Law Society of NSW v Koffel [2010] NSWADT 149 (15 June 2010)

Last Updated: 16 June 2010

NEW SOUTH WALES ADMINISTRATIVE DECISIONS TRIBUNAL

CITATION:
Law Society of NSW v Koffel [2010] NSWADT 149


DIVISION:
LEGAL SERVICES DIVISION

PARTIES:
APPLICANT
The Council of the Law Society of New South Wales

RESPONDENT
Ross Carl Koffel



FILE NUMBERS:
092013

HEARING DATES:
12 May 2010

SUBMISSIONS CLOSED:
12 May 2010



DATE OF DECISION:
15 June 2010

BEFORE:
Patten D - Deputy PresidentMolloy G - Judicial MemberBubniuk L - Non-Judicial Member





LEGISLATION CITED:


CASES CITED:
Council of the Law Society v. Bouzanis [2006] NSWADT 55
Council of the New South Wales Bar Association v. Cummins [2001] NSWCA 284
Law Society v. Vosnakis [2007] NSWADT 42
Law Society v. Somerfield [2008] NSWADT 235
New South Wales Bar Association v. Hamman [1999] NSWCA 404
NSW Bar Association v. Murphy [2002] NSWCA 138

TEXTS CITED:


APPLICATION:


MATTER FOR DECISION:



REPRESENTATION:
APPLICANT
C A Webster instructed by Mr L Pierotti
RESPONDENT
J M Morris with Mr F Maghami


ORDERS:
1.The Application is dismissed
2.Should either party seek to move the Tribunal for an order for costs, that party must file and serve any such Application, with support submissions, within twenty-eight (28) days of the date of this Decision. Should no such Application be so filed and served the order of the Tribunal will be that there is no order for costs. Should there be such an Application so filed and served the opposing party must file and serve submissions in reply within a further twenty-eight (28) days. Unless reasons are advanced for a hearing to be conducted, the issue of costs will be resolved "on the papers" pursuant to Administrative Decisions Tribunal Act s.76.


Reasons for Decision:

REASONS FOR DECISION

Summary of Complaints

1 By Application for Original Decision the Applicant Law Society, brought proceedings against the Respondent solicitor asserting that he was guilty of professional misconduct in that his conduct was "unethical" in failing to pay the superannuation entitlements of his employees. The total outstanding superannuation entitlements were $123,998.97, which related to 33 employees for the period July 2005 to July 2007.

2 At all relevant times the solicitor was the principal of R K S Services Pty Limited ("RKS"), a service company; Koffels Pty Limited ("Koffels"), a solicitor corporation; and Koffel’s Solicitors and Barristers ("the firm"). The solicitor carried on legal practice in the name of the firm and, from 1 July 2005, in the name of Koffels.

3 RKS was placed into voluntary administration on 24 April 2006. The amount outstanding for superannuation entitlements prior to 24 April 2006 for its employees was $22,272.86. Prior to 24 April 2006 the employees of RKS were transferred to Koffels and all employee entitlements and liabilities were taken up by Koffels.

4 On 27 July 2007 Koffels was placed into administration. The amount owed by that company in respect of employee superannuation contributions, including those "acquired" from RKS, was $123,998.97. The amount outstanding related to 33 employees, for the period July 2005 – July 2007.

5 The Law Society contends that the conduct of the solicitor, as the principal shareholder of RKS and Koffels and the principal/sole practitioner of the firm, in failing to pay the superannuation entitlements of employees, constituted professional misconduct at common law and the Law Society placed heavy reliance on a number of previous decisions of the Court of Appeal and this Tribunal in support of that submission.

The Facts

6 There was no dispute between the parties regarding the facts and surrounding circumstances. A considerable body of written material was placed before the Tribunal, and the solicitor gave oral evidence and was cross examined. All that having been said, however, the basic facts remain as they were set out in the written documentation.

7 The solicitor was born 1 February 1947. He is now aged 63. He was admitted as a solicitor in 1971, was subsequently granted an unrestricted Practicing Certificate and worked within the commercial film and advertising/television industry as a Chief Executive Officer and In-House Counsel through the 1970s and 1980s.

8 In 1990 he established his own legal practice as a sole practitioner, trading initially under his own name and later as "Koffels, Solicitors and Barristers". The practice expanded and by 2004 he employed about 8 solicitors and about 14 non-legal staff in his practice. The non-legal staff were retained through RKS.

