Administrative Decisions Tribunal New South Wales

• Medium Neutral Citation: Roulstone v Law Society of NSW [2013] NSWADT 272
• Hearing dates: 15 & 16 May 2013
• Decision date: 16 May 2013
• Jurisdiction: Legal Services Division
• Before: Hon G MULLANE, Judicial Member; D FAIRLIE, Judicial Member; J TINGLE, Non-Judicial Member

Decision

(1)The decision of the Council of the Law Society of New South Wales of 22 November 2012 to suspend the current Local Practising Certificate of the Applicant Scott John Roulstone is confirmed.

(2)The application is refused and dismissed.

• Catchwords: - Solicitor; - Review of Law Society decision to suspend Practising Certificate; - Show cause event; - Debtor's Petition & Bankruptcy; - Prior disposal of assets; - Failure to establish Solicitor is a fit and proper person to hold Practising Certificate; -Tribunal not limited to grounds in reviewable decision
• Legislation Cited: Legal Profession Act 1987; Legal Profession Act 2004
• Cases Cited: Meredith v Legal Profession Administration Board of NSW [2008] NSWSC 1170; Suzanne Frugtniet -v- Administrative Decisions Tribunal (Appeal Panel) & Anor Brian Frugtniet -v- Administrative Decisions Tribunal (Appeal Panel) & Anor [2005] NSW CA257 (5 August 2005); NSW Bar Association v Murphy [2002] NSW CA 138: Doherty v The Law Society of NSW [2003] NSW SC 105; New South Wales Bar Association - v - Hamman [1999] NSWCA 404; NSW Bar Association - V - Somosi [2001] NSWCA 285; NSW Bar Association - V - Cummins [2001] NSWCA 284; Ziens - V - Prothonotary of the Supreme Court of NSW (1957) 97 CLR 279; Wardell - v - New South Wales Bar Association [2002] NSWFC 548; Meredith - v - Legal Profession Admission Board of NSW [2008] NSWSC 1170; Dawson - V - Law Society of NSW (Court of Appeal, 17 November 1989 and 21 December 1989, unreported)
• Category: Principal judgment
• Parties: Scott John Roulstone (Applicant); Council of the Law Society of NSW (Respondent)
• Representation: Counsel; T Lynch (Applicant); C Webster (Respondent); T A Williams (Applicant); L Pierotti (Respondent)
• File Number(s): 122033

reasons for decision

INTRODUCTION

1 The applicant was made bankrupt in August 2012 on his own petition. Before the bankruptcy he and 2 other solicitors sold their incorporated legal practice and for his shares each received shares in the purchaser company worth about $1 million and payments of more than $5.7 million. The Law Society, consequential on his bankruptcy, called on him to make submissions as to why he is a fit and proper person to hold a practising certificate.

2 Upon receipt of submissions from the applicant and his legal representative the Council of the Law Society decided, because of some transactions disposing of part of the sale money he received and inadequate explanations in relation the sale money and some transactions involving sale money, that it was satisfied that he was not a fit and proper person to hold his 2012/2013 practising certificate. It suspended the certificate.

3 The Applicant applied for review by this Tribunal of that decision. By consent his application was heard with the application of another of the 3 solicitors, Mr Barakat, and the evidence was evidence in both matters.

THE SHOW CAUSE EVENTS

4 In section 4 of the Legal Profession Act 2004 ("the Act") "show cause event" is defined to include, in relation to a person:

(a) his or her becoming bankrupt or being served with notice of a creditor's petition presented to the Court under section 43 of the Bankruptcy Act 1966 of the Commonwealth, or

(b) his or her presentation (as a debtor) of a declaration to the Official Receiver under section 54A of the Bankruptcy Act 1966 of the Commonwealth of his or her intention to present a debtor's petition or his or her presentation (as a debtor) of such a petition under section 55 of that Act

5 Section 67 of the Act provides:

"(1) This section applies to a show cause event that happens in relation to a person (referred to in this Division as "the holder") who is the holder of a local practising certificate.

(2) The holder must provide to the appropriate Council both of the following:

(a) within 7 days after the happening of the event-written notice that the event happened,

(b) within 28 days after the happening of the event-a written statement explaining why, despite the show cause event, the person considers himself or herself to be a fit and proper person to hold a local practising certificate.

(3) A contravention of subsection (2) is professional misconduct.

(4) If a written statement is provided after the 28 days mentioned in subsection (2) (b), the appropriate Council may accept the statement and take it into consideration.

(5) A Council must, within 7 days after receiving a notice or statement from a local practitioner under this section, provide a copy of the notice or statement to the Commissioner.

