Administrative Decisions Tribunal New South Wales

• Medium Neutral Citation: Council of the Law Society of NSW v Webb [2012] NSWADT 114
• Hearing dates: 22 and 23 March 2012
• Decision date: 14 June 2012
• Jurisdiction: Legal Services Division
• Before: M Chesterman, Deputy President; J Currie, Judicial Member; R Fitzgerald, Non-judicial Member

Decision

1. The Respondent is guilty of unsatisfactory professional conduct.

2. The proceedings are set down for further directions at 9.30 a.m. on Wednesday 20 June 2012.

• Catchwords: Solicitor - disciplinary application - failure to confirm retainer or make direct contact with client - reliance on agent to transmit advice and documents to clients - scope of retainer - conflict between duties to clients
• Legislation Cited: Interpretation Act 1987; Legal Profession Act 1987; Legal Profession Act 2004
• Cases Cited: Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694; Council of the New South Wales Bar Association v Asuzu [2011] NSWADT 209; David v David [2009] NSWCA 8; Dominic v Riz [2009] NSWCA 216; Eade v Vogiazopoulos (No 2) [1999] 3 VR 889; Ginelle Finance Pty Ltd v Diakakis [2007] NSWSC 60; New South Wales Bar Association v Bland [2010] NSWADT 34; In the matter of Spero Pitsikas (1995) 1 LPDR (No 1) 5; Stirling Harbour Services Pty Ltd v Bunbury Port Authority (2000) ATPR 41-752; Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1979) 42 FLR 331
• Texts Cited: Riley, Solicitors Manual: Commentary (ed G Dal Pont: Butterworths, 2005, updated)
• Category: Principal judgment
• Parties: Council of the Law Society of New South Wales (Applicant); Peter James Webb (Respondent)
• Representation: Counsel; S Barnes (Applicant); D Lloyd (Respondent); Council of the Law Society of NSW (Applicant); Eakin McCaffery Cox (Respondent)
• File Number(s): 112026

decision

Introduction

1 (M CHESTERMAN (DEPUTY PRESIDENT), J CURRIE (JUDICIAL MEMBER), R FITZGERALD (NON-JUDICIAL MEMBER): The main questions to be resolved in this difficult case are these: whether any disciplinary finding, and if so what category of finding, should be made against a solicitor who failed to realise that the agent for a number of clients for whom his firm acted on the purchase of investment properties was engaging in systematic fraud. In consequence, the agent succeeded in misappropriating substantial amounts of money belonging to the clients, which the solicitor transferred to him in reliance on authorities that were forged.

2 In a Disciplinary Application ('the Application'), filed on 15 September 2011, the Council of the Law Society of New South Wales ('the Law Society') claimed that the Respondent, Peter James Webb (hereafter 'the Solicitor'), while practising as a solicitor, was guilty of unsatisfactory professional conduct and/or professional misconduct on seven Grounds. These are reproduced below.

3 In the Application, the Law Society sought orders as follows against the Solicitor: (a) removal of his name from the Roll of Local Lawyers; (b) payment of the Law Society's costs as agreed or assessed; and (c) such further and (sic) other order as the Tribunal deemed appropriate.

4 On 15 September 2011, the Law Society also filed affidavits as follows:-

1. An affidavit sworn by the Manager of the Professional Standards Department of the Society, Ms Anne-Marie Foord, on 14 September 2011.

2. An affidavit sworn on 16 June 2011 by Mr Leo Gore, to which was annexed a report completed by him on 23 November 2008. He had prepared this report in his capacity as an Investigator of the affairs of Webbsite Enterprises Pty Ltd trading as Webb Lawyers during the period between July and November 2006. At all material times, the Solicitor was the principal of Webb Lawyers.

3. An affidavit sworn on 7 June 2011 by Mr Pater Rosier, to which was annexed a report completed by him on 27 August 2008. He had prepared this report in his capacity as an Investigator of the affairs of Webbsite Enterprises Pty Ltd trading as Webb Lawyers during the period commencing in December 2006

5 On 6 December 2011, the Solicitor filed a Reply to the Application, in which he stated that he either denied or did not admit the principal allegations made by the Law Society.

6 On 6 December 2011, the Solicitor also filed an affidavit sworn on the same day, to which was exhibited a substantial quantity of documentary material.

7 The hearing of the Application took place before us on 22 and 23 March 2012. Mr Barnes of counsel appeared for the Law Society and Mr Lloyd of counsel appeared for the Solicitor.

8 At this hearing, the affidavits previously filed by the Law Society were tendered. We ruled that an objection by Mr Lloyd to significant segments of Mr Rosier's report should be upheld. Subject to this, we admitted the Law Society's evidence.

9 A further document handed up at the hearing was a Statement of Agreed Facts. The text of this document is reproduced below.

10 We also admitted the Solicitor's affidavit and accompanying material, together with a short letter and accompanying deed relating to the payment by him of the costs of Mr Rosier's investigation of his practice. The Solicitor gave evidence and was cross-examined.

11 It was agreed at the hearing that the present decision should be confined to the question of whether or not the Solicitor was guilty of professional misconduct and/or unsatisfactory professional conduct. If we answer this question in the affirmative, the issue of consequential orders will be resolved in a second decision.

The Grounds, Particulars and Statement of Agreed Facts

12 The seven Grounds stated in the Application were in the following terms:-

Peter James Webb, while practising as a Solicitor, was guilty of unsatisfactory professional conduct and/or professional misconduct in that the Solicitor acted for various purchasers of real property in circumstances where in each matter he:

1. Did not in fact have any purchaser's instructions to so act (see Particulars save for C. - John Christie and E. - Helena Czyzewska).

2. Failed to confirm his retainer (see Particulars save for C. - John Christie).

3. Failed to provide each purchaser with any written or oral advice as to the terms of the relevant Contract for Sale or as to their respective rights and obligations under it.

4. Following exchange of contracts but prior to or at settlement of each matter, became aware there had been a reduction in the purchase price but failed to inform the relevant mortgagee and thereby misled it.

5. Having become so aware of the said reduction in the purchase price continued to act for both vendor and purchaser when he was thereby in a conflict of interest.

6. Transferred to and for the benefit of Graham Lee ('Lee') the excess of funds received on settlement without obtaining instructions from the relevant purchaser in circumstances where:

(i) there was no document evidencing either the terms of any agreement between them and tee or the terms of any purported loan; and

(ii) No security was provided by Lee.

7. Failed to maintain clear records of instructions received from Lee as purported agent for each purchaser.

13 It is useful to record here that during the hearing Mr Barnes conceded that the evidence was insufficient to establish either Ground 1 or Ground 4 and that the Law Society did not press these two Grounds.

14 The Particulars were in ten sections, each headed by the name or names of one or more former clients of the Solicitor. In each of these ten sections an account was given of dealings between the Solicitor and the identified client or clients in the course of a retainer to provide legal services. In this sense, ten separate 'matters' made up the content of the Particulars.

15 The evidence left in some doubt the precise periods of time during which the various clients dealt with the Solicitor. The principal reason is that a computerised management system ('LEAP') that he had installed to assist him in his conveyancing work by setting out the various steps to be taken did not always record the dates of correspondence accurately.

16 The names of the 'purchaser clients', as we will call them, and (subject to this element of uncertainty) the periods of time during which the Solicitor engaged in dealings with them or on their behalf were as follows:-

Peter Nolan - November 2004 to February 2005

John Christie - November 2004 to February 2005

Helena Czyzewska - November 2004 to February 2005

Renee Beresford-Manning - November 2004 to February 2005

David Miller - January to April 2005

Adam Miller (first transaction) - August to October 2005

Jason Hamilton - September to October 2005

Karen Hamilton - September to October 2005

Adam Miller (second transaction) - September to December 2005

Kelly and Kieran Sibbald - October 2005 to January 2006

17 The pattern of events in each matter was broadly the same. It was outlined in paragraphs 13 to 24 of the Statement of Agreed Facts. This Statement, incorporating two amendments made by consent at the hearing, is as follows:-

Background

1. Mr Webb is a legal practitioner currently practising as a barrister in Western Australia. He was admitted onto the roll of solicitors on 25 August 2000. He obtained his unrestricted Iicence to practice in late 2002, and started his own firm in May 2003.

2. Mr Webb's intention was to build his practice from a base where he started with no major clients, and had had little prior experience in conveyancing. His background was mainly in performing supervised work in commercial, IP and IT related work.

3. In August 2003 Mr Webb was first approached by a Graham Lee ("Lee"). Lee described himself as a mortgage broker working with Mortgage One. Lee said to Mr Webb that he could refer conveyancing clients to Mr Webb.

4. Lee unsuccessfully attempted to convince Mr Webb to invest in buying properties. Mr Webb maintained that he was interested in building up his legal firm and that he did not want to be an investor himself.

5. Lee told Mr Webb that he had an idea for a property syndicate with members who would buy about ten properties to make a profit. Lee told Mr Webb that he had a number of interested clients, and that the arrangement was that the buyers would buy investment units at the same time as they refinanced their homes, and that Mr Webb would act for the purchasers in the conveyancing transactions.

6. The first involvement that Mr Webb had with any transaction relevant to the transactions the subject of the complaint was in late 2003. He acted for William and Donna Cooke in relation to the purchase of 718-10 Lydbrook St Wentworthville. Lee had said to Mr Webb that he intended to refer the Cookes to him.

7. At the time when Mr Webb was instructed to act for the Cookes, contracts had already been exchanged. The purchase price was recorded on the contract as $425,000. Mr Webb was given a deed of variation evidently signed by the vendor and the Cookes recording an agreement between them to reduce the purchase price to $390,000.

8. Mr Webb met the Cookes in a face to face conference. William Cooke told him that he was in a syndicate of buyers of investment properties organized by Lee, that he and his wife were using their house as well as the unit in Lydbrook Street as security for the loan from the bank, and that there would be a surplus of funds from the bank loan, which he and his wife would use for the purposes of the syndicate with Lee. Mr Webb accepted what he was told by William Cooke.