9 The legal practice developed from mainly debt collection and basic litigation to commercial advice, commercial transactions and litigation work, mainly for corporate clients. As the practice developed he took on more employees, including an Office Manager and an Accounts Manager, both separate roles. In about 2004 his wife, who was then working in the practice in an administrative capacity, formally became the Practice Manager and the roles of Office Manager and Account Manager were consolidated.

10 The evidence discloses that the Office/Accounts Manager took care of the financial functions of the practice, apparently under the supervision of external accountants. This Manager managed the pay-roll and remittances of PAYG tax to the Australian Tax Office ("ATO"), paid superannuation contributions, paid workers compensation premiums and other insurance, received and paid operating bills, counsel’s fees and kept appropriate records for the purposes of preparing quarterly Business Activity Statements and annual tax returns.

11 The solicitor himself did not sign general office cheques but rather left this to his wife when she became the Practice Manager. The solicitor was the sole signatory of trust cheques. However, as principal solicitor, the ultimate responsibility for financial accountability with respect to corporate and legal obligations lay with Mr Koffel.

12 From early 2004 the solicitor operated his practice from commercial premises in Clarence Street Sydney, being property owned by his wife. Up until October 2005 the solicitor paid rent to his wife in respect of the occupation of those premises pursuant to a registered Lease. This lease meant that the practice now had a financial commitment and undertaking to meet obligations that were secured by financial agreement. The solicitor’s wife was in essence the "landlord" to the practice.

13 Pausing at this point, and because of the ultimate findings this Tribunal proposes to make, it is not intended, and it would be quite inappropriate so to do, to make detailed reference to the financial affairs and otherwise private affairs of the solicitor and his wife. It is our view that such detail is not required for an understanding of the issues and it would be inappropriate to ventilate those details in public.

14 In 2005 the solicitor decided to operate an incorporated legal practice by setting up/ creating what is commonly called a "solicitor corporation". He incorporated "Koffels Pty Limited" and, to all intents and purposes, his legal work as a sole practitioner was thereafter carried out by that company ("Koffels"). The solicitor also agreed with his professional staff that they would cease to be employed by him personally (in his position as a sole practitioner) and would commence employment with Koffels. This arrangement did not absolve him of any of his corporate or ethical and legal responsibilities in respect of the conduct of his practice, as principal solicitor.

15 The solicitor, as principal solicitor, was faced with considerable financial obligations. RKS had debt obligations arising out of its fit-out lease requiring payments in the order of $10,000.00 per month. Indeed, from about early August 2005 RKS had been operating in an overdraft position in circumstances where there was no overdraft facility on its bank account and ultimately the account was frozen by its bank in the first half of 2006. RKS was subsequently placed into administration on 10 May 2006 and entered into a Deed of Company Arrangement ("the RKS Deed"). The evidence showed that the only creditors under the RKS Deed were the ATO, which was owed PAYG tax, and the Office of State Revenue, which was owed money in relation to pay-roll tax. Following the appointment of an administrator, other creditors were then automatically placed in a priority ranking based on prescribed principles, and were subject to the Administrator’s actions as to when or if they would be paid. The solicitor personally guaranteed the payment of all outstanding liabilities of RKS.

16 By late 2005 the cash position of the legal practice (Koffels) was rather parlous – it was in debit in about $94,000.00 of a $100,000.00 permitted overdraft. It appears that cash receipts matched the regular outgoings of the practice through 2005 but that by late 2005 and moving into 2006 there was a rapid decrease in cash receipts.

17 This position arose because Koffels acted for a property developer who operated a large number of companies which had been registered for the purposes of acquisition and development of particular commercial and residential property sites. There is no need to review in detail all of the various transactions that Koffels was instructed to carry out. Suffice it to say that up until about 2003 the work for this person and his various corporate entitles consumed about 30% of the billable time, such that receipts from this source totalled about 15.5% of the firms total receipts in the tax year ended 30 June 2003.
The decision to rely on this developer, as a substantial proportion of the practice’s corporate work, was supported by the solicitor.

