Administrative Decisions Tribunal New South Wales

• Medium Neutral Citation: Law Society of NSW v Marando [2013] NSWADT 267
• Hearing dates: 13 May 2013
• Decision date: 25 November 2013
• Jurisdiction: Legal Services Division
• Before: J Currie, Judicial Member; M. Riordan, Judicial Member; E. Hayes, Non-Judicial Member

Decision

The Respondent is guilty of professional misconduct as alleged in the Application.

• Catchwords: Disciplinary proceedings - solicitor - breach of section 255 Legal Profession Act - failure to hold trust money in a trust account exclusively for the person on whose behalf it is received and failure to disburse the trust money only in accordance with a direction given by the person - professional misconduct under section 496 Legal Profession Act - unsatisfactory professional conduct - purpose of the imposition of penalty orders including a fine.
• Legislation Cited: Legal Profession Act 2004; sections 255,496,497.
• Cases Cited: Council of the New South Wales Bar Association v Asuzu [2011] NSWADT 289 at [37-43].; Council of the Law Society of New South Wales v Webb [2012] NSWADT 114; Allinson v General Council of Medical Education and Registration [1894] 1 QB 750.; Council of the Law Society of New South Wales v Autore [2012] NSWADT 139.; Myers v Elman [1940] AC 282 at 288.; Prothonotary of the Supreme Court of New South Wales v Costello [1984] 3 NSW LR 201 at 203.; Re Hodgekiss (1962) 62 SR (NSW) 340 at 351.; New South Wales Bar Association v Hamman [1999] NSWCA 404.
• Category: Principal judgment
• Parties: Council of the Law Society of New South Wales (Applicant); Mark Paul Marando (Respondent)
• Representation: Counsel; C Webster SC (Respondent); Law Society of NSW (Applicant); Redmond Hale Simpson (Respondent)
• File Number(s): 122031

reasons for decision

1 This matter involves a claim by the Council of the Law Society of New South Wales ("the Law Society" or "the Applicant") that a practising solicitor, Mr Mark Paul Marando ("the Respondent"), is guilty of professional misconduct by reason of his failure to hold an amount of $41,200 in his trust account exclusively for those persons on whose behalf it was received and his failure to disburse that amount and in accordance with a direction given by those persons, contrary to section 255 of the Legal Profession Act 2004 (NSW) ("the Act").

The Application, orders sought and the Reply

2 In its Application for Original Decision filed with the Tribunal on 15 November 2012, the Law Society seeks a decision under Part 4.8 of the Act and seeks orders that the Respondent be reprimanded, be fined, and not be issued with a practising certificate to practice as a principal until he has undertaken and successfully completed a Trust Accounting Course and produces satisfactory evidence of his successful completion of that course. The Law Society also seeks an order that its costs, as agreed or assessed, be paid by the Respondent and any other order that the Tribunal deems appropriate. The Respondent filed a detailed Reply on 6 March 2013. He also filed a detailed affidavit sworn by him on 18 March 2013 and two character affidavits.

The Agreed Facts

3 At the commencement of the hearing the legal representatives for each of the parties indicated to the Tribunal that the parties had agreed as to many of the facts relevant to the matter and that an Agreed Statement of Facts had been prepared and signed by the respective solicitors for the parties. The Agreed Statement of Facts document was handed up at the hearing. The relevant parts of that Statement are set out below with occasional notations by the Tribunal. These notations indicate minor changes or additional relevant matters which became apparent to the Tribunal during the hearing and which were not in dispute Except where indicated, the paragraph numbers below correspond to those in the Statement. The Statement begins with a brief description of the Respondent's background and nature of his practice.

4 It is recited in paragraphs 3 and 4 of the Statement that for all relevant purposes that the Respondent had an interest, through a family trust, in a company called Gee Ha Pty Limited ACN 100 040006 ("Gee Ha"), that the remaining equity in Gee Ha was held by Mr Anthony Baroni and Mr Michael Herrera. (Notation: It became apparent during the hearing that each of the three principals of Gee Ha apparently held their interest in that company through a family trust vehicle, so that the registered shareholders of Gee Ha were the corporate trustees of each of their respective family trusts: M & M Marando Investments Pty Ltd as trustee of the Marando Family Trust, Baroni Family investments Pty Ltd as trustee of the Baroni Family Trust and Netmade Pty Ltd as trustee of the Herrera Family Trust.) At all relevant times the directors of Gee Ha were Mr Baroni, Mr Herrera and the Respondent. The Respondent was the Company Secretary of and the company solicitor for Gee Ha. It is agreed that the Respondent did not charge Gee Ha for any work done for it by the Respondent's firm, Marando Solicitors.