9. The transfer provided to the bank prior to settlement stated that the purchase price was $390,000.

1O. The next relevant matter Lee referred to Mr Webb was for Mr Webb to act for Jason Paag in his purchase of 10/8-10 Lydbrook St Wentworthville. Again, contracts had been exchanged before Mr Webb was instructed to act. The price on the contract was recorded as $440,000. Mr Webb was given a deed of variation evidently signed by the vendor and Mr Paag recording an agreement that the price was reduced to $400,000.

11. Mr Webb met Mr Paag and his girlfriend in a face to face conference. Mr Paag, like William Cooke, told Mr Webb that he was in a buyers syndicate organised by Lee, and that Mr Webb should deal with Lee in relation to the finance from the bank.

12. The transfer provided to the bank before settlement by Mr Webb stated that the purchase price was $400,000.

The transactions the subject of the complaint

13. There are ten (10) transactions the subject of the complaint. Each transaction followed a similar path, and it is unnecessary to repeat the facts of each and every transaction. The following facts relate to all ten matters.

14. Mr Webb acted for the purchaser of an investment unit.

15. Except in the matter of David Miller, he also acted for the vendor in the transaction.

16. Each purchaser client was referred to Mr Webb by Lee. Lee stated that he was the authorised representative of the clients and Mr Webb accepted those statements.

17. Mr Webb did not meet the purchaser clients in person or speak to them over the telephone during the course of the matter. He took his instructions directly from Lee.

18. In support of Lee's statements that he was the authorised representative of each purchaser client, Mr Webb was given a number of documents by Lee for each purchaser, as follows:

a. A costs agreement purportedly/evidently signed by the clients.

b. Copies of identification documents including drivers licences, birth certificates, and citizenship certificates.

c. An authority purportedly/evidently signed by the clients appointing Lee as their agent and authorising Lee to act on their behalf "in relation to the above purchase for the purpose of authorising and distributing funds in relation to the subject purchase".

d. An authority purportedly/evidently signed by the clients authorising Mr Webb to place the surplus funds in trust.

e. A further authority to Mr Webb to release the balance of any trust funds to Lee.

19. Mr Webb received instructions to act only after contracts had been exchanged. He had nothing to do with preparing the contracts.

20. The price stated on the contract was reduced by a deed of variation purportedly/evidently signed by the purchaser and vendor after Mr Webb was instructed. Mr Webb had nothing to do with preparing the deeds of variation.

21. In each of the 10 matters there was a surplus of funds at settlement. In each matter the surplus of funds was paid into Mr Webb's trust account and then transferred to Lee pursuant to the signed authority in paragraphs 18(d) and (e) above. The surpluses ranged from approximately $35,000 to $70,000.

22. With the exception of the purchase by Beresford-Manning, Mr Webb sent a signed transfer to the lender (in some transactions on more than one occasion) which recorded the reduced purchase price. He also sent a notice of sale to be provided to the bank at settlement. The notice of sale recorded the reduced purchase price.

23. It appears that in each transaction that Lee was perpetrating a fraud on the purchasers by applying part or all of the surpluses for his own benefit, and not as the purchasers had intended. Mr Webb was not involved in or aware of the fraud by Lee, He received no financial benefit from Lee's fraud. He did receive professional fees for performing the conveyances.

24. Mr Webb believed that the reason for the reduced purchase prices was because of problems with valuations and that there were excess funds because the purchasers were putting up their homes as security for the loan, for the purposes of obtaining funds for the Lee building syndicate.

25. Lee has been convicted of a criminal offence in relation to the fraud. Mr Webb gave evidence for the DPP in the prosecution.

Other relevant matters

26. Mr Webb is a married man who has three children aged 9, 7 and 5. He is 39 years of age. When the problems with Lee's conduct emerged, he promptly reported the matter to the Law Society and has cooperated with the Law Society's investigation.

18 Because, as indicated in this Statement, each of the ten matters 'followed a similar path', we need not reproduce the description of all of them contained in the Particulars. It will suffice to set out the description given of the third matter in the above list, in which the purchaser client was Ms Helena Czyzewska:-

PURCHASER: HELENA CZYZEWSKA

PROPERTY: 2/8-10 LYDBROOK ST. WENTWORTHVILLE

1. The Solicitor acted for both vendor and purchaser.

2. The Solicitor acted for Czyzewska on the basis of a letter dated 24 January 2005 in which Czyzewska authorised Lee to act on their behalf as her agent.

3. In January 2005 the Solicitor prepared a Deed of Variation by which the purchase price was varied from $539,950 to $350,000 and which was purportedly signed by the parties at that time. The Solicitor failed to inform the incoming mortgagee - Commonwealth Bank of Australia - of the reduced purchase price and thereby misled it.

4. Once he became aware that his purchaser client had more money than was required to purchase the property but that his vendor client had reduced the purchase price having been told that the purchaser did not have sufficient funds, the Solicitor was placed in a situation of actual conflict of interest. He should have ceased to act for both parties but did not.

5. On 25 January 2005 the Solicitor submitted to the mortgagee an amended transfer showing the purchase price as $350,000. In so doing the Solicitor did not clearly inform the mortgagee of the reduction in the purchase price and thereby misled it.

6. At settlement on 8 February 2005 the Solicitor received from the incoming mortgagee funds in the sum of $76,374.56 in excess of that required to settle the purchase, which funds were placed into the Solicitor's trust account.

7. On 18 February 2005 the Solicitor transferred from Czyzewska's trust ledger to Lee's trust ledger the sum of $67,374.56, describing it therein as 'Authorised Transfer of funds to G Lee'.

8. Subsequently the Solicitor paid to Lee and for Lee's benefit the sum of $67,374.56 from his trust account.

9. In acting as he did as set out in paragraphs 8 and 9 above (sic) the Solicitor relied upon a document dated 1 February 2005 purportedly signed by Czyzewska entitled ' Trust Authority '.

10. At no time did the Solicitor verify with Czyzewska that:

10.1 he was instructed to act on Czyzewska's behalf in the matter;

10.2 Czyzewska was aware there was an amount of $67,374.56 advanced to her by the mortgagee in excess of what was required to effect settlement of the purchase;

10.3 Czyzewska consented to the release of those excess funds to Lee, particularly in circumstances where:

10.3.1 there was no document evidencing either any agreement between Czyzewska and Lee or the terms of the purported loan; and

10.3.2 no security was provided by Lee for the funds.

Further evidence

19 The following factual matters, arising from the reports prepared by Mr Gore and Mr Rosier and from the Solicitor's evidence, should also be outlined.

20 In three out of the ten matters - those of David Miller, Adam Miller (second transaction) and Mr and Ms Sibbald - the mortgagee was a company called RAMS Mortgage Corporation Ltd ('RAMS'). In the remaining seven, the mortgagee was the Commonwealth Bank of Australia.

21 Before the Solicitor commenced to act in any of these matters, he telephoned the Law Society and asked about the propriety of accepting instructions from the agent of a potential client without having any contact with the client. He was told that he did not need to see such clients, so long as he ascertained through a process of identification that they were natural persons. He therefore insisted in his dealings with Mr Lee that he obtain copies of documents furnishing '100 point' identification of all the purchaser clients, such as is required by financial institutions.

22 Amongst the documents prepared by the Solicitor were documents in the categories referred to in paragraphs (a), (c), (d) and (e) of paragraph 18 of the Statement of Agreed Facts: that is to say, costs agreements and authorities from the purchaser clients appointing Mr Lee as their agent, authorising the Solicitor to place surplus funds in trust and authorising him to release the balance of any trust funds to Mr Lee. He or his firm also prepared other documents, such as memoranda of transfer and 'settlement adjustment sheets'. In the settlement adjustment sheets, the genuine - i.e., reduced - purchase prices were shown, together with the significant amounts of excess funds that were transferred into the Solicitor's trust account.

23 With the Solicitor's consent, Mr Lee regularly picked up documents from Webb Lawyers, which he then purported to deliver the purchaser clients. Mr Lee also purported to bring documents from these clients to the Solicitor's office.

24 Through acting in this way without raising suspicions, Mr Lee could and did prevent the purchaser clients receiving any documents - such as a settlement adjustment sheet showing the genuine purchase price and the transfer of a significant excess into the Solicitor's trust account - that he did not wish the clients to receive. He gave to the clients false and misleading documents that he himself had prepared - for example, settlement adjustment sheets that showed the original purchase price and the transfer of a relatively small sum into the Solicitor's trust account. He also delivered to the Solicitor's office documents which, at his instigation, the clients had signed and documents on which he (or, it would seem, an accomplice, Ms Dottie Adams) had forged signatures of the clients.

25 It was not suggested in the evidence that these forgeries were so badly executed that the Solicitor should have realised that the signatures were not genuine.

26 The standard form of costs agreement that Webb Lawyers sent to the purchaser clients for their approval and signature included the following description of the work that the firm would undertake:-

... act on your purchase of [the relevant property] including advising on the Contract and investigating title transferred to you; making required requisitions on title; obtaining and inspecting reports and enquiries as instructed; arranging settlement of your purchase.

27 The fee charged by the firm for this work was $1,200 plus GST.

28 Towards the end of 2004, Mr Lee told the Solicitor that when he delivered letters and other documents to the purchaser clients he would 'explain the documents to them and attend to the paperwork'. The Solicitor consented to this course of action. He stated in his affidavit that he believed it to be 'sensible in order to save time, particularly as there were a number of purchasers'. He stated also that after he sent settlement documents to Mr and Ms Cooke, in order to complete the purchase outlined in paragraphs 6 - 9 of the Statement of Agreed Facts, 'they rang the office and I... spent a great deal of time with them on the phone as they said they did not understand all the documents'. In cross-examination, he added that they 'wanted a long and painstaking explanation of every step in the transaction'.

29 Although it was said in paragraph 20 of the Statement of Agreed Facts that 'the price stated on the contract was reduced by a deed of variation purportedly/evidently signed by the purchaser and vendor after Mr Webb was instructed', this was not the case in three of the ten matters. There was no such 'deeds of variation' in the matters of David Miller, Adam Miller (second transaction) or Mr and Ms Sibbald.