18 However, the position quickly deteriorated. For the financial years ending 30 June 2004, 2005, 2006 and 2007 the total receipts constituted 36.1%, 29%, 5.8% and 0.05% of the firm’s income. But the difficulty was, not so much in the raw figures but rather in the unbilled work-in-progress on the various matters upon which the firm was instructed by this particular person. The solicitor’s evidence was that he had "every expectation (that he would) see cash receipts even in excess of those previously" but, by early 2005, it became apparent that the developer "was in some difficulties" because a "series of property deals in which he had been working on had failed to crystalise". However, the developer "still had a number of development projects which, if successful, would have ensured (the developer’s) financial position". The developer "was confident that he would obtain finance and that a number of his targeted projects would proceed. In construction, finance arrangements normally contained provision for the developer to be reimbursed for the preliminary work on a project ... (therefore the solicitor) expected that there would be moneys available to meet (the developer’s) outstanding debts to the firm once finance was obtained". The solicitor put his faith (if that is the right word) in the developer, believing that he "was an effective and astute operator".

19 However, the developer’s financial difficulties continued to increase into the 2006 financial year. The solicitor was of the view, that the developer "required continuing legal assistance, including in obtaining and structuring finance, in order to pursue the acquisitions and developments that were targeted by the group". The solicitor reasoned had he "refused to provide further services to (the developer) that might have contributed to the failure of projects being targeted by the group ... (but if the developer) was provided with further legal services and the planned acquisitions and developments came off, then the companies would be in a position to pay the firm for the work it had performed. Having regard to the size of the debt (and the solicitor’s) assessment that it was likely that (the developer) and his companies would trade themselves into a better financial position, the firm continued to carry out the work in the expectation of being paid".

20 The evidence disclosed that the solicitor continued to act, and accrue billable work, for the developer until about the end of 2005. He continued to believe that "two particular transactions which, had they (been) completed, would have resulted in the fees owing to the practice being paid". However, it appears that the developer and his associated companies "were in a state of complete financial collapse by mid-2006" and that "left the practice and (the solicitor) unpaid in respect of $2.6 million worth of work". The developer himself apparently "became bankrupt owing creditors in excess of $20 million".

21 The evidence disclosed that by the end of the financial year 2006 cash receipts of the solicitor’s practice were "down by $900,000.00". This was caused, not only by the decline in payments by the developer and his corporate group but also "from the fact that work for other clients had declined (in the financial years 2005 and 2006) because of the amount of time spent on the work for" the developer and his corporate group. In evidence, the solicitor stated that he, as principal solicitor, was provided with monthly financial reconciliations. The decision to pursue this course of action was made by the solicitor, knowing the financial position of the practice, and the debt and obligations to its staff and corporate entities.

22 The impact of the decrease in cash flow began to take effect in mid 2005 such that the cash position of the practice was "in considerable debit in relation to its overdraft". Initially, in 2005 cash receipts "matched the regular outgoings of the practice" but in the financial year 2006 that was not the case. However, the solicitor "was aware in late 2005 that the debts of the practice were outstripping the cash receipts". He understood "that the cash flow into the practice was insufficient to meet all of the obligations of the practice", so he applied "such moneys as were available to the obligations which were the most pressing". He regarded the payment of wages to employees as the highest priority, as was the payment of utilities and the like to keep the practice functioning. His evidence was, however, that although the first occasion when superannuation payments were not made as usual was in about November 2005, he himself was not aware at that time that payments had not been made. (In evidence he said that he conducted monthly meetings where the financial liabilities would have been identified. Superannuation is a liability in such presentations). Various financial actions were taken with a view to tailoring expenditure to income but from October 2005 the practice ceased to make lease payments to the solicitor’s wife in respect of the solicitor’s occupation of the office space leased from her. She, in turn, fell into default under her mortgage payments and the mortgage was re-financed by a new mortgage executed on 30 October 2009.

23 The service company RKS had been operating in an overdraft position since 3 August 2005; the company’s account was ultimately frozen by its bankers in the first half of 2006 and RKS was placed into administration on 10 May 2006 and entered into the RKS Deed. The only creditors under that Deed were apparently the Australian Taxation Office (ATO) which was owed PAYG tax, and the Office of State Revenue which was owed money by way of pay-roll tax. It is important to observe that the solicitor personally guaranteed the payment of all outstanding liabilities of RKS under its Deed; that he has paid the administrator in full; and the solicitor advised that the Deed is about to be discharged.

