitor’s office staff. It appears that a number of completed files had been lost as a consequence of storm damage, and the available staff had only been employed two weeks previously.

4 The solicitor maintained a Trust Account, an Office Account and an account in the name of a service company, Senoco Pty. Limited. ("Senoco") There were no accounting records for the Office Account or for the Senoco account. The solicitor provided Miss Sayer with the bank statements, cheque butts, bank deposit books for both accounts, and a receipt book for the Office Account

5 As a consequence of the solicitor’s failure to maintain accounting records for the Office Account, Miss Sayer was unable to establish the true position concerning Trust monies. Miss Sayer was unable to determine whether all monies deposited to the Office Account had been paid to the parties entitled to those monies.

6 By Information filed 10 May 2005 the Applicant alleged 16 breaches each of sections 61 & 62, and a failure promptly to pay monies due to clients and other parties, following receipt by the solicitor of those funds which he paid into his Office Account. When the matter came on for hearing before the Tribunal, the Applicant withdrew 3 complaints alleging breaches of section 61, and proceeded upon 13 complaints. The solicitor admitted those 13 breaches of section 61 and admitted that such breaches required a finding of Professional Misconduct against the solicitor.

7 The Applicant proceeded upon 16 breaches of section 62, all of which were admitted by the solicitor. The solicitor conceded that those breaches also required a finding of Professional Misconduct against the solicitor.

8 In his Reply filed on 4 July 2005 the solicitor admitted breaches of sections 61 & 62, but denied they were wilful. Before the Tribunal the solicitor admitted that the breaches were wilful.

9 The solicitor admitted the third allegation in the Information, namely that he failed promptly to pay monies due to clients and to others for fees and expenses after receipt of the relevant funds. Before the Tribunal the solicitor admitted that his failure in this regard constituted Professional Misconduct, although he had denied that was so in his Reply.

10 The Applicant sought orders that the solicitor be fined and reprimanded and that he pay the Applicant’s costs.

11 Prior to the matter commencing, the parties announced that agreement had been reached on "Consent Orders" if those met with the approval of the Tribunal. Both parties brought to the attention of the Tribunal the decision of this Tribunal in Law Society of New South Wales v. Doueihi [2002] NSWADT 265.

12 Following tender of the case for the Applicant, the Tribunal indicated certain matters that concerned the Tribunal, and which did not incline the Tribunal to proceed with consent orders at that point.

13 In summary the case presented by the Applicant, and not disputed by the solicitor, related to his repeated practice of receiving, and paying into his Office Account, settlement monies, including disbursements, on behalf of various clients, consequent upon the settlement of Third Party or Workers Compensation matters. In each of the 13 matters admitted by the solicitor, he breached section 61 (1) (a) and section 61 (2) of the Legal Profession Act 1987. Section 61 (8) provides that it is Professional Misconduct for a solicitor to wilfully breach subsection (1) or (2) of section 61.

14 Brief facts of allegations:

Pellegrini: Third Party Claim settled for $16,500 inclusive of costs. Cheque for $14,266.65 dated 8 January 2001 deposited into solicitor’s office account on 6 February 2001. A memorandum of costs and disbursements rendered on that day discloses an amount due to Dr. Hudson in the sum of $600.00. The investigator was unable to determine whether or not that fee had been paid.
Zuniga: Third party claim settled for $150,000 inclusive of costs. The solicitor paid the settlement cheque in the sum of $135,000 into his office account on 9 May 2001.
Tamanivalu: Third Party claim settled for $46,000 inclusive of costs. Settlement cheque in sum of $37,848.60 paid into the solicitor’s office account on 7 February 2001
Ayers: Third Party claim settled for $43,000 inclusive of costs. Settlement cheque in sum of $31,619.80 paid into solicitor’s office account on 26 March 2001
Amorelli: Third Party claim settled for $30,000. Settlement cheque in sum of $26.092.00 paid into solicitor’s Office Account on 22 May 2001
Gardner: Agreed costs of $9,277.70, including disbursements were received by the solicitor in a Workers Compensation Claim and deposited into his office account on 13 September 2001. The disbursements included in that amount were paid as follows: $605.00 on 11 July 2002; $1,877.80 (counsels fees) on 14 November 2002; $350.00 on 14 November 2002. Because of the lack of accounting records, Miss Sayer was unable to determine whether or not an amount of $200.00 had been paid to Dr. Loxley.
Barker: Third Party claim settled for $21,000 inclusive of costs. On 23 November 2000, the solicitor deposited the settlement cheque in the sum of $18,900 into his Office Account.
P.Wolf: Third Party claim settled for $14,500 inclusive of costs. The solicitor paid the settlement cheque in the sum of $13,725.25 into his Office Account
Mayers: Third Party claim settled for $32,000 inclusive of costs. On 15 June 2001 the solicitor paid 2 cheques totalling $28,712 into his Office Account
James: Workers Compensation matter in which agreed costs and disbursements in the sum of $9,833.90 were deposited into the solicitor’s Office Account on 11 September 2000. Miss Sayer was unable to determine whether or not counsel’s fees totalling $599.00 had been paid. The solicitor did not repay the client $230.00 for medical fees until 14 November 2002, more than 2 years after he received the funds.
Cirillo: Workers Compensation matter in which costs and disbursements in the sum of $7,957.60 were deposited into the solicitors Office Account on 6 February 2001. The solicitor failed to pay for medical reports obtained from 3 doctors, totalling the sum of $1,100.00, until 14 November 2002, a delay of one year nine months.
Saykali: Workers Compensation matter in which agreed costs and disbursements in the sum of $10,777.98 were deposited into the solicitors Office Account on 16 April 2002. The balance of refunds due to the client were not paid until 14 November 2002 and the interpreters fees were not paid until September of that year.
Campbell: Workers Compensation matter in which a cheque for agreed costs and disbursements in the sum of $7,391.40 was deposited into the Solicitor’s Office Account on 13 June 2002. He failed to pay for a medical report in the amount of $650.00 until 14 November 2002.
McKneight: Workers Compensation matter. A cheque for agreed costs and disbursements in the sum of $7,070.30 was deposited into the Solicitor’s Office account on 9 April 2001. Miss Sayer was unable to determine whether the Solicitor had refunded to the client $470.00 paid by the client for medical reports.
Melville: Two accident matters heard together in which the solicitor received cheques for agreed costs in the sum of $40,000 and $45,000. Both cheques were deposited into his Office Account on 26 October and 23 November 2000 respectively.

