Administrative Decisions Tribunal New South Wales

• Medium Neutral Citation: Council of the Law Society of NSW v Isaac [2012] NSWADT 203
• Hearing dates: 3 September 2012
• Decision date: 03 September 2012
• Jurisdiction: Legal Services Division
• Before: D Fairlie, Judicial Member; S Hale, Judicial Member; S Hayes, Non - Judicial Member

Decision

That the name of Henrick Isaac be removed from the Roll; and that

Henrick Isaac pays the costs of the Law Society of New South Wales as agreed or assessed.

• Catchwords: Professional Misconduct - misappropriation Failing to account for counsels' fees
• Legislation Cited: Legal Profession Act 2004
• Category: Principal judgment
• Parties: The Council of the Law Society of New South Wales (Applicant); Henrick Isaac (Respondent)
• Representation: Ms C Groenewegen (Applicant); Carneys Lawyers Pty Limited (Respondent)
• File Number(s): 112032

REASONS FOR DECISION

1 On 3 September 2012, this matter came before the Tribunal for hearing. Having regard to the admissions made by the Solicitor in his Reply, and confirmed by his counsel at the hearing, we made orders at the conclusion of the hearing, that the Solicitor's name be removed from the local roll of lawyers, as defined in s32 of the Legal Profession Act 2004 ("the Roll"), and that he pay the Law Society's costs.

2 We indicated that we would publish our Reasons as soon as practicable. These are those Reasons.

Reasons

3 On 30 November 2011 the Council of the Law Society of New South Wales ("the Law Society"), filed an Application with the Tribunal, asserting that Henry Isaac ("the Solicitor"), was guilty of professional misconduct.

4 Seven Grounds were particularised in the Application. The first three Grounds arose from a complaint made by a barrister, Mr David Baran. They were as follows:

(1) 1A Misappropriation of funds received from the defendant's solicitor in the matter of Betrayhani v Pham and Ors

(2) 1B Failure to inform the complainant (Baran) of progress in relation to the assessment process

(3) 1C Lying to the complainant in relation to progress of the assessment and his receipt of funds which the complainant was entitled to receive

5 The remaining four Grounds arose from a complaint made by the Law Society itself in relation to the same matter, and were as follows:

(4) 2A Misleading or attempting to mislead a Trust Account Inspector

(5) 2B Failing to account to the Estate of the late Brian Donovan QC

(6) 2C Failing to account to Simon J Burchett of Counsel

(7) 2D Misappropriation

6 Detailed particulars were provided for each Ground.

7 As each complaint arises out of essentially the same matter, it is convenient now to set out shortly the relevant facts. In 2003, the Solicitor, then the principal of the firm Barclay Benson, engaged each of the counsel referred to above, Mr Brian Donovan QC, Mr Simon Burchett and Mr David Baran, to represent his clients who sought to recover moneys they had invested in the entity known as Karl Suleman Enterprises.

8 Professional negligence proceedings were commenced against the firm of solicitors who had acted for Karl Suleman Enterprises. Each barrister entered into a fee agreement with the Solicitor to the effect that they would not charge until the matter was completed, either by way of a successful verdict or a settlement in favour of the plaintiffs.

9 The proceedings were settled in 2005, on the basis of a payment to the Solicitor's clients, and costs, with the costs to be agreed or assessed. Mr Donovan then submitted his account to the Solicitor in the amount of $38,350, Mr Burchett in the amount of $27,100.45 and Mr Baran in the amount of $109,450 (each exclusive of GST).

10 The solicitor was unable to agree to these fees, or his own costs with the defendant's solicitor, so application for an Assessment was filed. Counsel agreed to await the outcome of that process and to claim only the amount allowed to them in the Assessment.

11 On 18 March 2008, the Cost Assessor issued an Interim Certificate of Determination in the amount of $68,139.11, and this amount was paid into the Solicitor's trust account by the cost respondent on 18 April 2008.