5 At all material times Gee Ha was involved in the development of seven residential units and a shop, on land situated at 114A Quay Road, Callala Beach, New South Wales ("the Quay Road Development"). This development was funded by an initial loan of $2,331,000 made in September 2006 from a company called Kingsway Group Pty Limited, ACN 089 254127 ("Kingsway"). Further advances were made from time to time by Kingsway as the development proceeded. The Kingsway advances were secured by a first mortgage over the property and personal guarantees given by the principals of the company, namely the Respondent, Mr Baroni and Mr Herrera.

6 Mr Baroni, Mr Herrera and the Respondent held equal interests in Gee Ha. (Notation: these interests being held through their respective family trusts as noted in paragraph 4 above).

7 Gee Ha experienced difficulty in selling the units.

8 Gee Ha was in arrears of its loan repayments to Kingsway at all relevant times.

The sale of the Carson Crescent Property and proposed purchase of Unit 2 in the Quay Road development.

9 The Respondent acted on numerous matters for four members of the Herrera family, being Mr Michael Herrera, his wife Mariana, and Mr Michael Herrera's parents Mr Felix and Mrs Augustina Herrera (the four members of the Herrera family being collectively referred to as "the Herreras"). Most of these matters involved conveyancing. The Respondent did not charge the Herreras for the legal work he did for them. He invariably received instructions from Mr Michael Herrera on behalf of the Herreras.

10 The Herreras owned a property at 9 Carson Crescent, Callala Bay ("the Carson Crescent Property").

11 The Respondent prepared a draft contract for the sale of Unit 2 of the Quay Road Development from Gee Ha as vendors, to the Herreras as purchasers ("the Unit 2 Purchase").

12 Contracts for Sale of Land in respect of the Carson Crescent Property were exchanged on 17 February 2010. Under the Contract for Sale the Herreras as vendors agreed to sell the Carson Crescent Property to a Mr and Mrs Jennings ( "the Purchasers") for $412,000. The deposit payable under that Contract the Sale was $41,200.

13 The Respondent acted for the Herreras on this sale.

14 Significantly, Clause 38 of the Contract for Sale for the Carson Crescent Property provided as follows:

"In the event that the Vendor is purchasing another property the Purchaser agrees to release to the Vendor the deposit also much of the deposit as is required for use by the Vendor as a deposit on the purchase of another property and stamp duty associated with such purchase, and this Special Condition is sufficient authority for the release of same."

15 By letter dated 15 February 2010 from the Purchasers' solicitors, the Purchasers forwarded to the Respondent the Contract for Sale for the Carson Crescent Property duly executed by them together with the cheque for the deposit of $41,200 payable to the real estate agents acting on the sale.

16 On 17 February 2010 the deposit cheque was banked into the Trust Account of the Respondent's firm. (It appeared from the Respondent's evidence that the payment of the deposit cheque into the Trust Account rather than to the real estate agents acting on the sale was approved by the Purchasers' solicitors. This was not disputed.)

17 Settlement of the sale of the Carson Crescent Property was due on 31 March 2010.

The events of 22 February 2010

18 On Friday 19 February 2010 at around 6 PM the Respondent had a telephone conversation with Mr Michael Herrera.

19 Shortly after this conversation, the Respondent telephoned Mr Antony Baroni.

20 On 22 February 2010 the Respondent:

(a) withdrew the deposit from the Trust Account by way of a cheque made payable to Gee Ha and caused that amount, that is $41,200, to be credited to Gee Ha; and

(b) arranged for an amount of $30,470.81 to be paid by Gee Ha to Kingsway, as part repayment of the loan owing by Gee Ha to Kingsway.

21 On 22 February 2010 at 5:54 PM the Respondent received an email from Mr Michael Herrera instructing that the settlement monies from the sale of the Carson Crescent Property were to be deposited into a St George Bank account held in the name of Felix Herrera.

22 On 23 February 2010 at 1:07 PM the Respondent sent Mr Michael Herrera an email stating as follows:

"I'm holding the 10% deposit. The purchasers have agreed to let me hold the deposit rather than the agent. Going to get deposit released for Gee Ha purchase and get it back to you on settlement. Is your share going to Felix then coming back to me?"

23 On 23 February 2010 at 4:29 PM Mr Michael Herrera sent an email to the Respondent stating as follows:

"No probs for you to use money until settlement, but full amount of approx. $75,000 is going to my mum and dad. This includes my wife and my share, as this is their money as discussed."

The Respondent states that he understood the words "until settlement" to refer to a settlement of the Unit 2 Purchase, that is the purchase by the Herreras from Gee Ha.

24 The Respondent accepts that by reason of the withdrawal of the deposit from the Trust Account on 22 February 2010 (as described in paragraph 20 above), his statement in his email at 1:07 PM on 23 February 2010 as to holding the deposit was false. The Respondent says that he made that statement without any intention to deceive or to conceal anything from Mr Michael Herrera.