24 But the financial situation, which resulted from his preferred approach on relying on a particular client rather than pursuing his debts and seeking new clients, was still a serious problem. In May 2006 he and his wife sold their home and made various payments in discharge of mortgages and payments to the ATO "in respect to the tax liabilities of my wife and myself". That left a nett equity of $63,333.45 and those funds "were immediately applied to the running of the (legal) practice". This was so notwithstanding the fact that the matrimonial home was in fact in the solicitor’s wife’s name. Other assets were also sold. The Tribunal was not provided with information in respect of the quantum of funds that were utilised by the solicitor and his wife, to reduce their "indebtedness"; nor any information as to how they determined the priority of payments. As a result of this exercise, the office premises remained as an asset in the wife’s name and the practice’s superannuation liabilities had not been met.

25 The solicitor continued to focus on his work and "to invest significant time and money in marketing, developing a new client base, and building up the work-in-progress". However, that did not result in an increase in cash flow for the financial year 2007 and Koffels was placed into administration on 27 July 2007. Its creditors were the ATO for PAYG tax and superannuation charges and another external creditor. Again, a second Deed of Company Arrangement (the "Koffels Deed") was entered into on 29 August 2007 and, again, the solicitor gave a personal guarantee under this Deed, has made significant payments to the Administrator such that at the date of the hearing all payments had been made. (He now had no assets, his wife had the asset base and the administrator made the decisions as to who and when payments were made – the guarantee had a reliance on trust).

26 It is important to observe that the outstanding superannuation payments covered by the Koffel Deed were in total $123,998.97, which sum included $22,272.86 in respect of the superannuation obligations of RKS. It will be remembered that Koffels assumed the liability of all superannuation employee contributions of RKS. These superannuation funds were moneys that were owned by employees and were not paid in a timely manner. The solicitor, as the principal solicitor, made fiscal decisions that risked the practice’s staff receipt of these superannuation funds. In evidence the solicitor indicated that he met with his staff in about 2005 and sought their support to trade out of the negative financial position. It is unclear whether the staff were aware at that meeting that their superannuation was still "at risk" and relied solely on the personal guarantee of the solicitor. It is unclear whether the staff were aware of the role and obligations of the Administrator. It is also unclear whether the staff were aware that the solicitor had no assets and was totally relying on his abilities to generate a positive financial outcome.

27 Doing the best that we can on the evidence it would seem that the solicitor, through the Administrator, has at the date of the hearing paid almost all, or all, of the outstanding superannuation liabilities.

28 The solicitor in his evidence stated that as to both RKS and Koffels "it has never been my intention that either of those entities should avoid any of their legal debts or obligations to the employees or any third party. I have sought, through the provision of personal guarantees, to ensure that the obligations of those entities towards all creditors are met in full as soon as realistically possible". The Tribunal wishes to indicate at this point that it accepts that statement.

29 Finally, by way of background facts, the solicitor’s evidence is that he has restructured his legal practice, cut overheads, re-organised his staff and, importantly he made this statement (which was unchallenged and is accepted by this Tribunal):

"I took pride in the fact that I provided employment for my staff. I have attempted to operate the practice in such a way as to provide them with sustainable and rewarding employment. I am embarrassed to find myself in a position where I have failed to pay superannuation contributions in respect of employees of the practice. I have endeavoured to remedy that failure in the only ways available to me: first, by giving my personal guarantee that those payments will be made; second, by working hard in the practice so as to make good those obligations and maintain that employment wherever possible; and third, by re-building the practice with a diversified and sustainable base of clients".

Law Society Facts

30 It is against this background that the Law Society asserts that the solicitor’s failure to pay employees’ superannuation entitlements constitutes, in all the circumstances, professional misconduct.

31 The solicitor was the sole solicitor/director of Koffels. A complaint was made by a former employee to the effect that the solicitor had failed to pay that employee’s entitlement for the last 12 months of his employ, ie for about 12 months prior to July 2006. The solicitor apparently told this employee in late July 2006 that his superannuation payments will be brought up to date in the short term, but this did not take place. (This means that the solicitor was aware that superannuation payments/obligations were outstanding).

32 The Law Society engaged an investigator, Mr G T Napper, and the solicitor was interviewed on 7 November 2006. He readily conceded that the superannuation was not up to date but that he was "in the process of getting them up to date" and he referred to the failure of the developer and his corporate entities and the debt owed by them to him. He conceded that he had "too many eggs in one basket"; he also conceded that there was superannuation owing for other employees but, again, "we are trying to get them up to date". When it was drawn to his attention that another solicitor had been fined by the Tribunal for failing to pay superannuation the solicitor said to the investigator: "Well, if they fine me, that’s not going to help. I have staff here; I just can’t close the practice down. We have had to totally reorganise the place and get new clients". The solicitor also conceded that PAYG payments were behind but that moneys owning to others (eg counsel) were in fact up to date. In all the circumstances the Investigator, after going into considerable detail in his report, recommended that "no further action need be taken" pending a proper response by the solicitor to Law Society Professional Standards.