30 The Particulars relating to each of these three matters alleged that the Solicitor was aware of the following: (a) that the initial purchase price had been reduced substantially before settlement; and (b) that the mortgagee was advancing a sum significantly greater than the final purchase price. In his affidavit, the Solicitor denied knowing the first of these facts, while not denying that he knew, or was in a position to know, the second. On this contested issue, the evidence supports the Solicitor's version of events. The contracts that his firm received in these three matters showed the same purchase price as the price ultimately paid.

31 In addition, the evidence does not substantiate allegations in the Particulars to the effect that the Solicitor prepared 'deeds of variation' in the matters of Czyzewska (see paragraph 3 of the extract from the Particulars set out above at [18]), Nolan and Beresford-Manning. We accept instead the assertion, contained in paragraph 20 of the Agreed Statement of Facts, that the Solicitor 'had nothing to do with preparing the deeds of variation' that came into existence in seven of the ten matters.

32 In each of these seven matters, the deed of variation recorded an agreement between the parties for a substantial reduction in the purchase price. The outcome was that while the amount advanced by the mortgagee was less than the purchase price initially stipulated, it significantly exceeded the amount ultimately required to be paid by the purchaser client. On settlement, most of this excess was transferred into the Solicitor's trust account. Subsequently, he paid it to Mr Lee, relying on an authority to do so purportedly signed by the relevant client.

33 Four of these matters involving deeds of variation occurred during the period between November 2004 and February 2005. A common feature of them was that the properties purchased were all single units within the same building, located in Lydbrook Street, Wentworthville. This was also the site of the units involved in the purchases by Mr and Ms Cooke and by Mr Paag, described in paragraphs 6 to 12 of the Statement of Agreed Facts.

34 The following Table relating to these four matters shows the name of each purchaser client, the initial purchase price disclosed to the Solicitor (IPP), the final purchase price (FPP), the amount of the loan (AL) and the amount paid out by the Solicitor to Mr Lee (APL). Amounts have been rounded up or down to the nearest dollar.

Nolan: IPP $539,950; FPP $368,000; AL $431,360; APL $70,240

Christie: IPP $539,950; FPP $370,000; AL $431,360; APL $46,395

Czyzewska: IPP $539,950; FPP $350,000; AL $431,360; APL $67,375

Beresford-Manning: IPP $539,950; FPP $370,000; AL $431,360; APL $46,395

35 The remaining three matters involving deeds of variation occurred a few months later: between August and October 2005. The properties purchased were again single units within the building in Lydbrook Street, Wentworthville. The following Table relates to these three matters.

A Miller (first transaction): IPP $495,950; FPP $360,000; AL $445,500; APL $60,607

J Hamilton: IPP $560,000; FPP $365,000; AL $447,800; APL $67,852

K Hamilton: IPP $560,000; FPP $365,000; AL $447,800; APL $67,852

36 A common feature of these three matters was that a letter dated 15 August 2005 from Webb Lawyers to the purchaser client, stating that contracts had been exchanged and advising that a date in September of that year had been fixed for settlement, quoted as the amount of stamp duty payable a figure calculated on the final purchase price ($360,000 in Miller; $365,000 in the two Hamilton cases), not the initial price ($495,950 in Miller; $560,000 in the two Hamilton cases). It quoted this amount even though (a) according to the Solicitor's affidavit the deed of variation was not signed until a date in September 2005 and (b) each of these deeds gave as their date of execution an unspecified day within that month.

37 The explanation for this that the Solicitor provided in cross-examination was that, as mentioned above, he had found the dates given to documents by the LEAP system to be unreliable.

38 The earliest of the three matters where no 'deed of variation' was involved occurred within the period from January to April 2005. The purchaser client was David Miller. The second and third of these matters, in which the purchaser clients were Adam Miller (second transaction) and Mr and Ms Sibbald respectively, occurred between September 2005 and January 2006.

39 None of these three matters related to property in the building in Lynwood Street, Wentworthville. As already stated, there was no reduction in the purchase price of which the Solicitor was aware, but he did know, or was in a position to know, that the amount advanced was significantly greater than the purchase price. On settlement, more than one half of this excess was transferred into the Solicitor's trust account. Subsequently, he paid it to Mr Lee, relying on an authority to do so purportedly signed by the relevant client.

40 The following Table relates to these three matters:-

D Miller: IPP $305,000; FPP $305,000; AL $429,400; APL $112,113

A Miller (second transaction): IPP $370,000; FPP $370,000; AL $431,955; APL $35,743

Mr and Ms Sibbald: IPP $365,000; FPP $365,000; AL $445,950; APL $54,467

41 The total of the amounts paid to Mr Lee at the conclusion of all ten matters was accordingly $629,039.

42 In all seven of the matters in which deeds of variation were prepared, the vendor was a company called Napier 888 Pty Ltd ('Napier'). In addition to acting for the purchaser, the Solicitor acted for the vendor, receiving instructions from Mr Tony Sakr, a director of this company.

43 In each of these matters, Webb Lawyers sent letters to the purchaser client advising that they were also acting for the vendor. The letters included the following passage:-

We do not believe that this poses an issue of conflict however should we not hear from you within 14 days of the date of this correspondence, we will assume your consent in relation to acting for both parties.

Should it be discovered at any time during the above transaction that conflict arises we will promptly notify you and take action accordingly.

We invite you to contact the author should you require clarification of the above.

44 In relation to his role in these matters as solicitor for the vendor as well as the purchaser, the Solicitor gave evidence to the following effect:-

(a) He knew Mr Sakr reasonably well because Mr Sakr was married to a cousin of his wife.

(b) His office premises were leased from a company called Mortgage One, for which Mr Sakr worked as a broker.

(c) He believed that Mr Sakr operated in close collaboration with Mr Lee.

(d) Towards the end of 2004, Mr Sakr expressed a desire to sell all the units that Napier still owned in the Lydbrook Street property and asked him to act for Napier.

(e) He replied that there might be a 'conflict of interest' because he expected that his firm would be asked by Lee to act for the purchasers.

(f) Mr Sakr then suggested that he could instruct his employed solicitor, Ms Julie Abood, to act for each purchaser while he himself acted for Napier.

(g) He and Ms Abood, who was 'quite junior at the time', proceeded on this basis, though in his role as the principal of Webb Lawyers he performed some supervision of her work. His supervision chiefly comprised ensuring that everything required by the LEAP system to be done had in fact been done.

(h) Mr Sakr told him that the reasons why he (Mr Sakr) agreed on Napier's behalf to the reductions in the purchase prices and executed the deeds of variation were (i) that the valuations of the properties obtained by the purchasers were not high enough to sustain purchases at the prices originally agreed, (ii) that the purchasers were therefore unable to obtain the necessary finance, and (iii) that lenders to whom Napier had mortgaged the properties were threatening to take possession of them.

(i) Mr Lee made statements to the Solicitor in line with those of Mr Sakr. He added that the property market was falling at that time.

(j) In reply to an observation by the Solicitor that each of the purchaser clients appeared to be borrowing more than they required to complete their purchase at the reduced price, Mr Lee stated that they were providing additional security on their homes to the lenders in order to participate in the 'building syndicate' that he claimed to have established (i.e., the syndicate referred to in paragraphs 5 and 24 of the Statement of Agreed Facts).

(k) The Solicitor believed this explanation by Mr Lee to be truthful, though there was no mention of any provision of additional security in the letters or other documents received by his firm from the purchaser clients or the lenders.

(l) Believing Mr Sakr to be a 'sophisticated' commercial client who had decided independently to accept a lower purchase price for each of the properties, the Solicitor completed the transfers in accordance with his instructions. He did not see any of the valuations that were allegedly insufficient to support purchases at the prices initially agreed. By virtue of his belief that the excess amounts being borrowed were intended by the purchaser clients to be used in the 'building syndicate', he also failed to point out to Mr Sakr that the amounts being provided by the lenders were significantly greater than the reduced purchase price.

45 In one of the three matters where no deed of variation was prepared, that of David Miller, the Solicitor did not act for the vendor. But he acted for the vendor as well as the purchaser in the two remaining matters. In one of these - that of Adam Miller (second transaction) - the vendor was a company (TJS Group Pty Ltd) of which the sole director was Mr Sakr's wife. In the other matter, that of Mr and Ms Sibbald, the vendors were Marwan and Carolyn Dib. Mr Rosier identified them in his report as owners who had purchased the property from the 'developer'. The witness to the transfer to Mr and Ms Sibbald that they signed was Mr Sakr. The Solicitor sent to these two purchaser clients a letter advising them of his retainer by the vendor, in similar terms to the letter described above at [43].

46 A further feature of all ten transactions in this case was that although the contract of sale indicated that the purchaser had paid a 10% deposit, in accordance with normal practice, no such payment was made at that time.

47 When cross-examined on this topic, the Solicitor stated that at the time he was 'not worried' about this, because Mr Sakr and Mr Lee said that they had advised the purchaser clients that payment of the deposit would not be required until settlement. He understood that their reason for so doing was to encourage the purchasers to enter into the contracts. He added that as far as he was aware a discrepancy of this nature between a contract of sale of land and the actual situation between the parties was 'common' at that time.

48 The Solicitor also testified that he did not confirm with any of the purchaser clients, or with any of the estate agents involved, that the stipulated deposit had not been paid and that the clients were therefore not entitled at settlement to credit for any such payment.

49 In his report, Mr Rosier stated that he was 'unable to say whether Mr Sakr played a role in the deception'. He also commented that 'the failure by the financiers [i.e., the Commonwealth Bank and RAMS] to observe that the borrowers were not paying what the financiers believed they were paying contributed to the ultimate position'.

50 It would seem that it was not until June or July 2006 that any of the purchaser clients realised that funds belonging to them had been transferred to Mr Lee without their consent. When one of them, Mr Nolan, raised the matter with the Solicitor on 7 July 2006, the Solicitor immediately asked the Law Society to conduct an investigation of his trust account. Mr Gore was appointed shortly afterwards to perform this task.

The duties claimed to have been breached by the Solicitor

51 An outline of the Law Society's submissions handed up at the hearing included a claim that the Solicitor's conduct would be regarded as 'disgraceful or dishonourable' by his professional colleagues and therefore amounted to professional misconduct at common law. In his oral submissions, however, Mr Barnes advised that this claim was no longer pressed.