25 On 23 February 2010 at 8:47 PM the Respondent received a further email from Mr Michael Herrera which stated, relevantly:

"... Always made it clear that my dad wanted the whole amount (approx. $75,000-$80,000 remaining from settlement of Callala Bay). My dads (sic) decision remains unchanged. He would like the above amount from the Sale at Callala Bay on settlement 31/3/2010."

The Respondent states that he then understood (for the first time) that only Mr Michael and Mrs Mariana Herrera would purchase unit 2 of the Quay Road Development from Gee Ha. (Notation: although it does not form part of the Agreed Statement of Facts, it is the clear implication from the Respondent's affidavit at paragraph 31 that he asserts that he had believed prior to that time that all four of the Herreras would be purchasing Unit 2 at the Quay Road development and, more significantly perhaps, that he believed on the basis of a telephone conversation with Mr Michael Herrera on Friday 19 February 2010 at about 6 PM that Mr Herrera had authorised him, the Respondent, on behalf of all four Herreras, to release the deposit on the sale of the Carson Crescent property and apply it towards the purchase by the Herreras of unit 2. However there was no concession by the Law Society of the accuracy of any of these facts).

26 The Respondent admits that once he became aware on 23 February 2010 that not all of the Herreras would be the purchasers of Unit 2 at the Quay Road development, there was no basis for the application of the whole or any part of the deposit received in respect of the Carson Crescent Property to payment of the deposit in respect of the purchase of Unit 2 at the Quay Road development, and that he should at that time have caused Gee Ha to refund the amount paid to it on 22 February 2010 (that is the $30,470.81 paid by Gee Ha to Kingsway as referred to in paragraph 20 (b) above).

27 The Respondent admits that:

(a) in acting as the solicitor for both Gee Ha and the Herreras he failed to appreciate and avoid a conflict of interest;

(b) by using the deposit paid in respect of the Carson Crescent Property purchase (that is the $41,200 referred to in paragraph 12) to reduce Gee Ha's indebtedness to Kingsway (that is by way of the payment to Kingsway of $30,470.81 as referred to in paragraph 20 (b) above), he preferred the interests of Gee Ha and ultimately his own interests to those of his clients the Herreras; and

(c) he thereby breached his fiduciary duty to the Herreras.

28 Settlement of the sale of the Carson Crescent Property occurred on 31 March 2010. The net proceeds of sale were $73,266.51 comprising the deposit of $41,200 and a balance of $32,066.51.

29 By email dated 31 March 2010 at 4:29 PM the Respondent informed Mr Michael Herrera that:

"Settlement went through today $32,066.51 going into Felix account tomorrow morning or Cheque can be collected Tell your father Balance $41,200 balance (sic) not available yet. Need a couple more weeks..."

Mr Michael Herrera replied by email on the same date sent at 5:53 PM in the following terms:

"Mark. Hope all is well. Thanks for that. Will let Pa know. Please deposit the $32,066.51 into Pa's account..."

30 On 1 April 2010 a settlement bank cheque for $32,066.51 was deposited into the bank account of Mr Felix Herrera.

31 On 24 May 2010 the Respondent, using his own funds, deposited $4,566.75 into the bank account of Mr Felix Herrera.

32 On the basis of an even distribution of the net proceeds of sale, the Herreras were entitled to the following:

Felix and Augustina Herrera: $36,633.26; and

Michael and Mariana Herrera: $36,633.25.

33 Felix and Augustina Herrera received their full entitlement from the sale of the Carson Crescent Property. A total of $36,633.26 was paid to Felix and Augustina Herrera by the settlement bank cheque of $32,066.51 referred to in paragraph 30 above plus the payment to their account by the Respondent of $4,566.75 referred to in paragraph 31 above.

34 On 20 April 2010 the accountant for Gee Ha sought clarification of the $41,200 deposited into Gee Ha's accounts on 22 February 2010. By a reply email sent on 17 June 2010 the Respondent characterised this as being: "Herrera Capital $36,633.25, Marando Capital $4566.75." Mr Michael Herrera contested this characterisation in an email which he sent on 17 August 2010 having previously made his views known in an email sent on 7 June 2010.

35 By Statement of Claim filed in the Supreme Court of New South Wales on 22 July 2010, Kingsway as plaintiff sought to recover from Gee Ha as first defendant, and Gee Ha's three directors as the other defendants, monies outstanding as a consequence of loans which Kingsway had made to Gee Ha, which had been guaranteed by the directors of that company.

