Administrative Decisions Tribunal New South Wales

• Medium Neutral Citation: Council of the Law Society of NSW v Lyons [2012] NSWADT 166
• Hearing dates: 21 June 2012
• Decision date: 13 August 2012
• Jurisdiction: Legal Services Division
• Before: D Fairlie, Judicial member; S Hale, Judicial member; C Bennett, Non-Judicial member

Decision

1.James William Lyons be reprimanded.

2.James William Lyons pay a fine in the sum of $6,000.00.

3.James William Lyons pay the costs of the Applicant of and incidental to the Application.

• Catchwords: Breach of Rule 12; Revised Professional Conduct and Practice Rules
• Legislation Cited: Legal Profession Act 2004; Revised Professional Conduct & Practice Rules
• Cases Cited: Council of the NSW Bar Association v Butland [2009] NSW ADT 177
• Category: Principal judgment
• Parties: Council of the Law Society of New South Wales (Applicant); James William Lyons (Respondent)
• Representation: Counsel; P Webster (Applicant); Council of the Law Society of New South Wales (Applicant); Legal Services Commissioner (Applicant); J Lyons (Respondent in person)
• File Number(s): 122004

Reasons For Decision

1 On 21 June 2012 the Tribunal heard this matter. At the conclusion of the hearing, the Tribunal made the Orders set out in the final paragraph of these Reasons for Decision. The Tribunal indicated that they would publish their Reasons at a later date and that the Orders made on 21 June 2012 should not operate until the publication of those Orders. These are those Reasons.

2 On 23 February 2012 the Council of the Law Society of New South Wales ("The Law Society") filed an Application alleging that the Respondent, James William Lyons ("the Solicitor") was guilty of professional misconduct by reason of a breach of Rule 12 of the Revised Professional Conduct & Practice Rules. In the Application, the Law Society sought the following Orders:

a. An Order that the Solicitor be reprimanded;

b. An Order that the Solicitor pay a fine;

c. An Order that the Solicitor pay the costs of the Applicant of and incidental to the Application;

d. Such further or other Order as the Tribunal deems fit.

3 The evidence placed before the Tribunal supporting the Law Society's Application consisted of an Affidavit by Leo Sidney Gore sworn 20 February 2012 together with an Affidavit of Paul Monaghan sworn 8 February 2012 and an Affidavit of Anne-Marie Foord sworn 2 February 2012. The Solicitor filed a Reply on 21 March 2012 which admitted the conduct complained of.

The Instrument of Consent and Agreed Statement of Facts

4 On 6 June 2012 an Instrument of Consent ("Consent") made under Section 564 of the Legal Profession Act 2004 ("the Act"), and an attached Agreed Statement of Facts was filed in the proceedings. The Consent had been executed by The Law Society, the Legal Services Commissioner and by the Solicitor.

5 The parties to the consent-ordered document consented to the Tribunal making a finding that the conduct of the Solicitor, as particularised in the attached Agreed Statement of Facts amounted to professional misconduct.

6 The grounds particularised in the Agreed Statement of Facts were in identical terms to the grounds contained in The Law Society's original Application as follows:

"Particulars

1. At all relevant time to 9 March 2010 and after 12 August 2010 James William Lyons ["the Solicitor"] was the principal for the law practice Lyons and Lyons ["the firm"].

2. From at least 200 Pink Investments Pty Ltd ["Pink"] was a client of the Solicitor and the firm.

3. Personification Pty Ltd ["Personification"] is the trustee of the Solicitor's self-managed superannuation fund.

4. At all material times the directors of Personification were the Solicitor, his wife Frances Margaret Lyons, James Anthony Lyons and Mathew Christopher Lyons, and its shareholders were the Solicitor and Frances Margaret Lyons.

5. Personification in its capacity as trustee of the Solicitor's superannuation fund owned the business premises of the firm, Suite 202, Level 2, 35 Spring Street Bondi Junction, Folio Identifier 13/SP47021 ["the premises"]

6. In about February 2007 the Solicitor borrowed $300,000 from Pink for a term of six months, guaranteed by Personification.