12 On 22 April 2008, this entire amount was paid by the Solicitor from his trust account into his own account. The Law Society made no complaint about this transaction. We were informed that the Interim Determination applied only to the Solicitor's own costs in the litigation, and did not cover counsels' fees.

13 On 24 November 2008, the final Certificate of Determination was issued by the Cost Assessor for the additional amount of $189,139.11. Counsels' fees, with the exception of the success fee uplift claimed by Mr Burchett and Mr Baran, were allowed in full. Thus Mr Donovan's estate (he had died earlier in the year), became entitled to payment of $38,350, Mr Burchett to $32,000 and Mr Baran to $89,281.

14 The amount of $189,139.11 was received by the Solicitor on 14 January 2009, and was deposited by him into his office account. That account had a credit balance of approximately $2,500 at that date. Thereafter, in the next two weeks, the Solicitor withdrew all of the funds in his office account for his own use, leaving a balance of only $986.56 by 30 January 2009. The majority of the money was used to pay debts associated with the failure of the company, Bridal Banc Pty Limited, in which the Solicitor was a joint owner.

15 The Solicitor did not inform counsel, or Mr Donovan's executors, that the Certificate of Determination had issued, or that he had been paid their fees. Thereafter, Mr Baran continued to enquire about the progress of the costs assessment, but was informed by the Solicitor that it still had not been completed. Finally on 3 July 2009, the Solicitor admitted to Mr Baran that he had received the money for his fees 6 months earlier, and that he had taken it for his own use.

16 At the hearing the Law Society read without objection, affidavits from Ms Foord, the Manager of its Professional Standards Committee, Mr Sofiak, one of its trust Account Inspectors, as well as from Mr Baran and Mr Burchett, in support of the matters contained in its Application.

17 The Solicitor's legal representatives filed a Reply on his behalf on 3 July 2012, admitting to the matters set out above in paragraphs 6 -14, and also admitting that, as a consequence, he was guilty of professional misconduct, and consenting to the orders sought by the Law Society in its Application. For this reason the Tribunal made orders on the day of the hearing, that the Solicitor's name be removed from the Roll and that he pay the Law Society's costs.

18 However, the Reply also contained denials of some of the matters particularised in the Application, and on 30 August 2012, the Solicitor filed an affidavit in which he put forward his version of certain conversations to support these denials.

19 The affidavit also contained a large amount of background material about the Solicitor's business dealings at the relevant time and earlier, which was objected to at the hearing by the Law Society's counsel on the ground of relevance. We upheld those objections.

20 In relation to the conversations, there was material contained in the affidavit, which, if accepted, could put in issue two of the seven Grounds for complaint in the Application. These were Ground 1C - Lying to the Complainant, Mr Baran, and Ground 2A - Misleading the Trust Account Inspector. There was also a denial of paragraph (d) in Ground 2C, consistent with the denial of paragraph (f) in Ground 2A. However this did not go to the substance of the complaint in Ground 2C, which was an allegation of failure to account.

21 It was accepted by the Solicitor that the evidence in the Law Society's affidavits, coupled with the admissions made in the Solicitor's Reply, supported the other Grounds, and, in particular, the Grounds alleging misappropriation and acting in contravention of section 255(1)(b) of the Legal Profession Act 2004.

22 Initially the Solicitor's counsel stated that his affidavit was read only as material "for the record", which may be relevant if the Solicitor ever made an application to be reinstated to the Roll in the future.

23 Ms Groenewegen, who appeared for the Law Society, informed the Tribunal that the Law Society pressed all seven of its Grounds, and would object to any part of the affidavit being read, unless the Solicitor made himself available for cross - examination. After a short adjournment, the Solicitor indicated that he was prepared to be cross - examined on its contents.

24 The relevant conversations were, firstly, that between the Solicitor and Mr Baran on 3 July 2009, when the Solicitor first admitted that he had misappropriated Mr Baran's fees, and then two subsequent conversations with the Law Society's Trust Account Inspector, Mr Sofiak, on 10 August 2009 and 19 August 2009.