36 Gee Ha was deregistered under the Corporations Act on 12 May 2011 because annual review fees had not been paid to the Australian Securities and Investments Commission ("ASIC"). However Gee Ha was restored to the register in December 2012 after the Respondent paid outstanding review fees and satisfied other ASIC requirements.

37 A default judgment in the proceedings in the Supreme Court commenced by Kingsway was entered against Mr Antony Baroni on 18 August 2011 and on 12 October 2011 judgement was ordered against the Respondent in the sum of $4,657,675.51. Mr Michael Herrera was by this time an undischarged bankrupt. On 24 April 2012 the Respondent reached an agreement with Kingsway in respect of the judgement against him and this was recorded in a deed dated 24 April 2012 between Kingsway, Stacks Managed Investments Ltd and the Respondent.

38 Mr Michael Herrera and Mrs Mariana Herrera did not receive from the Respondent their entitlement from the sale of the Carson Crescent Property of $36,633.25.

39 The Respondent states that he intends to indemnify Mr Felix Herrera and Mrs Augustina Herrera in relation to any guarantees they provided on behalf of Gee Ha and to pay the sum of $36,633.25 (presumably to Michael and Mariana Herrera) as soon as the funds become available from the sale of Unit 2 of the Quay Road development.

40 The Respondent has not been the subject of any previous disciplinary action.

The Law Society's case

41 The Law Society's evidence consisted of an affidavit of Ms Anne-Marie Foord, the Manager of the Professional Standards Department of the Law Society, sworn on 30 October 2012 outlining the course of the Society's investigation of the matter and annexing relevant correspondence, together with an affidavit by Mr John Michalski, a Trust Account Investigator of the Law Society, which extracts part of his report under section 270 of the Act of the law practice known as Marando Solicitors which was completed on 19 October 2011. The Respondent was at relevant times a principal of Marando Solicitors.

42 In essence, the Law Society's contention is that the Respondent's actions, particularly those relating to his treatment of the deposit of $41,200 paid on the Carson Crescent Property sale covered at paragraphs 18 to 25 above, amount to a breach by him of section 255 of the Act. The Law Society further contends (as reflected in paragraph 26 above) that upon the Respondent becoming aware that not all four of the Herreras were purchasing Unit 2, there was no proper basis for the application by him of any part of the deposit to pay the deposit in respect of the Unit 2 Purchase, that he should at that time have caused Gee Ha to refund that part of the deposit paid to it (that is $30,470.81), that he admits that he did not do this and that he thereby breached section 255.

43 Section 255 of the Act is in the following terms:

255 Holding, disbursing or accounting for trust money

(1) a law practice must:

(a) hold the trust money deposited in a general trust account of the practice exclusively for the person on whose behalf it is received, and

(b) disburse the trust money only in accordance with a direction given by the person.

Maximum penalty: 50 penalty units.

(2) Subsection (1) applies subject to an order of a court of competent jurisdiction or as authorised by law.

(3) The law practice must account for the trust money is required by the regulations.

Maximum penalty: 50 penalty units.

44 The Law Society also asserts, and the Respondent admits that:

(a) by reason of the withdrawal of the deposit from the Trust Account on 22 February 2010 the statement which he made in his email at 1:07 PM on 23 February 2010 (quoted in paragraph 22 above) that he was "holding the 10% deposit" was false. It is conceded by the Law Society that the Respondent asserts that he made that statement without any intention to deceive or to conceal anything from Mr Michael Herrera;

(b) in acting as the solicitor for both Gee Ha and the Herreras he failed to appreciate and avoid a conflict of interest;

(c) by using the deposit from the Carson Crescent Property transaction of $41,200 to reduce Gee Ha's indebtedness to Kingsway by $30,470.81, he preferred the interests of Gee Ha and ultimately his own interests to those of his clients, the Herreras; and

(d) by doing that he breached his fiduciary duty to the Herreras.

45 It was contended by Ms Groenwegen on behalf of the Law Society that the Respondent's actions amount to professional misconduct.

46 Ms Groenwegen confirmed the Law Society's position was that on the basis of the admitted facts, the other evidence and the professional misconduct of the Respondent it is proper and appropriate for this Tribunal to make the orders which the Law Society seeks in the Application, as summarised in paragraph 2 above.

The Respondent's case

47 The Respondent's case was summarised succinctly by Ms Webster SC of Counsel.

48 Ms Webster SC contended that while the Respondent makes the admissions set out in paragraph 42 above and admits a breach of section 255 of the Act, he says that his actions were careless and for that reason attract the characterisation of unsatisfactory professional conduct rather than that of professional misconduct. Ms Webster SC contended that the Respondent has a "clean record" apart from the allegations arising in this matter and that his character and compliance with the expected standards of a member of this profession are verified by his two character witnesses.