52 He indicated that the Law Society relied instead on the following provisions of the Legal Profession Act 2004 ('the LP Act') relating to unsatisfactory professional conduct and professional misconduct:-

496 Unsatisfactory professional conduct

For the purposes of this Act:

unsatisfactory professional conduct includes conduct of an Australian legal practitioner occurring in connection with the practice of law that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent Australian legal practitioner.

497 Professional misconduct

(1) For the purposes of this Act:

professional misconduct includes:

(a) unsatisfactory professional conduct of an Australian legal practitioner, where the conduct involves a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence...

53 Much of the relevant conduct of the Solicitor occurred before 1 October 2005, the date of commencement of the LP Act. But the complaints from which these proceedings originate were made after this date. By virtue of clause 17 of Schedule 9 to this Act, the proceedings are therefore governed by Chapter 4 and other relevant provisions of the LP Act. But the Tribunal may not make any determination or order of a disciplinary nature against the Solicitor that is 'more onerous' than could have been made under the statute that preceded and was repealed by this Act, namely, the Legal Profession Act 1987.

54 As indicated earlier, Mr Barnes conceded at the hearing that the evidence was insufficient to establish either Ground 1 or Ground 4 of the Application and that the Law Society did not press these two Grounds. In relation to Ground 1, he pointed out, however, that the Solicitor, according to his own evidence, did not actually know whether any of the purchaser clients had expressly asked Mr Lee to retain him on their behalf.

55 Four of the remaining five Grounds - numbers 2, 3, 6 and 7 - allege breaches by the Solicitor of his duties towards his purchaser clients. The remaining Ground, number 5, alleges breaches towards both his vendor clients and his purchaser clients, arising from a claim that his duties towards each of these categories of client had come into conflict.

56 We will consider first the four grounds that relate specifically to the Solicitor's duties to the purchaser clients.

Breach of duties to the purchaser clients

57 The Law Society's submissions. Mr Barnes placed particular emphasis on Ground 2 - failure by the Solicitor to 'confirm his retainer' with each of the purchaser clients. He maintained in his written and oral submissions that in the particular circumstances of the case, it was 'absolutely essential' that the clients should have communicated directly to him or his firm their confirmation of all of the following matters:-

1. Their desire to purchase the relevant property and to retain the Solicitor to act for them on the purchase.

2. Whether or not they had paid the deposit stated in the contract of sale.

3. Their awareness of the following:

(a) The subsequent reduction in the purchase price.

(b) The mortgagee's willingness, despite this reduction, to lend about 90% of the initial purchase price, with the consequence that excess funds would be available on settlement.

(c) The fact that after deduction of costs, disbursements and stamp duty, he held what appeared to him to be signed authorities by them to pay the balance of these funds to Mr Lee.

(d) The terms of their arrangements with Mr Lee and of the 'building syndicate'.

(e) Their liability to repay the total amount being advanced by the mortgagee.

(f) The fact that failure to repay could result in repossession by the mortgagee of both the property that they were purchasing and any other property that they provided as security for the advance.

58 Mr Barnes argued that in the particular circumstances of these transactions the failure by the Solicitor to make any direct contact at all with the purchaser clients, let alone to confirm these important matters with them, amounted to negligence on his part, which at least would warrant a finding of unsatisfactory professional conduct.

59 In this context, the authority on which Mr Barnes chiefly relied was a decision by Bryson AJ in the Supreme Court, Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694. Amongst other matters, his Honour's judgment dealt with the liability in negligence of a solicitor who accepted without inquiry that a person purporting falsely to be the authorised agent of the joint owners of a residential property did in fact have their authority.

60 So far as is relevant here, the facts were summarised as follows in paragraphs [1], [2], [26] and [67 - 73] of his Honour's judgment:-

1 Mortgage AB408089 ("the mortgage") is a forgery. According to its terms it imposes obligations on the plaintiffs, Mr Fatah Chandra and his wife Adje Srikandi and mortgages their house property, 23A Jellicoe Avenue, Kingsford ("the property"), to secure those obligations... The forged signatures were made by two persons who are not identified in the evidence but who were associates of Mr Joey Pan. It was not conceded that Mr Pan acted without the plaintiffs' authority: but having heard the plaintiffs' evidence, I find that they had no part in the events and did nothing to equip Mr Pan with any information or documents.

2 Mr Pan was the principal figure in a series of fraudulent acts by which he obtained a new duplicate Certificate of Title under s 111 of the Act, on a false application, with which the plaintiffs had nothing to do, supported by a forged Statutory Declaration which falsely said that the original Certificate of Title had been lost. Using the new Certificate of Title and other false documents, Mr Pan obtained two advances of money from Perpetual Trustees Victoria, one for $500,000 on 7 April 2005 and the other for $250,000 on 2 May 2005, and misdirected the proceeds in ways not connected with the plaintiffs. The fact that the transactions were irregular emerged fairly early. There were active Police investigations in June 2005, in which Police took possession of relevant documents, apparently under warrant. Mr Miller, the third defendant, made a written statement to Police on 3 June 2005. Eventually Mr Pan stood trial and was imprisoned.

26 Mr Stephen Miller, the third defendant, is a solicitor in sole practice in Sydney. Mr Miller was not retained as a solicitor by the plaintiffs, or by Perpetual Trustees Victoria. Mr Miller was approached by Mr Pan, who claimed to be authorised by the plaintiffs, and who gave Mr Miller instructions to apply for a new duplicate Certificate of Title. Until then Mr Miller knew nothing of the plaintiffs, or of Mr Pan...

67 Mr Miller gave evidence on affidavit and orally in the proceedings. Cross-examination did not raise any basis for challenging his credit, and I find that he gave evidence with sincerity and according to the best of his recollection...

68 Mr Miller's evidence was that his involvement with Mr Pan began "on or about 1 April 2005". He received a telephone call from a person named Michael who worked at Easy Home Loan Solutions, a firm which had an office in the same building as Mr Miller's office. Mr Miller had been introduced to Michael and his colleague Rebecca Shi by an accountant with whom Mr Miller had once shared an office. Michael and Ms Shi had earlier referred conveyancing work to Mr Miller and had discussed other small business with him such as a traffic matter for a friend.

69 Mr Miller's evidence is that on or about 1 April 2005, Michael told him:

We have a client here who is in a bit of trouble. He needed a title deed for the settlement of a mortgage, and they cannot find it. Settlement is urgent. What can you do to help?

Mr Miller replied that he had done such work before and could help the client.

70 A man who Mr Miller came to know as Mr Pan then came to Mr Miller's office and introduced himself as "Joey". According to Mr Miller, Mr Pan had a white file with him. During the course of the interview, although not at first, Mr Miller says Mr Pan showed him some documents from that file; however Mr Miller did not look through the file himself. Mr Miller says he did see that the file contained a letter from First Title, a company he had come across many times before in his practice. In the course of their conversation Mr Pan said that the stage that had been reached was:

We've got to get the documents back to the lender and we just need a title deed to settle.

He also said to the effect that he was not the borrower but was "helping these people out", that the borrowers were busy and could not speak English: they were Indonesian, he knew them and spoke their language.

71 Mr Miller gave evidence that, seeing a First Title letterhead and familiar type of letter on the file confirmed, in his mind, that the loan application had reached the stage Mr Pan said it had and indicated, in his mind, that there had been an approval process and that the file probably contained the loan agreement, mortgage and other documents needed to process the loan. Mr Miller believed that the loan application would only have reached First Title if there had at least been preliminary approval for a mortgage loan. Mr Miller asked Mr Pan for some things which were needed to prepare the Statutory Declaration in support of the Application for a New Certificate of Title and asked for a rate notice; Mr Pan produced a rate notice and a reminder notice for the property. In answer to Mr Miller, Mr Pan said that he was sure that the owners had never had a mortgage on the property before; he indicated the exact names and title reference by taking a mortgage document (which may not have been executed) out of the file and showing it to Mr Miller. Mr Miller said that he would try to do the work as quickly as he could and:

If the people cannot come in, you will have to take the Stat Dec and the application to sign, and they will have to do it in front of a Justice of the Peace.

Mr Pan left. Mr Miller made some enquiries about Registrar-General's practice and prepared a form of Statutory Declaration in the names of the plaintiffs, with certified copies of the original rate notice and reminder notice. Mr Miller's evidence is that he did this on the same day that he first met Mr Pan, which he gives as 1 April 2005. He called Mr Pan later that same day and informed him that the documentation was ready for collection and Mr Pan collected the Application for a New Certificate of Title, the Statutory Declaration and the original rate notices from him and Mr Pan returned the Application for a New Certificate of Title and the Statutory Declaration later on the same day. According to Mr Miller, the Application for a New Certificate of Title had been witnessed by Mr Pan and the Statutory Declaration had been witnessed by Mrs Donald, Justice of the Peace.

72 On the next business day, Mr Miller went to the Land Titles Office, lodged the Application for a New Certificate of Title, the Statutory Declaration and supporting letter and obtained a new Certificate of Title, issued forthwith. He telephoned Mr Pan and told him that the new Certificate of Title was available for collection. Mr Pan attended his office on or about 5 April 2005 and Mr Miller gave Mr Pan the new Certificate of Title and his Memorandum of Fees and tax invoice. Mr Pan paid the account that same day.

73 In his affidavit, Mr Miller said:

I did not at any stage suspect or consider that Joey Pan might not have had the authority of the registered proprietors to act for them in relation to the obtaining of the new certificate of title. From my knowledge of the mortgage and loan process the documents that I saw were consistent with earlier steps in the loan and mortgage process having been satisfied including verification and identification of who the borrowers were.

61 At [100 - 102], Bryson AJ held that a concession that Mr Miller owed a duty of care under tort law to the plaintiffs had been rightly made. At [103 - 108], he reached the conclusion that Mr Miller had breached this duty. His reasoning was as follows:-

103 It should have been obvious to a reasonable person practising as a solicitor in 2005 that there were risks of identity fraud associated with applications for new Certificates of Title. The risk is inherently obvious: and it had been realised in recent experience and publications. For a prominent example, an Article by Matthew Bransgrove entitled "Mortgage Law: What can solicitors do to reduce mortgage fraud?" in the Law Society Journal, November 2004, dealt with the prevalence of identity theft with vivid examples and many practical suggestions for cautionary conduct.