33 It would not be unfair to say that the Law Society relied upon the failure by the solicitor, through his two companies RKS and Koffels, to pay the outstanding superannuation guarantee payments of $123,998.97. And that, it was said, was sufficient for the Tribunal to make a finding of professional misconduct.

The Law

34 The Law Society relied upon a number of decisions in support of that proposition. There is no doubt that there is a statutory obligation on an employer to pay superannuation in respect of employees. There is no doubt that this solicitor, through his two companies, failed to make those payments. It is important to understand that the solicitor voluntarily guaranteed the performance of RKS and Koffels through their various Deeds of Company Arrangement such that he did not personally shirk from any responsibility, nor did he try to pass the legal requirement to the corporations but rather was prepared to shoulder the superannuation burden himself. (On the evidence he had no assets. The administrator on appointment made all those decisions re payments - his wife’s loan was of higher priority in the administrator’s role).

35 The first case relied upon by the Society was Council of the New South Wales Bar Association v. Cummins [2001] NSWCA 284. This is a now well-known decision. The barrister Cummins failed to lodge taxation returns for some 38 years. Although, on the first day of the hearing the barrister consented to an order removing his name from the Roll of Legal Practitioners the Court of Appeal decided to hear the matter in relation to the declarations sought. The Bar Association asserted that the barrister was not a fit and proper person to remain on the Roll and was guilty of professional misconduct.

36 In summary, the Court of Appeal held (at [56]) that professional misconduct "may be sufficiently closely connected with actual practice, albeit, not occurring in the course of such practice ... (and) ... conduct outside the course of practice may manifest the presence or absence of qualities which are incompatible with, or essential for, the conduct of practice". In this second type of conduct the Court said that "the terminology of "professional misconduct" overlaps with and, usually it is not necessary to distinguish it from, the terminology of "good fame and character" or "fit and proper person"."

37 Taking this theme further, the Court said (at [66]): "the preparation and filing of tax returns is closely related to the earning of income, including professional income. The link is "sufficiently close" to justify a finding of professional misconduct on the basis of Mr Cummins failure to lodge returns for 38 years"; and (at [67]) "similarly, and alternatively, the extent of Mr Cummins’ failure to observe his legal obligations and civic responsibilities by such a systematic course of improper conduct over such a long period of time is of such gravity as to constitute professional misconduct ...". Further at [69]: "as in the case of a declaration of unfitness ...the maintenance and confidence of the public in the legal profession makes it appropriate to formally declare that Mr Cummins’ conduct was professional misconduct. This declaration refers to past conduct. The declaration as to lack of fitness speaks at the present time".

38 The Tribunal thinks it is appropriate to deal with each of these authorities seriatim. It is plain from the facts in Cummins that there was a systematic failure over a period of 38 years, a failure to not only lodge income tax returns but also to pay income tax over that 38 years, such that the conduct of Mr Cummins was "a systematic course" which extended over "a long period of time" and was "of such gravity as to constitute professional misconduct". The Tribunal is of the respectful view that there is no comparison between this matter of Koffel and the facts before the Court of Appeal in Cummins. The solicitor Koffel has acknowledged that he had a responsibility to make sure that all the superannuation guarantee payments due from RKS and Koffel were in fact been paid to the various employees. The course of action adopted by this solicitor is so totally different from that adopted by the barrister Cummins that, in our view, a bald statement that a failure by a legal practitioner to pay superannuation guarantee payments on time amounts to professional misconduct is, in our opinion, a mis-statement of the law and is certainly not supported by Cummins.

39 The Law Society also relied on a number of other decisions of this Tribunal. Firstly, Council of the Law Society v. Bouzanis [2006] NSWADT 55. The facts before that Tribunal were that the solicitor failed to make a payment of $9,532.51 to an employee’s superannuation fund. The employment period was 21 March 2000 to 13 August 2003 and it was not until 12 March 2004 that the superannuation payment was made, but only after the solicitor "received correspondence from solicitors acting for (the employee) and the intervention of the (Law) Society".