49 Ms Webster SC asked the Tribunal to bear in mind that at an early stage the Respondent acknowledged that his actions were not correct. Commencing with his correspondence to the Law Society and certainly by 20 December 2011, the Respondent has expressed his regret, embarrassment and remorse that the breach had arisen. He voluntarily obtained advice from a panel member of the Law Society's Senior Solicitor laws Scheme and voluntarily enrolled in an Ethics and Professional Responsibility Seminar in September 2012.

50 Ms Webster invited the Tribunal to regard the Respondent's behaviour on this occasion as an isolated incident; a "single instance of breach" of the Act and she contended that it is highly unlikely that any similar conduct will be repeated. In particular, Ms Webster SC argued that the unsatisfactory professional conduct in which the Respondent had engaged was not of a "substantial or consisted nature" so as to constitute professional misconduct under section 497 (1) (a) of the Act.

51 It follows, in Ms Webster SC's contention, that although the Respondent should be reprimanded, he should not be fined and there should be no more serious penalty imposed, particularly in light of the fact that the Respondent agrees that he should attend a course in Trust Accounting and will undertake to do so and that he concedes that he should pay the costs of the Law Society in this matter.

Professional Misconduct and Unsatisfactory Professional Conduct

52 "Unsatisfactory professional conduct" is defined for the purposes of the Act in section 496, in the following terms:

"'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."

53 "Professional misconduct" is defined for the purposes of the Act in section 497, the relevant subsection of which is in the following terms:

"'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, and

(b) conduct of an Australian legal practitioner whether occurring in connection with the practice of law or occurring otherwise than in connection with the practice of law that would, if established, justify a finding that the practitioner is not a fit and proper person to engage in legal practice."

54 However, it is well settled that the statutory definition of professional misconduct does not exclude the common law definition emerging from the oft-cited case of Allinson v General Council of Medical Education and Registration [1894] 1 KB 750).That is conduct:

:"..which would reasonably be regarded as disgraceful or dishonourable by professional [colleagues] of good repute and competency."

Has there been common law professional misconduct here?

55 It was contended by Ms Groenwegen on behalf of the Law Society that the conduct of the Respondent, including the breach of section 255 of the Act but also taking into account his failure to recognise a conflict of interest, his false statement as to the holding of a deposit (as noted in paragraph 24 above) and his breach of his fiduciary duty to his clients, amounts to professional misconduct within the Allinson test.

56 Ms Webster SC, on behalf of the Respondent, contended that there were several reasons why professional colleagues of the Respondent of good repute and competency might regard his conduct as careless or lacking sufficient diligence, but they would not go so far as to regard that conduct as disgraceful or dishonourable. In particular, in Ms Webster SC's contention this is so because:

a) in the circumstances of the case and given the close connection and frequent communication between the Respondent and his co-venturers including Mr Michael Herrera, the true position regarding the deposit was not going to be kept from the Herreras for long;

b) it does not follow from any objective consideration of the chain of emails between the Respondent and Mr Herrera that there was any "design" to conceal that the deposit had been used for the purposes of Gee Ha Pty Ltd, that is in part repayment of the loan monies it owed to Kingsway. If there had been a design to conceal the true position then it would have been better for the Respondent to continue that concealment for as long as possible. He did not do this; and

c) the carelessness which the Respondent exhibited did not arise because he was acting for friends but rather from his expectation that the proposed sale of Unit 2 of the Quay Road development would proceed and his belief that clause 38 of the Contract for Sale of the Carson Crescent Property, particularly the phrase "in the event that the vendor is purchasing another property" extended to the situation where contracts for sale had not been exchanged but there was a clear intention to purchase another property. It is contended that the Respondent believed at the relevant time that that was indeed the situation, the other property being Unit 2 of Quay Road. In short, the Respondent believed at the time that he had proper authority to use the deposit, although he now accepts that that belief was based on an incorrect construction of clause 38.

57 Finally, Ms Webster SC asked the Tribunal to consider the Respondent's conduct as essentially involving a single instance of a breach of the Act. She conceded that the groundwork for this breach was laid by the fact that the Respondent had placed himself in a position of conflict of interest, but contends that a fair construction is that the conflict of interest resulted in a single instance of a breach of the Act. There is no suggestion of a wilful or deceitful misappropriation of money and it should be taken into account that the misuse of the deposit was for the purpose of assisting the company in which the Respondent and his co-venturers were the directors to meet its debt obligations, so there was to that extent mutual benefit from what was done. In saying this, it was suggested that the Tribunal should bear in mind that the respondent repaid the shortfall of $4566.75 to Felix and Augustina Herrera out of his own funds.

58 The Tribunal gave detailed consideration to this issue. The Tribunal noted that in many cases it is difficult to ascertain the point of distinction between carelessness or lack of diligence on the one hand and what would be regarded as disgraceful or dishonourable by professional colleagues of good repute and competency on the other.