104 There were several circumstances, to which Mr Miller referred, which could be seen as indications of regularity, and there was no positive indication that Mr Pan did not really represent the registered proprietors or was engaged in fraud. Nor was there any indication that the signatures on the documents were false. The fact that Mr Pan was referred to Mr Miller by Michael, a person Mr Miller knew in a business context, was, at least to some degree, an indication of regularity; however Michael gave very little information, and did not indicate the name of the client or refer to the fact that the man who was to attend Mr Miller was not the client but was someone who was purportedly helping the clients. Mr Pan's having a file and producing documents from it, including rate notices, a form of mortgage and a letter on a First Title letterhead, which were consistent with what he had told Mr Miller, also had some effect of confirming the apparent regularity of what was taking place. Possession of rate notices specific to the property is I suppose some indication that the bearer has some connection with the property. Everything that Mr Miller knew and saw depended on the sincerity of Mr Pan.

105 The indications of regularity which Mr Miller had were very slight. They did not go to the central question of whether Mr Pan really had authority from the plaintiffs to obtain a new duplicate Certificate of Title, to bring documents to Mr Miller for that purpose and to receive the new Certificate of Title from Mr Miller. In the claim form he submitted to the insurer, Mr Miller explained:

When I saw the First Title documents, I assumed that everything was in order because the lender would have required a 100 point check, and other verification.

Mr Miller also referred to the verification to be performed by the person witnessing the Application for a New Certificate of Title and taking the Statutory Declaration in support of the Application for a new Certificate of Title. Seeing that there was a file with documents about a loan in it including a letter on a First Title letterhead, and supposing that First Title would not have given a loan approval without doing, or without someone else doing a 100 Point identity check did nothing to confirm that Mr Pan had the authority he claimed to have: he could have fraudulently diverted a loan approval which the plaintiffs had genuinely obtained. If the documents apparently signed by the plaintiffs had any influence, that influence again depended on Mr Pan being genuine.

106 For a solicitor, handling the title documents of a client or of a supposed client calls for vigilance. Possession of a Certificate of Title is charged with economic significance: loans are made on their mere deposit, even without writing. Mr Pan did not bring a title document to Mr Miller, yet Mr Miller did not even ask Mr Pan to produce a written authority to collect the new Certificate of Title. There was not a shred of confirmation of authority, not a line of writing nor a voice on the telephone. When Mr Pan came to Mr Miller, completely unknown to him, with only the briefest of introductions from Michael and with nothing of substance to indicate that he was a person to be trusted, the reasonable course for Mr Miller as a solicitor would have been to establish why the clients were not attending to their own business about their loan and their lost Certificate of Title, who they were and where they were: a reasonable solicitor would have wanted to see the clients and would have wanted them to establish their identities, or would have got a much better story than Mr Pan gave as to why they were not consulting a solicitor themselves. A reasonable solicitor would have seen the new Certificate of Title into their hands, or with their written authority would have seen it into the hands of someone who was likely to have been an appropriate recipient, such as a bank, finance house or another solicitor. It is possible for a careful solicitor to be deceived, but Mr Miller did not act with appropriate care, and if he had, it is very improbable that Mr Joey Pan would have got his hands on a new Certificate of Title.

107 In my finding, on any available view of the standard of care or scope of duty, Mr Miller did not conform to a reasonable standard for the professional work of a solicitor in accepting that Mr Pan actually had the authority of the registered proprietors to give instructions to obtain a new duplicate Certificate of Title, and to receive the new Certificate of Title when it was issued. Mr Miller put himself entirely in the hands of Mr Pan, and everything Mr Miller did depended on Mr Pan being sincere and actually being what he purported to be; Mr Miller had, for practical purposes, no knowledge whatever of whether Mr Pan was worthy of his trust and the positive indications which I have already referred to are of very slight weight in relation to the importance of the way in which a duplicate Certificate of Title can be used and the mischief it can cause in the wrong hands. Apart from recent experience of frauds involving wrongly obtained duplicate Certificate of Titles, referred to in publications accessible to solicitors, the need for a solicitor to consider fully what he is doing and obtain appropriate authority when handling Certificates of Title is quite obvious.

108 In my finding Mr Miller acted in breach of his duty of care to the plaintiffs.

62 Mr Barnes also referred us to the following sentence in Riley, Solicitors Manual: Commentary (ed G Dal Pont: Butterworths, 2005, updated) at the commencement of paragraph [4195.30]. This paragraph is headed 'Practice pointer - meet with client in order to clarify instructions':-

Aside from circumstances where a meeting with a client is necessary to ensure that he or she understands the nature of a transaction or matter to which he or she is becoming a party, a meeting with the client is ordinarily foundational to the taking of instructions.

63 The balance of this paragraph in Riley illustrates this proposition by pointing out that a solicitor who does not interview a client may fail to perceive an important aspect of the matter in which instructions are being given, and may therefore be liable in negligence for failing to pursue the client's best interests.

64 In his submissions on Ground 3 - failure to give any advice, written or oral, to the purchaser clients regarding the terms of the contract for sale or their rights and obligations under it - Mr Barnes focused on three matters in particular.

65 First, the fact that while the contracts recorded the payment of a 10% deposit, the Solicitor had been told that no such payment had been made increased the importance of providing to the purchaser clients a full and adequate explanation of their legal position. This was particularly the case with regard to the later transactions, because by the time that they commenced the Solicitor was well aware that on this issue the contract contained a false statement. An additional, and entirely simple, step that the Solicitor should have taken but failed to take was to ask one or more of the estate agents whether the deposit had been paid.

66 Secondly, by delegating the task of providing such an explanation to Mr Lee, an agent who apparently had no legal qualifications, the Solicitor failed to fulfil the obligation of 'advising on the Contract' imposed by the costs agreement on Webb Lawyers.

67 Thirdly, a reason given in his testimony by the Solicitor for not fulfilling this obligation himself was wholly inadequate. It was that in advising Mr and Ms Cooke about their purchase, he had been compelled to furnish 'a long and painstaking explanation of every step in the transaction'.

68 None of these tasks, Mr Barnes submitted, fell outside the scope of the Solicitor's retainer, which was to act for the purchaser clients on their purchases of the relevant properties. They did not involve him giving advice, or providing other legal services, relating to the obtaining of finance for these purchases.

69 The main thrust of Mr Barnes's submissions on Ground 6 - transferring the excess funds to Mr Lee in the absence of instructions to do so from the purchaser clients, any written agreement between them and Mr Lee or any security being provided - was that in view particularly of the substantial amounts of money involved, the Solicitor should at least have advised them that a written agreement involving the provision of some sort of security would be normal incidents of transactions of this nature. Mr Barnes described as 'dubious' the Solicitor's conduct in making these transfers without having seen any such agreement or having otherwise sought to ascertain how the funds that he transferred would be applied.

70 In addition, he argued in his outline of submissions that the Tribunal would 'have concerns about' the Solicitor's evidence regarding the dates of the letters to Mr Adam Miller, Mr Hamilton and Ms Hamilton, in which the amounts quoted for stamp duty were in each case calculated according to the reduced purchase price, not the initial price (see [34 - 35] above). The Solicitor attributed this to problems with the LEAP software. Mr Barnes pointed out, however, that the date shown on these letters (15 August 2005) predated the deeds of variation by at least one month and added: 'They [the letters] are consistent with knowledge that the exchanged contracts are a fiction.'

71 Mr Barnes drew to our attention the fact that the Solicitor, in his Reply, had admitted Ground 7 - failure to maintain clear records of instructions received from Mr Lee as purported agent for each purchaser. He added that this Ground was not of great significance.

72 The Solicitor's submissions. With reference generally to the Law Society's claim in the Application that specific aspects of the Solicitor's behaviour amounted to unsatisfactory professional conduct as defined in section 496 of the Act, Mr Lloyd referred us to two tribunal decisions exploring the link between this concept and professional negligence.

73 In the earlier of them, In the matter of Spero Pitsikas (1995) 1 LPDR (No 1) 5 at 10, the Legal Professional Disciplinary Tribunal said:-

In our view, the concept of unsatisfactory professional conduct does not contemplate disciplinary proceedings being brought against a solicitor for mere negligence. What is required is something more than mere negligence, but something falling short of professional misconduct...

Once it is accepted that mere negligence does not come within the concept... then one needs to look at each individual pleaded complaint to see whether the conduct complained of is sufficiently serious to warrant a "black mark" appearing in the professional conduct record of a solicitor.

74 More recently, the Administrative Decisions Tribunal addressed this question in New South Wales Bar Association v Bland [2010] NSWADT 34. At [186 - 193], it said:-

186 The definition of unsatisfactory professional conduct in section 496 of the Legal Profession Act 2004, is, for present purposes, the same as the definition of unsatisfactory professional conduct in section 123 of the Legal Profession Act 1987.

187 When the Legal Profession (Amendment) Bill (which became the Legal Profession (Amendment) Act No 263 of 1987) was before Parliament, the Attorney General Mr Sheahan in his Second Reading Speech stated:

I am pleased to note that the Law Society has accepted the Government's view that the regulatory bodies must be able to take action in cases where conduct falls short of a standard that a member of the public is entitled to expect. This development is fundamental to the new legislation regulating the legal profession in New South Wales. I am disappointed that the Bar Association appears to remain of the view that the current common law definition of professional misconduct is adequate. That definition prevents the Bar Association or the Law Society from taking action in cases of minor delay or negligence even though the clients involved may have been substantially disadvantaged by the inefficient conduct of the practitioner.

The Law Society has suggested the definition of professional misconduct might be clarified by restricting the concept of professional misconduct to serious cases of incompetence and cases justifying a person's removal from the roll of barristers or solicitors, and by introducing a new definition of unsatisfactory conduct for cases where the conduct falls short of a reasonable standard.