(6) A Council may cancel or suspend a local practising certificate if the holder:

(a) is required by this section to provide notice or a written statement about a show cause event and has failed to provide the notice or statement in accordance with this section, or

(b) has provided a written statement in accordance with this section but, in the opinion of the Council, the holder has failed to show in the statement that the holder is a fit and proper person to hold a practising certificate, or

(c) has failed without reasonable excuse to comply with a requirement under Chapter 6 (Provisions relating to investigations) made in connection with an investigation of the show cause event concerned or has committed an offence under that Chapter in connection with any such investigation.

(7) If a Council cancels or suspends a local practising certificate under subsection (6), the Council is not required to exercise its functions under section 68 in relation to the matter."

68 Investigation and consideration of show cause event

(1) On becoming aware of the happening of a show cause event in relation to an applicable or holder, the appropriate Council must investigate and determine within the required period whether the applicant or holder is a fit and proper person to hold a local practising certificate.

(2) The appropriate Council must within 28 days of becoming aware of the happening of the show cause event give notice in writing to the applicant or holder:

a) If the Council has not received a statement under section 66 or 67 in relation to the show cause event, requiring the applicant or holder to provide the required statement, and

b) Informing the applicant or holder that a determination in relation to the matter is required to be made under this Division, and

c) Informing the applicant or holder the required period under this section in relation to the determination of the matter and that the applicant or holder will be notified of any extension of that period, and

d) Informing the applicant or holder of the effect of the automatic suspension provisions in section 70 in the event of the matter not being determined by the Council or the Commissioner within the required period.

(1) The appropriate Council must determine the matter by:

a) Deciding that the applicant or holder is a fit and proper person to hold a local practising certificate, or

b) Deciding that the applicant or holder is not a fit and proper person to hold a local practising certificate, or

c) Deciding that the applicant or holder is a fit and proper person to hold a local practising certificate but that it is appropriate to impose conditions on the applicant's or holder's local practising certificate for a specified period.

(2) In investigating and determining a matter under this section the appropriate Council:

a) Is not limited to investigating and making its determination on the basis of just the show cause event concerned, and

b) Must have regard to the fact and circumstances that surround, arise in connection with, relate to or give rise to the show cause event concerned.

(3) For the purposes of this section, the "required period" within which the matter must be determined is the period of 3 months (or 4 months if the Commissioner decides in a particular case to extend the period) commencing on:

a) The date on which the appropriate Council receives a written statement under section 66 or 67 in relation to the show cause event, or

b) If the appropriate Council has not received a written statement as referred to in paragraph (a) when it gives a notice under subsection (2) to the applicant or holder, the date specified in the notice as the date of issue of the notice.

(4) If the Commissioner extends a period under subsection (5), the Commissioner must give notice in writing to the applicant or holder concerned of the extension of the period.

(5) The appropriate Council is not required to deal with a matter under this section if the matter has previously been the subject of investigation and determination under this section.

(6) The appropriate Council must give the applicant or holder an information notice about a decision under subsection (3) (b) or (c). The commissioner must give that notice if the Commissioner makes the decision in the exercise of the functions of the Council under section 71 (Commissioner taking over determination of matter).

6 The Council of the Law Society of NSW relied upon the show cause events notified by the Applicant (who held a local practising certificate) being service on him on 11 July 2012 of a Creditor's Petition by Mahmoud Zoulfikar returnable on 22 August 2012, and the filing of a Debtor's Petition by the Applicant on 9 August 2012 (that day resulting in his bankruptcy).

7 The Applicant notified the Law Society of each of the show cause events and with the assistance of legal representation by Mr Williams also made submissions to the Law Society on the issue of whether he was a fit and proper person to hold a local practising certificate.

8 In its notice to the Applicant notifying him of its decision, which is dated 22 November 2012, the Council of the Law Society informed him of its finding that his conduct:

"(i) In undertaking the transactions at paragraph 4, notwithstanding the explanation summarised at paragraph R20.3 in respect of the superannuation contributions;

(ii) In circumstances where no cogent explanation has been provided for the other transactions, including the payment of $1,205,000.00 to the Roulstone Family Trust in 2012, at a time when Mr Roulstone was consenting to Judgment in the numerous proceedings brought against the Keddies partnership,

demonstrates a reckless disregard by him for his obligations which the Council is satisfied amounts to an intention to avoid them, and in the process failed to recognise his moral obligations (as was concluded in Meredith v Legal Profession Administration board of NSW [2008] NSW SC1170 at [27] - [28]), and that he is not a fit and proper person to hold a Local Practising Certificate."