15 The reports of Miss Sayer, and Mr. R.J. Collins, Manager of the Professional Standards Committee of the Law Society of New South Wales, provided the evidence to substantiate the allegations contained in the schedule to the information. At hearing the Solicitor admitted each of the allegations as set out above, obviating the necessity to detail the evidence supporting the above summary.

16 Miss Sayer’s report noted the solicitor’s habit of depositing into his Office Account settlement monies in Third Party claims together with Party / Party costs, and that these deposits were generally made personally by the solicitor. She said:

The settlement moneys and the part/party and Workers’ Compensation costs are intermingled in the Office Account with the income of Mr. Hannam and cover his personal expenditure as well as the payment of client disbursements. There is no doubt that the Trust moneys in the Office Account of Mr. Hannam constantly intermingled with his own provided working capital for his practice. While the party/party costs and costs awarded in Workers’ Compensation matters include costs due to Mr. Hannam they also include the recovery of out-of-pocket expenses refundable to the clients and moneys due to Counsel and other parties.

17 Miss Sayer noted that there were no accounting records maintained for the Office Account, and consequently no accounting records from which the true position concerning Trust moneys received on behalf of clients could be established. Miss Sayer observed that even after examining a number of instruction files she was unable to determine whether all moneys deposited to the Office Account had been paid to the parties entitled thereto.

18 The relevant legislation

61 Money received by solicitor on behalf of another
(1) A solicitor who, in the course of practising as a solicitor in this State, receives money on behalf of another person:

(a) must pay the money, within the time prescribed by the regulations, into a general trust account in New South Wales at an approved financial institution and must hold the money in accordance with the regulations relating to trust money, or

(2) In any of those three cases, the solicitor must hold the money exclusively for, and must disburse the money in accordance with the directions of, the person on whose behalf it is held.
...
(8) It is professional misconduct for a solicitor to wilfully contravene subsection (1) or (2).
trust money means money required to be dealt with in accordance with subsection (1) (a).
61A Money received by solicitor for costs in workers compensation matters
(1) Section 61 does not apply in respect of money received by a solicitor for a person claiming workers compensation for the payment of costs due to the solicitor in respect of the claim, being costs that have been awarded by a court or the Workers Compensation Commission.
(2) In this section:
workers compensation means compensation under any of the following Acts:
(a) Workers Compensation Act 1987,
(b) Workers Compensation (Bush Fire, Emergency and Rescue Services (Act) 1987,
(c) Workers’ Compensation (Dust Diseases) Act 1942
(d) Workplace Injury Management and Workers Compensation Act 1998,
62 Keeping of accounts
(1) A solicitor shall keep:
(a) in the case of trust money (within the meaning of section 61)--accounting records, or
(b) in the case of money other than trust money--such accounting records or other records (if any) as may be required by the regulations,
that disclose at all times the true position in relation to money received by the solicitor on behalf of another person.
(2) The accounting records referred to in subsection (1) shall be kept in a manner that enables them to be conveniently and properly audited.
(3) Without limiting the generality of subsection (2), the accounting records referred to in subsection (1) shall, if the regulations so require, be kept in such manner as the regulations prescribe.
(4) A wilful contravention of subsection (1), (2) or (3) is professional misconduct.

19 The solicitor admitted that in each of the 16 matters summarized in the First Schedule to the Information, he had wilfully breached section 62, in that he had failed to maintain accounting records as required by the regulations, that would disclose the true position in relation to monies received on behalf of other persons.