59 The additional difficulty is one which was identified by this Tribunal, as then constituted, (which included the presiding Member in the present matter) in the case of Council of the Law Society of New South Wales v Autore [2012] NSW ADT 139. The Tribunal on that occasion commented as follows:

60

"40. In passing, we observe that we have used the phrase 'disgraceful and/or dishonourable' in the preceding paragraph because amongst the various versions of the so-called Allinson test, two different phrases - 'disgraceful or dishonourable' and 'disgraceful and dishonourable' - may be found. The following examples illustrate this point. In Allinson itself and in the ensuing House of Lords case (Myers v Elman [1940] AC 282 at 288) applying the test to the present context of disciplinary proceedings against legal practitioners, the phrase 'disgraceful or dishonourable' was used. But in the judgment of Glass and Samuels JJA in Prothonotary of the Supreme Court of New South Wales v Costello [1984] 3 NSWLR 201 at 203, one finds the phrase 'disgraceful and dishonourable', even though their Honours referred to a number of earlier Supreme Court decisions (for example, Re Hodgekiss (1962) 62 SR (NSW) 340 at 351) where the criterion stated was 'disgraceful or dishonourable'. Among more recent cases, New South Wales Bar Association v Hamman [1999] NSWCA 404 provides (at [21]) a further instance of use of the phrase 'disgraceful and dishonourable'."

61 In the present case the Tribunal has come to the conclusion that the relevant conduct of the Respondent would not be regarded as either disgraceful or dishonourable by professional colleagues of good repute and competency, although the same colleagues would almost certainly regard his conduct as unacceptable, as failing to meet the standards required of a competent and diligent practitioner and as palpably careless. We reach this conclusion by accepting the Respondent's evidence that he had done nothing intentionally misleading that there had been no plan by him to conceal anything from any of his clients or indeed from his co-venturers that he had proceeded on the basis of a mistaken and careless belief that he was entitled to deal with the deposit of $41,200 in the manner in which he did. The Tribunal notes that the Respondent was subject to substantial cross examination as to his position and his belief, including any intention to deceive, at the relevant times. The Respondent's account of what he had done and his intentions was not shaken under cross-examination.

62 It follows that the Tribunal is satisfied that the conduct of the Respondent does not amount to professional misconduct on the common law test. It remains to consider whether that conduct is professional misconduct as defined in section 497 of the Act and whether it amounts to unsatisfactory professional conduct.

Has there been a failure of a "substantial or consistent nature" to reach or maintain an acceptable standard, for the purposes of section 497 (1) (a)?

63 Ms Webster SC on behalf of the Respondent submitted that the conduct of the Respondent did not fall within section 497 (1) paragraph (a) of the Act because it did not involve a substantial or consistent failure to maintain the required standard. As regards the element of consistency Ms Webster SC's contention relies on her analysis that the Respondent's conduct involves a single instance of breach of the Act. The Tribunal understands Ms Webster SC's position to be that even when the admitted conflict of interest, the wrongful statement made on 23 February 2010 as to the holding of the deposit and the breach of fiduciary duty owed to the Respondent's clients is taken into account, these matters are sufficiently inter-connected to be regarded as a "single instance" of breach.

64 The Tribunal is not persuaded by this contention. It regards the Respondent's conduct in placing himself in a position of conflict of interest by accepting instructions to act for the Herreras as a severable instance of his failure to meet the required standard of competence and diligence. In our view the same analysis applies to each of the other elements of the Respondent's conduct under review. With specific reference to the conflict of interest, it may well be said that by placing himself in that position the Respondent laid the groundwork for the subsequent breach of section 255.However, that alone does not support the construction of the course of the Respondent's conduct as a "single instance".

65 However, the Tribunal is not persuaded that the Respondent's conduct constitutes a "consistent" failure to reach or maintain a reasonable standard within the meaning of section 497 (1) (a). Decided cases before this Tribunal, including Law Society of NSW v Webb [2012] NSWADT 114 as cited below, reveal that that phrase is applicable to a clearly definable series of acts or omissions, sometimes in the nature of "repeat offences", although the Tribunal will sometimes be reluctant to characterise repeat offences as involving a consistent failure, where the offences are effectively repetition of the same error, as in Webb.

66 The Tribunal has greater difficulty in accepting that the combination of the Respondent's conduct, that is the combination of his placing himself in a conflict of interest, his untruthful statement about the deposit, the breach of fiduciary duty to his clients and his breach of section 255, is insufficient to constitute "a substantial... failure to reach or maintain a reasonable standard of competence and diligence" for the purposes of section 497. In argument, Ms Webster SC contended that in assessing whether the Respondent's conduct constituted a substantial failure, regard had to be given to the "single instance" analysis of what he had done and that in assessing what would constitute a substantial failure the most useful reference point was the Allinson test itself; that is, whether the conduct would be regarded as disgraceful and dishonourable by professional colleagues of good repute and competency.