9 The transactions referred to in paragraph 4 of the Notice related to funds received from sale of his shares in the practice company and were described in the notice as follows:

"The funds received from the sale by Mr Roulstone were deposited into the bank account of his wife and were voluntarily used as follows:

a) To off-set a mortgage over an unidentified property;

b) To repay personal loans and other unspecified creditors;

c) Transfers were made to the Keddies partnership to pay the firm's unspecified legal costs and to fund unspecified client settlements;

d) Voluntary contributions were made to the Roulstone Superannuation Fund to obtain CGT concessions available as a result of the sale of the Keddies partnership in the amount of $500,000.00 sometime in 2012;

e) Contributions were made to unspecified family expenses."

THE TRIBUNAL'S ROLE IN REVIEW OF THE DECISION

10 Section 75 of the Legal Profession Act 2004 provides that this Tribunal may on the application of the Applicant review the decision to suspend his Practising Certificate. Subsection 75(3) provides:

"(3) In proceedings on a review by the Tribunal of a decision under this Division in which the question of whether a person is a fit and proper person to hold a local practising certificate is at issue:

(a) the onus of establishing that a person is a fit and proper person to hold a local practising certificate is on the person asserting that fact, and

(b) it is to be presumed in the absence of evidence to the contrary that any statement of facts in the reasons of a Council or Commissioner for the decision concerned is a correct statement of the facts in the matter, and

(c) a certificate of conviction of an offence (being a certificate referred to in section 178 (Convictions, acquittals and other judicial proceedings) of the Evidence Act 1995 ) is admissible in the proceedings and is evidence of the commission of the offence by the person to whom it relates, and

(d) a document that appears to be a document issued for the purposes of or in connection with any application, proceedings or other matter arising under the Bankruptcy Act 1966 of the Commonwealth is admissible in the proceedings and is evidence of the matters stated in the document."

11 It is important to note para 75(3)(a) which puts an onus on the Applicant in this review to prove he is a fit and proper person to hold a local practising certificate. There was no such provision in the previous legislation; the Legal Profession Act 1987.

12 In submissions of 7 November 2012 to the law Society on behalf of the Applicant, Mr Williams made comparisons between the conduct of these proceedings and dicta in NSW Bar Association v Murphy [2002] NSW CA 138 and Doherty v The Law Society of NSW [2003] NSW SC 105, but without reference to the absence of a provision similar to para 75(3)(a) of the current Act in the 1987 Act that applied in those cases.

13 In the section 67 statements of both Mr Roulstone and Mr Barakat, apparently prepared by Mr Williams, at para 21 there is a statement:

"McClellan J made it clear at [14] in Murphy -v- Bar Association of NSW [2001] NSWSC p.1191, that provisions then in force concerning the bankruptcy of a practitioner properly understood meant that the act of bankruptcy raised the occasion of the practitioners fitness to practice but did not raise any adverse presumption or impose any onus on the practitioner."

14 However, the submission did not refer to the provisions of para 75(3)(a) of the Legal Profession Act 2004, which clearly places an onus on this practitioner to prove fitness to practice.

15 It is clear from Subsection 63(1) of the Administrative Decisions Tribunal Act 1997 that the Tribunal in its considerations is not required to consider only factual material that was before the Council of the Law Society. It can consider "any relevant factual material". Additional evidence can be and was relied upon by each of the parties.

COULD OVER-CHARGING BE FOUND BY THE TRIBUNAL TO BE A GROUND FOR FINDING APPLICANT IS NOT A "FIT AND PROPER PERSON" ?

16 There was considerable evidence before the Tribunal of over-charging by the law practice conducted by the three solicitors. Some of that evidence was not before the Law Society when it made its decision and overcharging was not a basis for the Law Society decision.

17 The Tribunal raised with Mr Lynch, Counsel for Mr Roulstone and Mr Barakat at the hearing, whether in exercising its powers under section 63 of the Administrative Decisions Tribunal Act 1997 it was open to the Tribunal to take into account over-charging in considering whether Mr Roulstone or Mr Barakat had satisfied the onus on the issue of whether he is a fit and proper person to hold a local practising certificate. Mr Lynch submitted that it was not open to the Tribunal to rely upon that aspect and that the Tribunal was limited to considering only the grounds that were relied upon by the Council.

18 The Tribunal asked Mr Lynch to identify any authorities he relied upon to support that submission, but the next day he informed us that he had not been able to find any.