20 Section 62 (4) provides that a wilful contravention of subsections (1) (2) or (3) constitutes Professional Misconduct.

21 The Applicant does not allege that there has been defalcation in relation to Trust monies received by the Solicitor. There are, however, areas in which it has been impossible for the investigator to determine whether or not disbursements have been paid to those entitled. It is not in dispute that the Solicitor promptly paid settlement moneys due to his clients, albeit those moneys were paid from his Office Account. On some occasions disbursements were paid from the Senoco account. There is no explanation forthcoming for that anomaly.

22 The Tribunal acknowledges that the Solicitor’s admissions before the Tribunal, both as to the facts relied upon by the Applicant, and that he should have 3 findings of Professional Misconduct recorded against him, substantially reduced the hearing, thus saving considerable time and expense. Such admissions should also be treated as evidence of remorse for his conduct, giving rise to some mitigation of penalty to be imposed. Nonetheless, the Tribunal was not comfortable with the draft consent orders prepared by the parties, and felt that this was a matter not entirely to be viewed in the same light as Law Society of New South Wales v. Douiehi [2002] NSWADT 265. Specifically, the Tribunal was not satisfied that the regimen disclosed in the consent orders, made adequate provision for oversighting of the Solicitor’s conduct of his Trust Account. The Tribunal was particularly concerned that for a lengthy period and despite his conduct being brought to his attention by a Trust account inspector, the Solicitor persisted in intermingling trust funds with his personal funds, and persistently failed to maintain records to such an extent that it was not possible for Miss Sayer to be satisfied in a number of instances as to whether or not moneys due to other persons had been paid to them. The Tribunal was also uncomfortable with the undeniable fact that the solicitor’s office account had been maintained in credit balance as a consequence of his persistent practice of paying client monies into that account. Thus he has used client funds as part of his working capital. To what extent it is not possible to ascertain.

23 The Respondent was admitted to practice as a solicitor on 29 June 1980. There is no evidence before the Tribunal as to where he practised between that date and commencing sole practice in August 1982. He has conducted his practice in Dural since 1983. For some time the Respondent employed a bookkeeper, although that person did not manage the Trust account. That task was taken up by the solicitor’s wife in 1998, and she has continued to manage it. Who attended to the Trust account between 1982 and 1998 is not revealed.

24 The solicitor took positive steps to avoid using a Trust account, and now concedes that was not an acceptable practice. He acknowledges that on occasions he failed to pay disbursements after receiving funds for client expenses; and that there was considerable delay between receipt of monies and disbursement of those funds.

25 The solicitor concedes that the breaches of sections 61 & 62 set out above, represent wilful breaches and as such require findings of Professional Misconduct.

26 The solicitor relied upon a number of references furnished by professional colleagues. Insofar as some of those referees appear to suggest that employee failures are responsible for some of these breaches, the Tribunal rejects those suggestions. The management of Trust funds is the responsibility of the solicitor. The records referred to by Miss Sayer, disclose that the solicitor was frequently the person who prepared the deposits. There is no basis for a finding that the mismanagement of trust funds was attributable to anyone other than the solicitor.

27 The Tribunal accepts that the solicitor is regarded as a man of good character and high professional reputation by those who have furnished references. The Tribunal notes material which indicates the solicitor is a fit and proper person to continue in practice. A number of the referees refer to the solicitor’s contrition and admissions of a failure to apply diligent standards.

28 The Tribunal is satisfied that no defalcation of trust moneys has been established against the solicitor.

29 The Tribunal is concerned, in the interests of the protection of the public, that in future the solicitor conducts his Trust account in accordance with the requirements of the legislation. The Tribunal is not satisfied that the consent orders arrived at between the Applicant and the Respondent are sufficiently stringent to oversight the solicitor’s practice in the immediate future.

30 The Tribunal regards the agreed fine of $5,000 (five thousand dollars) as being very lenient, and the period of 9 months allowed for payment of that fine, to be excessive. Nonetheless, the Tribunal is prepared to accede to that aspect of the agreed terms.

31 The orders of the Tribunal are:

1. The Legal Practitioner is guilty of Professional Misconduct.
2. The Legal Practitioner is fined $5,000 to be paid within 9 months of this date.
3. If the Legal Practitioner fails to pay the fine in accordance with the terms of Order 2, the Legal Practitioner’s Practising Certificate is suspended from the date upon which payment is due, until the date upon which the fine is paid.
4.The Legal Practitioner is publicly reprimanded.
5. An audit of the Legal Practitioner’s Trust Account is to be carried out by an Independent accountant, appointed by the Legal Practitioner, as at 31 December 2005, and again as at 31 December 2006. Those audit reports are to be carried out and forwarded to the Proper Officer of the Law Society of New South Wales in each case not later than 31 March in the succeeding year. These audits are in addition to any audit required by the Law Society of NSW in connection with the annual renewal of the practitioner’s practising certificate. The Legal Practitioner will pay the costs of the independent accountant of and incidental to the preparation of such audit reports.
6. The Respondent is to pay the legal costs of the Law Society, as agreed or assessed.