This suggestion recognizes the distinction made in the Act between cases of minor professional misconduct provided for in division 5 of part 10 and serious professional misconduct, or unsatisfactory professional conduct provided for in division 7. In the case of minor professional misconduct, or unsatisfactory professional conduct, as it will now be known, proceedings will continue to be taken before the Professional Standards Board, and the board will have the power to make a range of orders where it is satisfied the complaint is made out. The Disciplinary Tribunal will continue to deal with matters of serious professional misconduct (Hansard Legislative Assembly, 18 November 1987, pages 16275 - 6. See also the Second Reading Speech of Mr Sheahan on 29 April 1987 when the Legal Profession Bill was before Parliament. He then stated that the Professional Standards Board would determine complaints about delay, negligence or other matters falling short of serious professional misconduct - Hansard page 10759 - emphasis added by the Tribunal).

188 One of the amendments to the Legal Profession Act No 109 of 1987 made by the Legal Profession (Amendment) Act No 263 of 1987, was the insertion of the definition of "unsatisfactory professional conduct" in section 123.

189 At common law, courts are permitted to have regard to extrinsic material such as the Hansard record of debates preceding the enactment of legislation, to identify the mischief at which the legislation is aimed...

190 The above second reading speeches make clear that one of the mischiefs at which the legislation was aimed, was that conduct of lawyers falling short of serious professional misconduct, such as delay and negligence, was not subject to disciplinary action. The legislation was aimed to make such conduct subject to disciplinary action.

Interpretation Act 1987

191 Section 33 of the Interpretation Act 1987 provides that in the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act shall be preferred to a construction that would not promote that purpose or object.

192 Section 496 of the Legal Profession Act 2004 is included in Chapter 4 of that Act. Two of the purposes of the Chapter are:

(a) to provide a nationally consistent scheme for the discipline of the legal profession in this jurisdiction, in the interests of the administration of justice and for the protection of clients of law practices and the public generally,

(b) to promote and enforce the professional standards, competence and honesty of the legal profession.

193 After taking account of section 33 of the Interpretation Act 1987 and the above second reading speeches, the Tribunal is of the view that unsatisfactory professional conduct can, in appropriate circumstances, include negligence and that the law of the tort of negligence is particularly relevant where the question is whether the conduct of an Australian legal practitioner, in giving legal advice to a client, is unsatisfactory professional conduct.

75 The principal arguments advanced by Mr Lloyd in responding to Mr Barnes's submissions on Grounds 2, 3 and 6 were twofold.

76 His first proposition was that just as there was no general rule precluding a solicitor from securing a retainer without having spoken to the client, there was equally no rule that a solicitor who has been retained in such circumstances must 'confirm' the retainer. Mr Lloyd argued that the documents put before the Solicitor by Mr Lee - notably those providing '100 point identification' - gave the Solicitor good grounds for believing that Mr Lee was duly authorised to instruct him in the capacity of an agent of each purchaser client. He referred also to the Solicitor's unchallenged evidence regarding his consultation with the Law Society on this matter (see [21] above), and to the fact that under Rule 45.5 of the Solicitors Rules, a solicitor, even when giving advice on loan or security documents to a proposed signatory, may rely on identification documents such as were put before the Solicitor.

77 Mr Lloyd's second proposition was that because the Solicitor's retainer was limited to acting on the purchase of the relevant properties he was not under any duty to 'confirm' any matters outside the scope of this retainer.

78 In this connection, Mr Lloyd emphasised that in each case the Solicitor was retained after the contract for sale had been executed. It followed, he said, that the Solicitor was not required to provide advice such as would normally be given to a client who was considering whether or not to enter into a contract.

79 With reference specifically to the fact that no deposits were paid even though the contracts appeared to indicate that they were both required and paid, Mr Lloyd pointed out that only the front pages of the contracts had been put into evidence. It was possible, he argued, that the contracts contained special conditions deferring the payment of the deposit.

80 A further submission advanced at this point of Mr Lloyd's argument was that the Law Society had put into evidence one document - namely, a letter dated 28 November 2005 from RAMS to Mr and Ms Sibbald - which outlined the payments made on the settlement of their purchase and, in so doing, showed both the genuine (reduced) purchase price and the payment of a significant sum ($54,466.55) into the Solicitor's trust account. Mr Lloyd maintained that Mr and Ms Sibbald must therefore have been 'well aware of the surplus on settlement' and that there were 'probably similar documents for each transaction... which the Law Society has not put into evidence'.

81 It followed from these two propositions, according to Mr Lloyd, that the Solicitor had no duty to 'confirm' with the purchaser clients any of the specific matters to which Mr Barnes adverted (i.e. the matters listed above in paragraph [54]).

82 In support of these contentions, Mr Lloyd cited a passage in the judgment of Allsop P (with whom Hodgson and McColl JJA agreed) in Dominic v Riz [2009] NSWCA 216. One of the questions raised in this case was whether a solicitor who had been retained to give advise on a loan and mortgage transaction is obliged to address the questions of fairness and reasonableness. At [87 - 92], Allsop P said:-

87 The views of the primary judge... all embody the proposition that a solicitor retained to advise on a loan and mortgage transaction will be obliged to address the fairness or reasonableness of the underlying transaction. With respect, that is going too far. It is unnecessary to examine the so-called independent advice cases. They are concerned with the extent of advice required for there to be an antidote to vitiating circumstances such as unconscionability. They do not provide a sound ground upon which to conclude that a solicitor with a limited retainer must advise beyond the retainer. They were not dealt with in Citicorp [Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398], for the reason that they do not address the content of the professional duty of the solicitor.

88 The primary judge's reasons... contain a proposition or assumption that Ms Jajoo [a solicitor employed by the defendant firm] was obliged to form and express some view upon the fairness or reasonableness of the underlying transaction. This duty can be seen in his Honour's reasons to flow from a duty wider than the retainer which has its source in Waimond.

89 It is unnecessary in order to resolve this controversy to undertake an extended exegesis on the solicitor's duty of care. The analysis of Waimond by the Court of Appeal in Heydon, the discussion of the authorities by Campbell JA in Kowalczuk and the subsisting authority of Citicorp make the issue of the circumstances of the responsibility of a solicitor to act in respect of a matter falling outside his or her retainer less than clear. Part of that lack of clarity is the impossibility and unwisdom of seeking to cover future factual circumstances of an infinite kind with a legal test. The primary judge's formulation of principle was, however, overly broad. This breadth was derived from the misuse of the independent advice cases.

90 In David v David [2009] NSWCA 8 at [76], I said the following (with which Hodgson JA and Handley AJA agreed):

"Some reliance was placed on Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 in argument. In Kowalczuk v Accom Finance Pty Limited [2008] NSWCA 343 at [267]-[294] Campbell JA undertook a detailed analysis of the precedential status of Waimond in particular after Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1 and Astley v Austrust Ltd [1999] HCA 6; 197 CLR 1. It is unnecessary to repeat that analysis. It is sufficient to say that the notion that a solicitor may owe a client a 'penumbral' duty that extends beyond scope of the retainer is doubtful. If, however, the solicitor during the execution of his or her retainer learns of facts which put him or her on notice that the client's interests are endangered or at risk unless further steps beyond the limits of the retainer are carried out, depending on the circumstances, the solicitor may be obliged to speak in order to bring to the attention of the client the aspect of concern and to advise of the need for further advice either from the solicitor or from a third party."

91 Neither party submitted that this expression of the matter either involved error or was inappropriate for application here. The passage in David at [76] was not meant, however, to be an operative legal principle. It was intended to do no more than posit the possibility that the performance of the retainer, and what is learnt during it, may affect how the retainer is properly discharged.

92 Applying that test here, in my view, Ms Jajoo executed her retainer and discharged her duty of care without negligence.

83 In relation to Ground 6, Mr Lloyd argued that this Ground was based on an incorrect assumption: namely, that the Solicitor owed to the purchaser clients a duty to inquire about the existence of a loan agreement between them and Mr Lee and about the provision of security. The reason why this assumption was incorrect was that the Court of Appeal, in the passage just quoted from Dominic v Riz, held that even a solicitor retained to advise on a loan and mortgage transaction had no duty to provide advice as to the wisdom of this transaction. A fortiori, a solicitor retained merely to act on the purchase of property, such as the Solicitor in this case, would be under no such duty.

84 At most, Mr Lloyd added, any duty that was incumbent on the Solicitor to discuss with the purchaser clients the apparent absence of a written loan agreement, including the provision of security, between them and Mr Lee could only have arisen because of 'warning signs' such as Allsop P described in the extract, quoted above, from his judgment in David v David. Any failure by the Solicitor to discharge this duty could not, according to Mr Lloyd, be a 'conduct issue'.

85 Mr Lloyd made the same submission regarding Ground 7 (failure to maintain clear records of instructions).

86 Mr Lloyd's final observation was that because the earlier transactions in this case, occurring in late 2004 and early 2005, did not prompt any complaints from purchaser clients in the ensuing months, the Solicitor was entitled to assume when handling the later transactions that the procedures being adopted by him were appropriate.

87 Our conclusions. After careful consideration, we have reached the conclusion that the conduct of the Solicitor that is described in Ground 6 was negligent in such a manner and to such an extent that it must be characterised as unsatisfactory professional conduct.

88 In our judgment, the events within the Solicitor's knowledge that led up to the transfers of substantial amounts of clients' money in the circumstances identified in Ground 6 were such as to give rise to 'warning signs' (to employ Mr Lloyd's phrase). They imposed on the Solicitor a duty to take reasonable steps to ensure that these transfers genuinely were in accordance with the wishes of the purchaser clients.

89 Adapting the terminology used by Allsop P in the passage quoted above from David v David, the Solicitor became aware of facts that put him on notice that his clients' interests were endangered or at risk unless further steps beyond the limits of his retainer were carried. He was therefore obliged to speak in order to bring to the attention of the clients these aspects of concern and to advise of the need for further advice either from himself or from a third party.

90 The circumstances that, in our opinion, warrant this conclusion include a number of the matters that formed the basis for the allegations made in Grounds 2, 3, 5 and 7 of the Application. We do not think that the Law Society has established unsatisfactory professional conduct, let alone professional misconduct, under any of these Grounds, considered separately (our reasons for rejecting Ground 5 appear below). But it does not follow that the conduct to which these Grounds referred must be treated as irrelevant when consideration is given to the Society's case under Ground 6.