19 The decision of the NSW Court of Appeal in Suzanne Frugtniet -v- Administrative Decisions Tribunal (Appeal Panel) & Anor.; Brian Frugtniet -v- Administrative Decisions Tribunal (Appeal Panel) & Anor [2005] NSW CA 257 (5 August 2005), supports the contrary view. That decision addressed the issue of whether the Administrative Decisions Tribunal, when reviewing a decision by the Commissioner for Fair Trading to permanently disqualify a person on the ground on unfitness from being involved in the direction, management or conduct of a business as a travel agent, was required to limit itself to consideration of only the grounds stated in the decision of the Commissioner for Fair Trading that was being reviewed by the Tribunal. The Court of Appeal held that it wasn't.

20 Handley JA (with whom Ipp JA and McColl JA agreed) held (at [45]):

"Section 22(2) permits a person who has been disqualified by the Commissioner to apply to the Tribunal for a review of the decision. Section 63(1) of the ADT Act obliges the Tribunal to decide: 'What the correct and preferable decision is having regard to the material then before it', and by para (a) this is to include: 'Any relevant factual material'. Such an enquiry cannot be confined within the particulars of the reason, ground or matter specified in the original Notice or Notices. The third alleged error of law has not been established."

21 The Tribunal concludes that it was open to the Tribunal to consider the issue of over-charging in determining whether each of Mr Roulstone and Mr Barakat has satisfied the onus in relation to whether he is "fit and proper" to hold a Local Practising Certificate. But the Tribunal does not rely upon over-charging. That is because:

• at the hearing Counsel for the Law Society did not dispute Mr Lynch's submission that it was not open to the Tribunal to rely upon over-charging as an element in determining whether or not the Applicant has satisfied the onus;
• At the hearing the Law Society did not rely upon over-charging;
• the local practising certificate suspended by the Council was for 2012/2013 expiring on 30 June 2013 and the hearing concluded on 16 May;
• Mr Roulstone and Mr Barakat had already applied for a practising certificate for 2013/2014 and it was open to the Law Society to take into account any evidence of overcharging in deciding whether to renew the practising certificate; and
• During the hearing the Tribunal informed Mr Lynch and his clients that in deciding whether Mr Roulstone or Mr Barakat had discharged the onus it did not intend to rely upon overcharging as a ground for a finding of unfitness.

THE EVIDENCE

22 The evidence comprises:

(1) Application by Scott John Roulstone for Review filed 11/12/12;

(2) Affidavit of Scott John Roulstone sworn 24/04/13;

(3) Exhibit SJR-1 to the Affidavit of Scott John Roulstone sworn 24/04/13;

(4) Council of the Law Society of NSW - Volume 1;

(5) Section 58 bundle of Council of the Law Society of NSW - Volume 2;

(6) Application of Tony Barakat for Review of Reviewable Decision filed 11/12/12;

(7) Affidavit of Tony Barakat sworn 24/4/13;

(8) Exhibit TB-1 to the Affidavit of Tony Barakat sworn 24/04/13 (101 pages);

(9) Section 58 bundle of the Council of the Law Society of NSW re: Tony Barakat, Volume 1;

(10) Debtor's Petition by Scott John Roulstone dated 06/08/12;

(11) Affidavit of Hugh Joseph Marshall sworn 06/05/13;

(12) Affidavit of Robert James Taylor sworn 15/05/13;

(13) Affidavit of Warwick Newton Dolman affirmed 06/05/013;

(14) Affidavit of Neil Peter Wickenden sworn 08/05/13;

(15) Affidavit of Michelle Castle sworn 07/05/13;

(16) Affidavit of Robert Royce Leitch sworn 13/05/13;

(17) Exhibit A-1 - Chronology of Judgments and Settlements in respect of claims by clients submitted on behalf of the practitioners;

(18) Oral evidence and cross-examination of Tony Barakat;

(19) Oral evidence and cross-examination of Scott John Roulstone.

WHAT WAS THE CONTEXT IN WHICH THE RELEVANT TRANSACTIONS OCCURRED?

23 In 1985 Mr Roulstone was admitted as a solicitor. He worked in a practice in Nowra until July 1988 when he commenced employment with "Keddies & Associates". In 1992 he became a partner in the practice. The practice came to specialise in personal injury litigation in the early 2000's and from the beginning of 2005 the firm ceased work for defendants in insurance litigation and continued specialising in personal injury law but represented plaintiffs only.

24 There were other partners, but from July 2001 the partnership comprised Russell Keddie, Tony Barakat and Scott Roulstone until the practice was incorporated as "Keddies Insurance Law Specialists Pty Limited" in January 2007. The same 3 solicitors were then "Joint Managing Directors" of the company. Those 3 solicitors each held one third of the issued shares in the company and were the only directors and shareholders of the company.