40 The Tribunal referred to a number of cases including Cummins and referred, in particular, to observations in Cummins commencing at [18] where there is detailed reference to New South Wales Bar Association v. Hamman [1999] NSWCA 404. Because Bouzanis is relied upon with some force by the Law Society it is important to quote directly from the Tribunal’s Decision at [15ff], commencing at the reference to Cummins at [18], as follows:

"[15] ... "18 As Mason P said in Hamman:

"[85] I emphatically dispute the proposition that defrauding "the Revenue" for personal gain is of lesser seriousness than defrauding a client, a member of the public or a corporation. The demonstrated unfitness to be trusted in serious matters is identical. Each category of "victim" is a juristic person whose rights to receive property are protected by law, including the criminal law in the case of dishonest interception. "The Revenue" may not have a human face, but neither does a corporation. But behind each (in the final analysis) are human faces who are ultimately worse off in consequences of fraud. Dishonest non-disclosure of income also increases the burdens on taxpayers generally because rates of tax inevitably reflect effective collection levels. That explains why there is no legal or moral distinction between defrauding an individual and defrauding "the Revenue".

19. Honesty and integrity are important in so many spheres of conduct. However, in some spheres significant public interests are involved in the conduct of particular persons and the state regulates and restricts those who are entitled to engage in those activities and acquire the privileges associates with a particular status. The legal profession has long required the highest standards of integrity.

20. There are four interrelated interests involved. Clients must feel secure in confiding their secrets and entrusting their most personal affairs to lawyers. Fellow practitioners must be able to depend implicitly on the word and the behaviour of their colleagues. The judiciary must have confidence in those who appear before the courts. The public must have confidence in the legal profession by reason of the central role the profession plays in the administration of justice. Many aspects of the administration of justice depend on the trust by the judiciary and/or the public in the performance of professional obligations by professional people".

16 His Honour went on to consider what was meant by the expression "professional misconduct" and he said at 56:

"There is authority in favour of extending the terminology "professional misconduct" to acts not occurring directly in the course of professional practice. That is not to say that any form of personal conduct may be regarded as professional misconduct. The authorities appear to me to suggest two kinds of relationships that justify applying the terminology in this broader way. First, acts may be sufficiently closely connected with actual practice, albeit not occurring in the course of such practice. Secondly, conduct outside the course of practice may manifest the presence or absence of qualities which are incompatible with, or essential for, the conduct of practice. In this second case,. The terminology of "professional misconduct" overlaps with and, usually it is not necessary to distinguish it from the terminology of "good fame and character" or "fit and proper person"."

17. It is the view of this Tribunal that His Honour’s Judgment does support the submission that the relationship between the conduct and the practice of law is all that was required to link any misconduct to the description "professional misconduct".

18. The Tribunal finds that the failure by the solicitor to make superannuation payments on behalf of his employees Mr Apps, during the course of his employment which was between 21 March 2000 and 13 August 2003, and the further finding that the superannuation payment was only made on behalf of Mr Apps after the solicitor received correspondence from solicitors representing Mr Apps to be a sufficiently serious abrogation of his fiscal responsibilities in the practise of law to warrant a finding by this Tribunal that the Solicitor is guilty of professional misconduct".

41 There are a number of issues arising out of the above quotation. Firstly, in Hamman the barrister embarked upon a course of tax evasion. He declared income in each year, but he failed to declare an increasing number of unpresented cheques which, by the time his conduct was discovered, had reached the sum of $1.2m. Secondly, it is plain that each case arises out of its own individual facts. Thus, Hamman clearly fell within the principles/prohibitions in Cummins. Thirdly, the conduct of the solicitor in Bouzanis demonstrated, in the view of that Tribunal, (at [24]) "a systematic failure to comply with Revenue responsibilities".

42 It cannot be said in the case now before the Tribunal that the conduct of the solicitor Koffel involved "a sufficient serious abrogation of his fiscal responsibilities in the practice of law" or "a systematic failure to comply with Revenue responsibilities". Rather, the opposite. The solicitor’s evidence, which was clear and unchallenged, was that once the matter had been drawn to his attention he did what he believed he could reasonably do in all the financial circumstances to meet his revenue responsibilities, thus demonstrating conduct in a professional (and personal) sense a committment to pay the outstanding debts including the superannuation payments. Certainly, the solicitor, as principal solicitor, should have kept a more careful eye on his office/general account, his income and expenditure and his statutory obligations, especially in circumstances were there was a substantial decline in income. However, when the issue of outstanding superannuation came to his attention he directed his mind to it and dealt with it. The Tribunal concludes that the solicitor’s conduct was that he accepted his fiscal/revenue responsibilities.