7. On or about 20 February 2007 Personification granted a registered mortgage over the premises to Pink securing the principal amount of $300,000.

8. The amount borrowed, secured against the premises, was increased and the term of the mortgage was extended by registered variations of mortgage:

(a) dated 18 October 2007, increasing the amount secured to $620,000 and extending the term to 30 June 2008; and

(b) dated 15 August 2008, increasing the amount secured to $773,830 and extending the term to 31 December 2008.

9. The directors of Pink obtained advice with respect to the initial proposed borrowing from a Solicitor employed by Peter R Murphy, Mr Camille Dezarnaulds. Mr Dezarnaulds understood the loan was to the Solicitor and was not aware that the mortgagor, Personification, was the Solicitor's self managed superannuation fund nor that Pink was a client of the Solicitor.

10. The firm represented Pink on numerous matters between 2007 and 2009.

11. Pink was not at any relevant time a corporation or institution described in the Schedule to Rule 12 of the revised Professional Conduct and Practice Rules.

12. The loan fell into default.

13. On or about 25 November 2009 Solicitors acting for Pink served notices of default on Personification.

14. Proceedings for possession of the premises were commenced in the Supreme Court of New South Wales by a Statement of Claim filed on 2 February 2010.

15. By 24 May 2011 the proceedings had been discontinued, after repayment of the loan to Pink."

The hearing

7 At the hearing, Ms Webster appeared for The Law Society and Ms Muston represented the Legal Services Commissioner ("Commissioner"). The Commissioner thereby became a party to the proceedings under Section 559 (5) of the Act as the Second Respondent. The Solicitor represented himself.

8 Ms Webster requested the Tribunal to make Orders in terms of the Instrument of Consent. Ms Muston supported Ms Webster's request. The Solicitor stated that he also consented to Orders being made in the terms of the Instrument of Consent.

9 At the outset of the hearing, the Tribunal indicated to the parties, in accordance with the discretion given to the Tribunal under Section 564 (10) of the Act when deciding whether to make Orders pursuant to the Instrument of Consent, they wished to conduct the hearing in the usual manner before reaching their conclusions. In taking this approach, the Tribunal was assisted by the comments of the Tribunal in Council of the NSW Bar Association v Butland [2009] NSW ADT 177, at paragraphs

10 29-31 and 33 and 35, as to the matters to take into account in deciding whether to make the Consent Orders.

11 Ms Webster then tendered, unopposed, the Affidavit by Leo Sidney Gore sworn 20 February 2012, the Affidavit of Paul Monaghan sworn 8 February 2012, the Affidavit of Anne-Marie Foord sworn 2 February 2012 together with the Instrument of Consent signed by all parties, with the Agreed Statement of Facts attached.

12 The Solicitor tendered, unopposed, a document headed "Submissions" which contained background material of the events leading up to the conduct complained of. The document was comprehensive in its terms and honest in its recounting of events leading to the Solicitor appearing before the Tribunal. The Solicitor said that he found it both humiliating and depressing to be appearing before the Tribunal but did not cavil with the Statement of Agreed Facts or blame any other person but himself for the events that occurred.

Discussion and Conclusions

13 The Solicitor's conduct, as particularised in the Agreed Statement of Facts, clearly amounted to professional misconduct. Rule 12 provides the following:

"12. Practitioner and client - Borrowing transactions

12.1 A practitioner must not borrow any money, nor assist an associate to borrow any money from a person -

12.1.1 who is currently a client of the practitioner, or the practitioner's firm;

12.1.2 for whom the practitioner or practitioner's firm has provided legal services, and who has indicated continuing reliance upon the advice of the practitioner, or practitioner's firm in relation to the investment of money; or

12.1.3 who has sought from the practitioner, or the practitioner's firm, advice in respect of the investment of any money, or the management of the person's financial affairs.