67 In the case of Council of the Law Society of NSW v Webb [2012] NSWADT 114 the Tribunal as then constituted (which included the presiding Member in the present case) undertook a detailed analysis of the phrase 'substantial or consistent', and cited with approval 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.

68 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.

69 The Tribunal is persuaded that the Respondent's conduct which is the subject of this matter does constitute a failure to meet the requisite standard in a way that is meaningful or relevant to the legal practitioner's ability to practise law. On the basis of the authorities cited above, it is therefore a "substantial failure".

70 In saying that, the Tribunal is not drawing a conclusion that the Respondent's ability to continue to practice law is in doubt: it is clear that this is not a matter which involves the penalty of removal from the roll, and the Law Society has not sought that.

71 There is an important distinction to be drawn between conduct (as here) which constitutes a substantial failure to reach a reasonable standard of competence and diligence, and conduct which would be professional misconduct under the Allinson test. In short, the Respondent's conduct is of a type which although constituting a substantial failure to reach the standard would not be such as to be reasonably regarded as disgraceful and dishonourable by his professional colleagues of good repute and competency.

72 For these reasons, the Tribunal is satisfied that the Respondent is guilty of professional misconduct within the meaning of section 497 of the Act because his conduct involved a substantial failure to reach or maintain a reasonable standard of competence and diligence.

Unsatisfactory professional conduct

73 It follows from the Tribunal's findings and its comments on the conduct of the Respondent as set out above, particularly in paragraphs 60 and 64, that it regards the Respondent's conduct as falling 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. The Respondent is therefore guilty of unsatisfactory professional conduct. For the avoidance of doubt, the Tribunal finds that each of the relevant elements of the Respondent's conduct, that is his placing himself in a position of conflict of interest, his misleading statement as to the holding of the deposit, his breach of his fiduciary duty to his clients and his breach of section 255 amount to unsatisfactory professional conduct.

What penalty should be imposed on the Respondent?

74 As indicated in paragraph 2, the Law Society seeks orders that the Respondent be reprimanded, be fined, not be issued with a practising certificate to practice as a principal unless he has undertaken and successfully completed an appropriate Trust Accounting Course, that he should pay the costs of the Law Society and any other orders the Tribunal deems appropriate. The Respondent concedes that he should be reprimanded, he agrees to undertake an appropriate Trust Accounting course along the lines suggested by the Law Society and he agrees that he should pay the costs of the Law Society. The Respondent does not concede that this is an appropriate matter for the imposition of a fine.

The Respondent's good character

75 The Respondent introduced into evidence two character affidavits. The deponents were not required for cross-examination. The first of these is an affidavit by Mr Roy Spagnolo sworn on 7 May 2013. Mr Spagnolo is a qualified accountant and company director who has known the Respondent all of the Respondent's life. The second affidavit is from Mr Paul Gerard Bolster, Barrister and it was sworn on 10 May 2013.. Significantly Mr Bolster deposes that he has previously served for a number of years on a Professional Conduct Committee of the New South Wales Bar Association and that he has known the Respondent since his first year at the Bar in 2000.

76 Mr Spagnolo deposes that the Respondent is a devoted husband and father to 3 young children and outlines his many social, sporting and charitable involvements, including the Italian Affairs Committee, Raise a Smile Foundation and Parramatta Junior Rugby League. The main value in Mr Spagnolo's affidavit is his confirmation, apparently based on discussions with the Respondent, that Respondent is fully aware that he "took his eye off the ball" in relation to his use of the trust funds and that he concedes that his action was extremely careless.

77 Mr Bolster deposes that he is not personally acquainted with the Respondent and his only dealings with him have been on a professional basis. However it would appear that his professional involvement with the Respondent is a long-term and close one. Mr Bolster confirms that the Respondent accepts the gravity of the matters alleged and has been personally troubled by them. He confirms the Respondent's contrition and awareness of the serious of his conduct and the consequences. Mr Bolster asks the Tribunal to take into account that the Respondent has not been the subject of any previous disciplinary action, that he is contrite and that a recent trust account investigation of his firm found no matters of concern. Significantly Mr Bolster concludes his affidavit by stating that notwithstanding the seriousness of the matters before the Tribunal, he continues to regard the Respondent as a solicitor that he can trust.