43 The other two cases relied upon by the Law Society were Law Society v. Vosnakis [2007] NSWADT 42 and Law Society v. Somerfield [2008] NSWADT 235. In Vosnakis the solicitor failed to comply with a Notice under Section 162 Legal Profession Act 1987, failed to assist the Law Society in the investigation of complaints, misappropriated deposit moneys, borrowed money from a client in breach of Rule 12, failed to lodge GST returns from July 2000, failed to document a loan when borrowing from a client, failed to secure the interests of that client and placed himself in a conflict of interest and failed to pay PAYG in relation to his employees and delayed paying superannuation guarantee levies for his employees. The solicitor effectively admitted the allegations (at [31]) and at [22] the Tribunal acknowledged "that the (solicitor) has now met all his financial obligations, and that no loss has been occasioned to his client or employees. None the less the (solicitor’s) numerous failures to deal with his client’s funds in accordance with his legal obligations in respect of trust moneys received, clearly renders him unfit to remain on the Roll. He engaged in blatant and sustained breaches of the provisions s.61, and failed to maintained adequate records in breach of s.62".

44 The facts relating to superannuation guarantee levies in Vosnakis showed a failure to make such payments in respect of one employee from August 1996 to April 2004, with respect to another employee for approximately 5 years until November 2004, with respect to a third employee from January 2003 until May 2005 and in respect of a fourth employee from June 2003 until May 2005. In addition he failed to pay GST to the ATO from January 2001 to January 2005 and his records failed to disclose any payments to the ATO for PAYG tax instalments on behalf of his employees.

45 At [33] the Tribunal said that the solicitor’s "failure to pay moneys due for employee superannuation contributions, PAYG tax and GST also, in this context, constitute professional misconduct" and the Tribunal adopted the observations of the Court of Appeal in Cummins (at [29]) where the Court said: "This failure was an inexcusable pattern of illegal conduct in complete defiance of his specific responsibilities".

46 In Somerfield the solicitor was fined $5,000.00 and publicly reprimanded in relation to a slew of various complaints (eg acting without instructions, failure to honour an undertaking, and so on) and "failed to pay superannuation entitlements due on behalf of a total of 25 employees ... for the period commencing from 1 July 2002 until 31 December 2006".

47 It was conceded that the "failure to pay was due to the solicitor’s financial incapacity at the time" and the Tribunal (at [6]) observed that "there was no dishonesty involved in the several incidents particularised and the failure to pay contributions under the Superannuation Guarantee Charge Act 1992 arose from Mr Somerfield’s lack of financial resources flowing from the poor financial performance of his practice. He had undertaken to pay the superannuation contributions, and intended to do so, but ultimately did not have the financial resources to meet his undertaking".

48 This Tribunal is of the opinion that neither Vosnakis nor Somerfield are authorities for the proposition advanced by the Law Society in the matter now before us. It is plain to us that the facts in Vosnakis differ significantly from the facts in this matter of Koffel; similarly the facts in Somerfield involved a number of separate issues and, importantly, in circumstances where all parties, including the Legal Services Commissioner, joined in seeking the various orders ultimately made by the Tribunal by consent. It cannot be said that Somerfield bears any relationship to the matter now before us, simply because this solicitor Mr Koffel did in fact recognise his professional, corporate and moral, obligations and met those obligations. Thus, in our opinion, the mere fact of a failure to pay superannuation guarantee contributions on time does not, of itself, constitute professional misconduct. It is the circumstances surrounding the failure, the consequences of the failure, and the actions subsequently taken by the solicitor, that determine whether the conduct constitutes professional misconduct.

49 Counsel for the solicitor relied upon a quotation in Commentaries on the Laws of England by Sir William Blackstone, Volume II, 1836, at page 473 where the learned author made this observation:

"But in mercantile transactions the case is far otherwise. Trade cannot be carried on without mutual credit on both sides, the contracting of debts is therefore here not only justifiable, but necessary. And if by accidental calamities, as, by the loss of a ship in a tempest, the failure of brother traders, or by the non-payment of persons out of trade, a merchant or trader becomes incapable of discharging his own debts, it is his misfortune and not his fault".

50 The Respondent also relied on NSW Bar Association v. Murphy [2002] NSWCA 138. Here the Respondent barrister presented a Debtor’s Petition on 16 October 2000 and became bankrupt on that day. He notified the Appellant of that fact. He provided reasons for his bankruptcy and expressed his belief that he was a fit and proper person to hold a practicing certificate. The Appellant cancelled the Respondent’s practising certificate.