12.2 This Clause does not prevent a practitioner, or an associate of a practitioner borrowing from a client, which is a corporation or institution described in the Schedule to this Rule, or which may be declared by the Council of the Law Society to be exempt from this Rule.

12.3 A practitioner must not maintain a private finance company and invite, directly or indirectly, the deposit of money with the company on the basis of a representation that -

12.3.1 the money is repayable at call, or on short notice, if that is not assured when the money is deposited; or

12.3.2 that the deposit of the money is, or will be, secured, unless the money is specifically secured by an instrument identifying the lender, the amount deposited, and the security.

12.4 A practitioner must not borrow any money, or permit or assist an associate to borrow any money, from a private finance company which is operated or controlled by the practitioner or the associate of the practitioner.

12.5 A practitioner must not cause or permit a private finance company to pay to any depositors of money to the company a rate of interest on their deposits which is less than the rate charged by the company to borrowers.

The Schedule

1. A banker duly authorised to carry on banking business.

2. An insurance company duly authorised to carry on insurance business.

3. A company registered under the life Insurance Act 1945 of the Commonwealth.

4. A building society registered under the Co-Operation Act 1923 or listed in the Second Schedule of that Act.

5. A building society governed by the Financial Institutions Code 1992.

6. A credit union governed by the Financial Institutions Code 1992.

7. A trustee company mentioned in the First Part of the Third Schedule to the Trustee Companies Act 1964.

8. The Public Trustee.

9. A non-bank financial institution which is governed by the Financial Corporations Act 1974 of the Commonwealth or the Financial Institutions Code 1992.

10. A company the securities in which are listed on a member exchange of the Australian Associated Stock Exchanges or a foreign company the securities of which are quoted fo rtrading on a stock exchange or in a market for the public trading in securities.

11. A government, governmental body, agency, department, authority or instrumentality, whether foreign, federal, state or local.

12. A company having the majority of its issued share capital to which voting rights attach owned by any government, governmental body, agency, authority or instrumentality, whether foreign, federal, state or local.

13. A company related to any of the companies referred to above or a company in which any entity of a type described above has a substantial shareholding as defined in Section 708(i) of the Corporations Law.

14. A member of the immediate family of the practitioner or a corporation, partnership, syndicate, joint venture or trust in which, or in the shares in which, the whole of the beneficial interest is presently vested in one or more members of the immediate family."

14 The lender, Pink Investments Pty Limited, had been a continuous client of the Solicitor from at least 2002 and the Law practice had represented that client in numerous matters.

15 The Solicitor charged with giving independent advice on the transaction, Mr Dezanaulds of Peter R. Murphy & Co.'s office said that he was not informed that Pink Investments Pty Limited was a client of the Solicitor, nor was he aware that the borrower, Personification Investments Pty Limited was the Trustee of the Solicitor's self-managed superannuation fund.

16 It was common ground at the hearing that the Solicitor had made two telephone enquiries to the Ethics Section of the Professional Standards Department of the Law Society of New South Wales, one being on 6 February 2006 and the other on 15 February 2007. Evidence was given by way of Affidavit by Paul Monaghan, the Senior Ethics Solicitor of the Ethics Section of the Law Society that he had no clear recollection of any particular enquiry made of him by Mr Lyons, but the Ethics Section database records two telephone enquiries made by the Solicitor on conflict of interest questions, as set out above. Mr Monaghan in his Affidavit stated that no documents were ever provided to the Ethics Section by Mr Lyons in relation to the type of arrangement that he was anticipating entering into and that the first documentation relating to the transaction he saw was in late September 2009 when enquiries were made of him by a Solicitor of the Professional Standards Department.

17 Mr Monaghan goes on to say in his Affidavit that in order to have given advice in relation to the transaction between the Solicitor, Personification and Pink, careful review of the documents would have been required. Mr Monaghan notes that a letter was written by the Solicitor to Peter R Murphy & Co. dated 19 February 2007 requesting that firm to provide independent legal advice to Pink but that such letter did not detail the nature of the transaction proposed, nor make it clear that Personification was the Trustee of Mr Lyon's self-managed superannuation fund.