78 The Tribunal accepts the affidavit evidence of Mr Spagnolo and Mr Bolster as credible, so far as it goes. Certainly the good character and reputation of the Respondent are elements to be considered by the Tribunal in determining a suitable penalty and the Respondent's clean record is also relevant matter. As with most character affidavits however, the two in this case cannot provide any specific reason for the Respondent's decision to place himself in a position of clear conflict of interest and to undertake the other conduct complained of, culminating in the breach of section 255 of the Act. Again as with most such affidavits, the Tribunal cannot be satisfied on the basis of these character affidavits alone that the public would be protected by the Tribunal merely imposing a reprimanded, a course requirement that a costs order.

Should a fine be imposed?

79 Ms Webster SC on behalf of the Respondent contended that the imposition of a fine was not warranted and was not necessary in order to fulfil the Tribunal's function of protecting the public and fellow members of the profession, particularly in light of the fact that the Respondent conceded that the other penalty orders sought by the Law Society should be imposed. Ms Webster SC also asked the Tribunal to take into account the fact that the offence was one of carelessness rather than one involving any clear intention to conceal, mislead or deceive and take into account the contrition expressed by the Respondent.

80 Ms Groenwegen on behalf of the Law Society submitted that a mid-range of fine was appropriate in this case. Notwithstanding Ms Groenwegen's' concession that there was no element of fraud or or deliberate deception she contended that it was an important element of the Tribunal's educative function, which has been well recognised in the cases, and its role in protecting the public and fellow members of the profession, for a significant fine to be imposed. In Ms Groenwegen's submission the public and particularly fellow members of the profession need to have it emphasised to them when a solicitor decides to accept instructions from friends or family he must do so only in the absence of any clear conflict of interest and he must conduct the matter fully in accordance with the law.

81 In the Tribunal's view, the character affidavits in support of the Respondent do not satisfy us that the public will be suitably protected without a fine being imposed. Additionally, the contentions of Ms Groenwegen as to the educative role of the Tribunal and the need to demonstrate the dangers of a solicitor acting for family or friends, are well made The Respondent palpably failed his obligations as a member of the profession in accepting instructions when he was clearly in a position of conflict and in his subsequent conduct of the matter, culminating in the breach of section 255.

82 The Tribunal cannot fulfil its educative and protective function in matters such as this without imposing a fine. The failures of the Respondent to meet the required standard were substantial and that, on its face, would seem to indicate that the fine should also be in the higher range. However, the Tribunal has taken into account the previous good character of the Respondent, his expressed contrition, his clear realisation that he has failed to meet the standard and his willingness to accept a reprimand, a costs order and an order to attend an appropriate course. In light of these factors the Tribunal is satisfied that it will fulfil its duty to bring these matters to the attention of the public and the profession by imposing a fine which is lower than one which might be regarded as being in the higher range.

83 In light of all these factors the Tribunal will impose an order that the Respondent pay a fine of $4,000.

84 Reprimand, costs and attendance at an appropriate course in Trust Accounting

85 The Tribunal notes that the Respondent has agreed to the imposition of the other orders sought in the Application; that is that he be reprimanded, that he not be issued with a practising certificate to practice as a principal until he has undertaken and successfully completed with a pass Mark of 50% a Trust Accounting Course and that he pay the costs of the Law Society.

86 The only variation which the Tribunal would impose on the proposed orders relates to the trigger for the order requiring completion of a Trust Accounting Course. As stated in the Application the Responded is "not (to) be issued with a practising certificate to practice as a principal..." until he has completed a course. The Respondent presently does not practice as a principal. It may be that he will not wish to return to practice as a principal at any stage. That being so, the Tribunal believes that the trigger for the requirement to attend and complete the relevant course should be reworded so that the Respondent is to be permitted to continue practising as a Solicitor on the condition that he attend and complete the course and provide sufficient evidence of that to the Law Society.

87 Ms Groenwegen confirmed that the Law Society did not seek "any other order" as set out in paragraph 5 of the orders section of the Application.

Orders

88 The Tribunal makes the following orders:

1. The Respondent is reprimanded

2 The Respondent is to pay a fine of $4,000.

3. The Respondent is to be permitted to continue practising as a Solicitor on the condition that he shall within 14 days of the date of this decision provide to the Law Society of New South Wales an undertaking that he will commence and successfully complete with a pass mark of at least 50%, a course in Trust Accounting that is approved by the Manager of the Professional Standards Department of the Law Society of New South Wales, such course to commence prior to 31 March 2014, or, if such a course is unavailable prior to that date, the first course thereafter, with the proviso that the course must be completed to the satisfaction of the Law Society on or before 1 July 2014.

89 The Responded is to pay the costs of the Applicant as agreed or assessed.

90 I hereby certify that this is a true and accurate record of the reasons for decision of the Administrative Decisions Tribunal.

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Decision last updated: 25 November 2013