51 The test for unfitness to practice was then prescribed in Legal Profession Act 1987, Section 38FC(1)(b), namely (at [102]) "whether the act of bankruptcy "was committed in circumstances that show that the Applicant or holder is not a fit and proper person to hold a practising certificate"."

52 The Court of Appeal at ([114] ff) then examined the circumstances of the commission of the Respondent’s act of bankruptcy. There is no need for us to trawl through that recitation; suffice it to say that the Respondent hoped that he could sell "property and business for an amount that I might be able to pay the whole thing out" (at [143]), and, generally speaking, endeavoured to "trade out" of his financial difficulties.

53 The Court said (at [162]) "the respondent did not meet his taxation obligations but it is necessary to ask why he did not meet them, and what was done and what could have been done about addressing them". The Court went on to say as follows:

"168 ... the respondent hoped that he could trade on ... the respondent honestly intended to try and trade out of his difficulties and by the sale of his remaining assets meet all of his liabilities.

169 From this time the respondent’s situation could only get worse, because of penalties and interest; trading on until sale of the ... business was all he could hope for. It was not a case of enjoying disposable income which could have gone to meet the taxation liability. There were cogent reasons for the expenditure supporting the respondent’s children, and his lifestyle was free from excess.

170 (The trial Judge’s) finding that there was no dishonesty does not of itself answer the statutory test, but it is relevant to the answer. The respondent was not indifferent to his taxation obligations. There was not the regard to compliance with the taxation law which there should have been in 1990, but apart from that the respondent’s failings were not in the probity required of a legal practitioner, but in the ability properly to order his affairs and cope with the taxation consequences of fluctuations in income. He could have been more questioning of his accountant’s performance, and more resolute in attempting to come to an arrangement with the Australian Taxation Office rather than let the situation overwhelm him (although I do not think deciding to trade on with a view to profitable sale of the ... business was an unreasonable course)."

54 And, at [107] the Court said that the "test of a fit and proper person to hold a practising certificate is stated as to each of act of bankruptcy, indictable offence and tax offence. But the fact of commission of an act of bankruptcy, indictable offence or a tax offence is not what matters. The Council and the Court must look to the circumstances in which the act of bankruptcy, indictable offence or tax offence was committed. If no more than the fact of commission of an act of bankruptcy, an indictable offence or a tax offence is known, an opinion as to what the circumstances of the commission showed could not be held. What matters are the circumstances of which the act of bankruptcy, indictable offence or tax offence was committed." And, at [108], the "circumstances must show that the legal practitioner is not a fit and proper person to hold a practicing certificate. The Council (Court) must be persuaded. An even balance means that the circumstances do not show what must be shown". And, at [109], what "the circumstances must show is not that the legal practitioner is not a fit and proper person to be a legal practitioner ... (but rather the circumstances must show conduct that) "would justify a finding that the legal practitioner is not of good fame and character or is not a fit and proper person to remain on the roll of legal practitioners".

55 It seems to be that the combination of those observations of the Court of Appeal and the observations independently reached by this Tribunal as we have set out above, strongly militate against a finding that the practitioner Mr Koffel should be found guilty of professional misconduct. This is a case where, clearly on the evidence, the practitioner has done all that he believed he reasonably could to ultimately discharge his statutory obligations to pay the superannuation guarantee levies in respect of his employees. This is so notwithstanding the fact that his employees were employed by two proprietary corporations – the practitioner himself personally assumed those obligations in the two Deeds of Company Arrangements (to which we have made reference above) and has discharged those personal obligations. Indeed, in the circumstances before us this practitioner has demonstrated that he is a fit and proper person to remain on the Roll of legal practitioners.


Orders

The Tribunal makes the following Orders:

1. The Application is dismissed.

2. Should either party seek to move the Tribunal for an order for costs, that party must file and serve any such Application, with support submissions, within twenty-eight (28) days of the date of this Decision. Should no such Application be so filed and served the order of the Tribunal will be that there is no order for costs. Should there be such an Application so filed and served the opposing party must file and serve submissions in reply within a further twenty-eight (28) days. Unless reasons are advanced for a hearing to be conducted, the issue of costs will be resolved "on the papers" pursuant to Administrative Decisions Tribunal Act s.76.