18 Mr Monaghan goes on to say that had Mr Lyons consulted him in relation to a proposed borrowing from any client of his, he would have been advised that the lender required independent advice and that Mr Lyons was required to comply with the provisions of Rule 12 of the Revised Professional and Conduct Practice Rules.

19 In his submissions, the Solicitor agreed that at no time did he "get into specifics" with Mr Monaghan during his telephone discussion. Unfortunately for the Solicitor, that left him in the position of believing that, provided the negotiations were at arm's-length in that the lenders were given independent advice, it was possible for him to borrow the monies from Pink. The Solicitor further states in his submissions that he did not raise with Mr Monaghan the fact that the borrower was the Trustee of his superannuation fund, nor did he raise that aspect with Pink.

20 In all the circumstances, the Tribunal is satisfied that the conduct complained of constitutes professional misconduct and the Tribunal makes that finding.

21 In relation to penalty, the Tribunal has directed its mind to this aspect and is satisfied that the penalty sought by the Law Society is appropriate in the circumstances.

22 Accordingly, we make orders as follows:

1. James William Lyons be reprimanded.

2. James William Lyons pay a fine in the sum of $6,000.00.

3. James William Lyons pay the costs of the Applicant of and incidental to the Application.

Delay

23 The Tribunal was troubled by one aspect of the proceedings namely, delay. The evidence presented shows that a Trust Account inspection took place at the Solicitor's office on 3 June 2009 and that as early as 3 August 2009 the Solicitor admitted the breach of Rule 12. Indeed, in his letter to the Law Society dated 3 August, 2009 the Solicitor admitted the breach and asked:

"leaving all that aside, what would you like me to do in relation to operating and continuing to practise as a solicitor?"

24 There followed a series of correspondence between the Law Society Professional Standards Department and the Solicitor, mainly directed to whether the Solicitor could discharge the loan at that point in time to avoid a continuing breach and then on 4 February 2010 the Professional Conduct Committee resolved that the Solicitor be informed that, in the Committee's opinion, the matter should be referred to this Tribunal and that orders should be sought that his name be removed from the Roll.

25 By letter dated 11 February 2010 from the Professional Standards Department of the Law Society, the Solicitor was notified that the Professional Conduct Committee of the Society had resolved that the matter be referred to the Tribunal, subject to any submissions that the Solicitor might like to make. It is not apparent, from the papers before the Tribunal, what happened between the date of that letter and 23 May 2011 when a further letter was written from the Professional Standards Department to the Solicitor seeking information in relation to litigation which had been instituted by the lender against Personification in order that the Society could finalise its position in relation to a referral to the Tribunal.

26 The next letter from the Society to the Solicitor is dated 5 September 2011 notifying him of the resolution made by the Professional Conduct Committee to refer the matter to the Tribunal on the basis that there was a reasonable likelihood that the Solicitor would be found by the Tribunal to have engaged in professional misconduct on the basis of the circumstances referred to above. The resolution also stated that the orders to be sought were:

1. The Solicitor be publicly reprimanded;

2. The Solicitor pay a fine;

3. The Solicitor pay the costs of the Society;

4. Such other orders the Tribunal deems meet and fit.

27 It appears that the Disciplinary Application was not filed in the Tribunal until 23 February, 2012.

28 At the hearing, Presiding Judicial Member Fairlie sought an explanation for the delay particularly given the Solicitor's early plea but Counsel representing the Society was unable to assist in answering this question.

29 The Tribunal is of the view that the delay in bringing these proceedings to the Tribunal is unacceptable. Moreover, it has resulted in the Solicitor living under the shadow of disciplinary proceedings for a period of 3 years in circumstances where the offence was admitted at the outset, there was no contest of the facts and the Solicitor had consented to the orders sought by the Law Society.

**********

Decision last updated: 13 August 2012