25 In relation to the conversation with Mr Baran, Mr Baran's account, at paragraph 3 of his affidavit, was as follows:

"HI: (the Solicitor) We received an assessment for $76,000.

DB: (Baran) When did that happen?

HI: Some time ago.

DB: Why didn't you tell me? What's happened to the money?

HI: I took it. I had a lot of bills to pay and I have had problems with the Taxation Department and I had to use all the money.

DB: Henrick, that's theft. You have stolen my fees. You are a trustee of moneys that you receive for and on behalf of a barrister. You had no right to pay monies out to anyone else because the money belonged to me. I had rendered a bill for approximately $120,000 and I understood that there would be a fair prospect that at least $80,000 would be allowed on assessment.

HI: We only got $76,000.

DB: Why didn't you tell me?

HI: I was too embarrassed.

DB: Henrick you have stolen money that doesn't belong to you. You have committed an act of larceny and fraud. What you have done in effect constitutes an indictable offence. Ordinarily a person who commits this sort of offence could face a custodial sentence.

HI: I was just too embarrassed to tell you about it.

HI: I am very sorry DB: It's just not good enough. What are you going to do about it?

HI: Given what was owed to you and what was owed to me I am prepared to pay you half of the monies that I received within 4 to 6 weeks.

DB: No, I am prepared to give you a further two weeks to pay me half, namely $38,000 and thereafter I'm going to consider my position. What you have done constitutes a crime and professional misconduct.

HI: I was just too embarrassed."

26 In other words, Mr Baran's evidence, was that not only did the Solicitor admit to him that the had misappropriated his fees, but that he also represented, falsely, that the total amount he had received after the assessment was only $76,000, whereas he had received approximately $68,000 from the Interim Determination and a further $189,000 from the Final Determination, including $89,100 for Mr Baran's fees.

27 This evidence was used to support Paragraphs (d) and (g) in Ground 1C, that the Solicitor had lied to Mr Baran about the receipt of the funds which the Barrister was entitled to receive.

28 The Solicitor's version of the conversation, as contained in his affidavit, was in similar terms, in relation to his admission to Mr Baran that he had taken his fees. However, he denied that he had also said to him that he had only received $76,000 from the Assessment.

29 Nevertheless, in the Solicitor's account, he conceded that Mr Baran did refer specifically to an amount of $38,000. He said that Mr Baran had concluded the conversation by stating:

"OK I expect you to start sending me briefs very soon and I want $38,000 in two weeks."

30 As Ms Groenewegen submitted, it can readily be inferred that the reason that Mr Baran requested the payment of $38,000 within two weeks, was because he had been told that only $76,000 was available. It would have been a remarkable coincidence for him to have nominated this amount, being exactly half of the $76,000, unless that amount had been mentioned by the Solicitor first.

31 Under cross - examination from Ms Groenewegen, the Solicitor did not change his position. He maintained that the reference to the $38,000 by Mr Baran, was no more than an approximate estimate of half of what Mr Baran thought that the Cost Assessor would allow him for his fees.

32 The Tribunal has come to the view that Mr Baran's account of this conversation is to be preferred. In coming to this conclusion we have taken into account the fact that the Solicitor did not seek to cross - examine Mr Baran on the contents of his affidavit. Also we do not accept that Mr Baran allegedly asked for more work from the Solicitor, as is contained in the Solicitor's version of the conclusion of the conversation, but not in Mr Baran's version.

33 It follows that we find that Paragraphs (d) and (g) of Ground 1C are made out. We note that in any event Paragraphs (a - c) of Ground 1C, to the effect that the Solicitor had already informed Mr Baran on a number of occasions before they met on 3 July 2009, that the Assessment had not been completed (when it had been), had been admitted by the Solicitor. This is sufficient to support the Ground in the Application that the Solicitor lied to Mr Baran.