91 The principal aspects of the evidence that we have taken into account in reaching this conclusion with regard to Ground 6 are these:-

1. In all the matters, the Solicitor had many opportunities to take the simple step - e.g. by means of a meeting or a phone call made by him or by Ms Abood - of contacting the purchaser clients and confirm that his understanding of both their transactions (including their arrangements with Mr Lee to participate in his 'building syndicate') and the tasks that they entrusted to the Solicitor conformed with their understanding of these matters. But he never took this step.

2. He surrendered to Mr Lee total control over the transmission of documents between his office and the purchaser clients.

3. Through wishing to avoid the possibility of having to provide lengthy explanations of these transactions, he left it to Mr Lee to provide such advice about them to the clients as he (Mr Lee) thought fit.

4. His decision, in all but one of the matters, to act on behalf of the vendor as well as the purchaser had the consequence that protection of the purchaser clients' interests became the responsibility of a junior solicitor (Ms Abood), whose work he supervised to a limited extent only.

5. None of the following aspects of the transactions (all of which became known to him at some stage before their completion) was sufficient to prompt him to take the simple step of making direct contact with the purchaser clients, or instructing Ms Abood to do so, before he transferred the excess funds to Mr Lee:

(a) The discrepancy between the statements on the contracts of sale that a deposit had been paid and the advice given to him that it had not been paid.

(b) (In seven out of the ten matters) the substantial reductions in the purchase price, amounting in some instances to figures in the vicinity of $200,000.

(c) The fact that although (in these seven matters) the reason given to him by Mr Lee and/or Mr Sakr for the reductions in price was that the valuations were too low to support the initial prices, the lenders remained willing to advance the higher amounts originally offered.

(d) The fact that on settlement of each of the purchases the mortgagees made these higher amounts available without providing in any of the accompanying documentation for security such as Mr Lee described to the Solicitor (i.e. mortgages over the residences of the purchaser clients) to be furnished to them.

6. Although the Solicitor's retainer by the purchaser clients was confined to acting on their purchases, an integral part of this transaction was the receipt and distribution, on their behalf, of all of the funds advanced by the lenders - not merely the lesser amount required to complete the purchase - and his deposit of the excess amounts into his trust account. He became the custodian of these amounts as part of the process of fulfilling his retainer.

7. As events transpired, the amounts of these excesses were (a) significantly more than would be normal in a purchase of property subject to mortgage; (b) significantly more than would have been expected initially in the seven cases in which there was (to the Solicitor's knowledge) a reduction in the purchase price; and (c) substantial in their own right.

92 As will have been apparent, in reaching this conclusion we have taken significant account of the statements of principle quoted above from Allsop P's judgment in Dominic v Riz. We have also paid heed to the warnings given in Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694 against acting solely on the instructions of a self-proclaimed agent.

93 Two further authorities lend support to our conclusion. They are discussed in Riley's Solicitor's Manual at [4195.5] under the heading 'Practice pointer - do not trust a third party to secure execution of document for another'.

94 In Eade v Vogiazopoulos (No 2) [1999] 3 VR 889, a solicitor acted for a husband and wife in granting a mortgage over their home as security for a loan to the husband's business. The husband generally controlled the couple's financial affairs and the wife usually signed any documents that she was asked to sign. Because the husband knew that the wife would not consent to this loan, he forged her signature on the mortgage and on a subsequent variation. The solicitor never saw the wife in person.

95 In the Supreme Court of Victoria, Smith J held the solicitor to be liable in negligence to the wife. At [107 - 108], discussing competing testimony from expert witnesses, his Honour said:-

[107] ... I do not accept Mr. Shattock's evidence about the then practice. Mr. Shattock's description of usual practice conveyed the impression that in practice a mortgagor's solicitor usually did little except pass the documents on to the client and relied on a lay person to convey any legal advice that had to be given to the spouse or on a lay person to be able to read and understand advice given by letter. On his evidence the solicitor for the mortgagor would typically see a mortgage transaction through to conclusion for the mortgagor without seeing or speaking to the mortgagor. But as Mr. Lynch, another experienced conveyancing solicitor, said, "If you are not going to do those things, I do not know what you are being paid for". I also accept the evidence of Mr. Jones, also an experienced conveyancing solicitor, that only by speaking in person with the clients can the solicitor effectively communicate his advice about a proposed mortgage. In his view the solicitor is employed to give such advice.

[108] I prefer their evidence. I am satisfied that, at the relevant time, solicitors acting for mortgagors would not usually send the documents for execution to the client by mail unless they were clients of long standing whom they knew would understand the transaction and with whose signatures they were familiar or they had at least conferred with them and ensured that they were fully advised about the transaction. In such circumstances the solicitor would have a reasonable basis for asserting prior to completion of the transaction that he had instructions from the mortgagors and that the documents were duly executed if they purported to be so. Their evidence allowed maximum flexibility but envisaged that the mortgagor's solicitor would normally be in the position that he had a reasonable basis for such representations and the making of them would rarely expose the mortgagor's solicitor to criticism or legal liability. The importance the law has attached to the proper creation of the retainer should not be overlooked...

96 At [145 - 147], Smith J set out his principal reasons for holding the solicitor liable:-

[145]... I must... confess to finding Mr. Shattock's description of the other details of the usual practice and obligations of a mortgagors' solicitor difficult to accept. The effect of his evidence was that a solicitor, engaged by lay borrowers to apply his professional knowledge, skill and experience for a fee in a mortgage transaction for them, can discharge his duties by passing on documents to them and, if legal advice is needed, give it in writing without knowing whether the clients are capable of reading or understanding it and without attempting to meet them. This cannot be right. In addition, it cannot be decisive in all cases that there is no unequal detriment or no third party benefit. I note, however, that Mr. Shattock conceded that a point could be reached where the transaction looked so bad that a solicitor should satisfy himself that both mortgagors were fully informed. He also appeared, after earlier qualifications, to accept that if the solicitor for the purchasers thought that the business to be purchased was not economically viable, he would want to have them before him to advise them about the imprudence of the proposed purchase and that that would probably lead to the cancelling of the imminent mortgage advance.

[146] It may be that a solicitor can assume a spouse has authority and can proceed initially on that basis provided that before settlement he has conferred with both. It is, however, unwise to generalise. Ultimately a view has to be formed about whether in the circumstances of the particular case the solicitor was negligent.

[147] When the transaction was brought back to life in about the middle of July 1988, a combination of features of the transaction made it one out of the ordinary. By transaction, I mean the loan and the purchase of the business, it being quite unrealistic to separate the two aspects. The circumstances were such that the question whether there was a breach of duty of care is not to be resolved by considering the evidence of usual practice. I refer to the following circumstances known to Mr Stergiou [the solicitor] prior to 2 August 1988:

(a) the "clients" were new clients;

(b) there was to be a substantial increase in the size of the debt secured over the "clients'" home;

(c) the money was being borrowed to purchase a business;

(d) there were features about the transaction that cast grave doubts over the viability of the business. I refer to the fact that the vendor was on the verge of bankruptcy, and that the lease had about 15 months to run with no option to renew attaching to the lease. I also refer to the lack of experience of the Vogiazopouloses. Although this aspect involved some commercial considerations I am satisfied that the duty to advise encompassed these matters in the circumstances of this case:... Doubts about the viability of the business increased the need to fully advise both mortgagors about the consequences of default;

(e) There was a real concern that the transaction... would be voidable as a preference under bankruptcy law...

(f)...

(g) ...Mrs. Vogiazopoulos may have had a poor command of the English language. Mr. Stergiou did not know. Further, Mr. Stergiou was relying on Mr. Vogiazopoulos to communicate information and advice to Mrs. Vogiazopoulos but Mr. Vogiazopoulos was not a lawyer and while intelligent could not be expected to communicate the necessary advice adequately to Mrs. Vogiazopoulos.

97 The case of Ginelle Finance Pty Ltd v Diakakis [2007] NSWSC 60 involved a mortgage apparently entered in to by the respondent, Mr Diakakis, as security for a loan to Terry and Jenny Diakakis, who were his son and his daughter-in-law. Mr Diakakis's signature to this mortgage was in fact forged. At a later stage, Jenny Diakakis retained a solicitor, Mr Grogan, to advise on refinancing of the loan. He dealt only with her, and did not meet or contact Mr Diakakis. The relevant documents were signed by another solicitor, Mr Cassimatis, in circumstances that need not be outlined here.

98 A cross-claim in negligence brought by Mr Diakakis against the solicitor was successful. At [103 - 106], Hoeben J said:-

103 What then has to be assessed, on the basis of the information available to Mr Grogan at the time, is what a reasonable solicitor would have done in response to the foreseeable risk. This involves a consideration of the magnitude of the risk and the degree of the probability of its occurrence along with the expense, difficulty and inconvenience of taking alleviating action. In this case it was generally accepted that there was little inconvenience or cost involved in taking appropriate alleviating action, i.e. in contacting Mr Diakakis directly.

104 Although the matter is finely balanced and certainly not without difficulty, I have concluded that in fulfilling his duty to Mr Diakakis, Mr Grogan should have made personal contact with him to satisfy himself that Mr Diakakis was aware of and consented to the refinancing transaction. It was not sufficient for him to rely upon the documents signed by Mr Cassimatis. In a straight forward mortgage transaction it might be sufficient for Mr Grogan to rely upon documents signed by another solicitor, but in this case there were special circumstances which required him to do more. There were unusual circumstances associated with this transaction. Taken on their own they may not have required Mr Grogan to personally satisfy himself that Mr Diakakis was aware and consented to the refinancing transaction. Taken in combination, however, they should have sounded "alarm bells" with Mr Grogan.

105... Mr Grogan knew that there had been a default in excess of four months in interest payments in respect of a total loan of $250,000. He knew that the new loans amounted to $397,500. He knew that Mr Diakakis as a pensioner could not himself meet the interest payments required under the new loans. Mr Diakakis would have to rely upon others, in particular Jenny and Terry Diakakis, to make those payments. Yet they were the very persons who had apparently let Mr Diakakis down... when interest payments were significantly less. There was nothing told to him to suggest that the financial position of Jenny and Terry Diakakis was any better in October 2001 than it had been in June 2001 when default on the earlier loans had taken place. Mr Grogan, had he turned his mind to it, must have realised that in entering the refinancing transaction, there was a strong likelihood of a default under the new mortgages in which case Mr Diakakis would almost certainly have to sell the property.