34 In relation to the conversations between the Solicitor and Mr Sofiak, the first one took place at the Law Society's premises on 10 August 2009. Mr Sofiak's evidence is that when he raised with the Solicitor the receipt of the funds into his office account after the final Certificate of Determination had issued, by asking the following question:

"Where did the $189,139.11 come from?",

the Solicitor replied,

"It relates to the same matter. This does not constitute any money to any one else but myself and David (Baran)".

This statement, if made, was not accurate as the payment included the late Mr Donovan's fees and Mr Burchett's fees as well.

35 The Solicitor denied making this statement, and maintained this position under cross- examination. His position, as we understood it, was that he responded to Mr Sofiak's question by stating that the funds he had received included his own costs and Mr Baran's fees, but this was not intended to suggest that the funds did not include payment for other persons as well.

36 In relation to the second conversation between Mr Sofiak and the Solicitor on 19 August 2009, at the Bridal Banc factory at Wetherill Park, where the Solicitor kept his records, Mr Sofiak's evidence was that, in response to this question:

"Have you paid Simon Burchett?".

the Solicitor replied,

"This matter was settled prior to the assessment".

In his evidence, the Solicitor said that in response to this question, he replied:

"I don't know. I have to see his invoice in the file. We had a dispute with Mr Burchett about his fees which was settled. I also need to locate that file and see if he was paid in that settlement or not".

37 It was common ground that at the date of that conversation, Mr Burchett had not received any payment from the Solicitor for his fees the subject of the Assessment. There had also been disputes between them in relation to other fees incurred by Mr Burchett.

38 It may be that the differences in these versions of the conversations arose out of genuine misunderstandings as to what the parties said to each other. In any event we have come to the view that it is not necessary for us to determine which of the two versions are to be preferred.

39 This is because in her submission to us at the conclusion of the evidence, Ms Groenewegen said that the Law Society did not allege that the Solicitor intended to mislead Mr Sofiak, only that his responses may have had that effect. She also did not press in paragraphs (d) and (h) of Ground 2A, the words "or was an attempt to mislead the Trust Account Inspector".

40 This concession has lead us to the conclusion that if it is alleged that the misleading conduct was only inadvertent and not deliberate, then this Ground could not substantiate a finding of professional misconduct in any event, whatever precisely was said by the Solicitor to Mr Sofiak. We should add that had we been required to decide this issue, we would have given significant weight to the fact that, as with Mr Baran, the Solicitor did not challenge any part of Mr Sofiak's affidavit evidence and did not require him to attend for cross- examination.

41 Further, the disputes about these matters are to a large extent peripheral to the main issue, which is that the Solicitor misappropriated significant amounts of money from barristers whom he had briefed, to pay his own debts. As Mr Baran noted when the Solicitor first informed him of what he had done, this amounted to theft, as well as amounting to a gross breach of trust, for which the only appropriate penalty is that his name be removed from the Roll.

42 For completeness we should add that Mr Titus, who appeared for the Solicitor, tendered without objection a report from a psychiatrist Dr Subhas, dated 30 August 2012. He had seen the Solicitor on 4 May 2012. Dr Subhas' initial diagnosis was of Bipolar 11 Disorder. His report also referred to severe depression and mood swings, for which the solicitor was prescribed medication. In his affidavit the Solicitor said that he intended to continue attending Dr Subhas, although he had not yet had a further consultation by the date that the matter came before the Tribunal.

43 Also, for the record, we note that we were informed by Ms Groenewegen that Mr Baran, Mr Burchett and the late Mr Donovan's estate, have now received the full amount of their fees from the Law Society's Fidelity Fund.

Orders

44 We therefore confirm the orders that we made on 3 September 2012 that:

1 The name of Henrick Isaac be removed from the Roll; and

2 Henrick Isaac pay the costs of the Law Society as agreed or assessed.

 

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Decision last updated: 05 October 2012