106 Mr Grogan was also aware from the four transactions with which he was involved, that the beneficiaries of the monies raised against the property were Jenny and Terry Diakakis, not Mr Diakakis. The urgency with which Jenny Diakakis sought to have the refinancing transactions finalised so that additional monies could be made available to her was an indicator not only that she and Terry were unlikely to be able to meet the interest payments, but that she had a significant personal interest in the refinancing transaction being finalised. This should have been a matter of concern when she was the sole conduit for all instructions.

107 Against that background the fact that he had not had any personal or direct contact with Mr Diakakis, but had only dealt with him through Jenny Diakakis, should have caused the "alarm bells" to ring had Mr Grogan turned his mind to those matters. Breach of duty has been established against Mr Grogan.

99 A noteworthy feature of this analysis by Hoeben J is that, applying what is sometimes called the 'calculus of negligence', he took account of the fact that the precautions that Mr Grogan needed to take to avoid foreseeable harm to Mr Diakakis were simple, inexpensive and not inconvenient, whereas the magnitude of this harm was considerable. The same may clearly be said of the situation in the present case.

100 We would add here that, in accordance with Mr Barnes's submissions, we have some concerns about the matters outlined above at [70]. But beyond illustrating the poor quality of the Solicitor's records - a matter of relevance to Ground 7 - we do not see how these concerns can be brought into account in our decision. It was not alleged that concerns such as these provided grounds for doubting the Solicitor's veracity with regard to his knowledge of the price manipulations carried out by Mr Lee.

101 We wish also to comment on Mr Lloyd's claims, outlined above at [80], that (a) a letter dated 28 November 2005 from RAMS to Mr and Ms Sibbald demonstrated that they must have known about the surplus on settlement and (b) there were 'probably' similar documents for each transaction that the Law Society did not put into evidence. We cannot draw the inference from RAMS's letter the inference suggested by Mr Lloyd, let alone the further conclusion that he put before us. The reason is that a statement made to Mr Rosier by Mr and Ms Sibbald relating to the documentation of their purchase, including this letter, was not admitted into evidence, on account of an objection by Mr Lloyd.

102 In our opinion, the negligence displayed by the Solicitor in failing to take steps such as are outlined in Ground 6 was not 'mere negligence' (to adopt the terminology in Pitsikas), but was sufficiently serious to warrant a 'black mark'. It fell short of 'the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent Australian legal practitioner'. It therefore amounted to unsatisfactory professional conduct under section 496 of the LP Act.

Conflict of duties

103 In relation to this Ground (Ground 5), Mr Barnes submitted that in the nine matters in which the Solicitor acted for both vendor and purchaser, a conflict arose between the duties that he owed to each of these parties, in consequence of which he should have ceased to act for one or other of them. The point of time at which this conflict arose in each transaction was when the Solicitor first knew or believed (a) that the purchase price was to be reduced significantly because the valuation of the property was insufficient to support the initial price and (b) that the lender was nonetheless prepared to advance a sum significantly exceeding the reduced purchase price.

104 At this point, Mr Barnes argued, the Solicitor owed a duty to the vendor to reveal that despite the alleged insufficiency of the valuation the lender remained willing to advance more than the reduced purchase price. But he also owed a duty not to act to the disadvantage of the purchaser by disclosing this matter to the vendor.

105 While pointing out that the Application did not allege any breach of the Solicitors Rules, Mr Barnes submitted that we should take into account the following statement in Rule 9.3:-

If a practitioner, who is acting for more than one party to any proceedings or transaction, determines that the practitioner cannot act for all of the parties without acting in a manner contrary to the interests of one of them, the practitioner must thereupon cease to act for all parties.

106 In response, Mr Lloyd argued that no duty to the vendor such as Mr Barnes had formulated should be found to have arisen because there had been no evidence as to the scope of the Solicitor's retainer by any of the vendors. In this context, he cited again the judgment of Allsop P in Dominic v Riz [2009] NSWCA 216. He argued further that no occasion such as Rule 9(3) contemplates ever arose because of the Solicitor's well-founded belief that Mr Sakr was a 'sophisticated' commercial client who had decided independently to accept a lower purchase price for each of the properties.

107 We agree with Mr Lloyd that this Ground has not been made out. Our principal reasons are twofold.

108 First, the Solicitor's belief regarding Mr Sakr's capacity to make independent decisions regarding the purchase prices was sufficiently supported in the evidence to justify the conclusion that the Law Society, which bears the onus of proof, has failed to establish any requirement on the Solicitor to raise this particular matter with him. In so ruling, we take into account Mr Rosier's inability to determine whether or not Mr Sakr 'played any role in the deception' (see above at [49]).

109 Secondly, the two matters in which the Solicitor acted for both parties but the vendor was not Mr Sakr's company (i.e., Napier) were also transactions in which the Solicitor was not aware of any reduction in the purchase price. These were the matters of Adam Miller (second transaction) and Mr and Ms Sibbald (see [30] and [45] above). There was therefore no occasion on which the Solicitor should have determined (to adopt the language of Rule 9.3) that he could not act for both of the parties without acting in a manner contrary to the interests of one of them.

The question whether professional misconduct was involved

110 The Law Society submitted that the unsatisfactory professional conduct in which the Solicitor had engaged was of a 'substantial or consistent nature' such as to constitute professional misconduct under section 497(1)(a).

111 In interpreting the phrase 'substantial or consistent', we have obtained useful guidance from the following passage in the Tribunal's decision in Council of the New South Wales Bar Association v Asuzu [2011] NSWADT 209 at [37 - 43]:-

37 In addition to the common law concept of professional misconduct, under s 497(1)(a), unsatisfactory professional conduct may become professional misconduct if the failure to reach or maintain the requisite standard can be characterised as "substantial" or "consistent".

38 There is no statutory definition of "substantial" but its meaning, when used in statutes, has been considered in a number of cases. In Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1979) 42 FLR 331 in the Full Court of the Federal Court of Australia, Deane J observed at page 348 concerning the use of "substantial" in the phrase "substantial loss or damage":

The word "substantial" is not only susceptible of ambiguity: it is a word calculated to conceal a lack of precision. In the phrase "substantial loss or damage", it can, in an appropriate context, mean real or of substance as distinct from ephemeral or nominal. It can also mean large, weighty or big. It can be used in a relative sense or can indicate an absolute significance, quantity or size. The difficulties and uncertainties which the use of the word is liable to cause are well illustrated by the guidance given by Viscount Simon in Palser v. Grinling (1948) AC 291 where, after holding that, in the context there under consideration, the meaning of the word was equivalent to "considerable, solid or big", he said: "Applying the word in this sense, it must be left to the discretion of the judge of fact to decide as best he can according to the circumstances of each case . . . " (1948) AC, at p 317...

39 French J made the following comments in Stirling Harbour Services Pty Ltd v Bunbury Port Authority (2000) ATPR 41-752 in relation to the phrase "substantial lessening of competition" at [114]:

In my opinion the phrase sets a standard for judicial intervention in respect of the classes of anti competitive conduct to which it applies. It requires, before that intervention can be invoked, that there be a purpose, effect or likely effect of the impugned conduct on competition which is substantial in the sense of meaningful or relevant to the competitive process. There is, of course, a certain circularity in these attempts at exposition. It could be said that a substantial lessening of competition describes a purpose or outcome of conduct which is deserving of the intervention of the Court in the protection of the competitive process according to law. So to say, is to identify the functional character of the statutory standard.

This approach of identifying the functional character of the statutory standard in question was endorsed by the High Court in Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 at [41] and footnote 67 and by Full Federal Court in Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 131 FCR 529 at [242].

40 Applying such an approach in the context of the LPA, it appears to us that "substantial" in s 497(1)(a) should be taken as referring to a failure to meet the requisite standard in a way that is meaningful or relevant to the legal practitioner's ability to practise law.

41 In relation to the use of the word "consistent" in s 497(1)(a), we note the relevant meaning in the Macquarie Dictionary is:

2. constantly adhering to the same principles, course, etc..

42 Similarly, the Oxford English Dictionary provides the following definition:

7. Of persons or their conduct: Marked by consistency (see consistency n. 5b); constantly adhering to the same principles of thought or action.

43 These definitions of "consistent" and the scope and purpose of the section suggest that for a failure to fall within this aspect of s 497(1)(a) there would need to be repeated or persistent failure resulting from the legal practitioner making the same mistakes of principle or acting in the same inappropriate way in a variety of situations.

112 We would not characterise the failures of the Solicitor to recognise, in the distinctly unusual circumstances of this case, that the authenticity of Mr Lee's agency needed to be questioned as failures to 'meet the requisite standard in a way that is meaningful or relevant to the legal practitioner's ability to practise law'. Neither this reason for holding them to have been 'substantial' failures - in line with the definition of the term 'substantial' suggested in Asuzu - nor any reason stemming from other common meanings attributed to this term would seem applicable to this case.

113 Mr Barnes argued that the Solicitor, by failing in no less than ten matters spread over some twelve months to take the precautions needed to protect his clients' interests, fell short of the requisite standards in a manner that inevitably attracted the label 'consistent'. In opposing this argument, Mr Lloyd pointed out that because none of the clients involved in the earlier purchases raised any complaint about them, the Solicitor was entitled to assume that his conduct was appropriate in the circumstances.

114 We accept the force of Mr Barnes's submission. But on balance, we consider that what was effectively the repetition of the same error by the Solicitor should not be treated as a 'consistent' course of unsatisfactory professional conduct when nothing was done to draw his attention to the nature and scale of the consequences of his error. This view of the question is in line with the Tribunal's suggestion in Asuzu that there should have to be a 'repeated or persistent failure resulting from the legal practitioner making the same mistakes of principle or acting in the same inappropriate way in a variety of situations (our emphasis)'. There was here no real 'variety of situations'.

115 Our finding is, accordingly, that the Solicitor is guilty of unsatisfactory professional conduct. A further hearing is therefore required to determine what consequential orders should be made and to resolve the question of costs.

116 The proceedings are set down for further directions at 9.30 a.m. on Wednesday 20 June 2012.

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Decision last updated: 14 June 2012