25 A former client of the practice, Mr Tariq, made complaints against the 3 solicitors and their employed solicitor, Mr Scroope, to the Legal Services Commissioner in 2009 that he, his wife and his daughter had been overcharged. The Legal Services Commissioner was not satisfied that the evidence required any action by him. Mr Tariq then caused his complaints and an allegation that the law practice had systematically overcharged clients, to be widely publicised, particularly in the Sydney Morning Herald.

26 In May 2009 the Legal Services Commissioner commenced disciplinary proceedings in this Tribunal against the 3 solicitors and Mr Scroope, alleging that the law practice had grossly over-charged a number of clients, including a Mrs Meng. Mrs Meng's allegations of overcharging by the law practice also received extensive publicity. The proceedings, as against Mr Roulstone and Mr Barakat, were subsequently withdrawn by the Commissioner with leave of the Tribunal. But at a hearing later, Mr Keddies was found guilty of gross overcharging and adverse findings (but not of overcharging) were made against Mr Scroope.

27 There were a total of about 80 complaints by clients to the Legal Services Commissioner raising allegations of overcharging by the law practice.

28 From about May 2010 clients of the practice commenced civil proceedings in the District Court against the 3 solicitors claiming damages for alleged over-charging. By 29 October 2010, 30 clients had commenced such proceedings in the District Court. On the evidence the Tribunal is comfortably satisfied that the 3 solicitors knew at 29 October 2010 of all these proceedings and also knew that there would be others.

29 By 29 October the Applicant and his 2 former partners knew that they had succeeded on the hearing of only one claim, and they had consented to verdicts in favour of 3 clients totalling $50,000 and orders to pay the costs of the 3 clients.

30 Many of the client proceedings were commenced by the same solicitor on the clients' behalf. Sometime before November 2010 the 3 solicitors launched proceedings in the Equity Division of the Supreme Court against the solicitor seeking to restrain him from conducting such client proceedings because of how he came to obtain the details of former clients of the solicitors. The solicitor applicants have not provided evidence as to the outcome of those proceedings, but it appears they were unsuccessful because the solicitor continued to act for clients making claims and in an affidavit he swore in the District Court on 4 April 2012, Mr Barakat listed the solicitor as a creditor for a sum of $95,000 "claimed subject to assessment of costs". It appears the 3 solicitors were ordered to pay the costs of the defendant solicitor in the Equity Division.

31 By 29 October 2010 the 3 shareholder/solicitors were negotiating to sell their shares in the practice company to Slater & Gordon Limited. The Share Sale Agreement is dated 29 October 2010, but both Mr Roulstone and Mr Barakat have given sworn evidence that the agreement was reached on 11 January 2011, so the Tribunal accepts that as the correct date.

32 By 11 January 2011 claims of overcharging had been raised by 38 clients. District Court proceedings had been commenced by 36, one had applied for costs assessment, and one had sent a letter of demand. The 3 practitioners had not settled any more claims since 29 October 2010. They apparently were waiting for the sale agreement.

33 On 11 January 2011 the 3 solicitors entered into a contract with Slater & Gordon Limited to sell their shares in the practice company for a total of $33,400,000.00, subject to adjustments to be made on completion of the sale. There had been extensive negotiations leading up to the signing of the agreement. Each of the shareholders was entitled to one third of the consideration. In addition, the agreement provided that about $1,000,000 of the consideration payable to each of them was to be satisfied by allocation of 50,100 ordinary shares in Slater & Gordon Limited. The balance of the consideration payable to each of the sellers was payable by instalments.

34 The 3 solicitors gave warranties and guarantees to the purchaser company in respect of any debt of the practice to a client and also in respect of other such debts arising from the dealings of the law practice with clients before completion of the sale. Under the agreement, Slater & Gordon Limited had the right to deduct any such debts from the payment of the consideration for the shares.

35 Once the shareholders in the practice company had entered into the contract to sell their shares on 11 January 2011, Mr Roulstone knew that there would be a capital gain on the sale of his interest in the practice and that that he would have a very substantial tax liability for the 2010/2011 tax year.

36 On 11 January 2011 the Applicant received a sum of $1,833,397.00 from Slater and Gordon Ltd as the first instalment of the consideration for his shares. He deposited it into a bank account no. 167313834 in the name of his wife. There was another bank account no. 189038458 in the name of his wife. The Statement of 7 September 2012 provided by Mr Roulstone to the Law Society under section 67 of the Legal Profession Act 2004 did not disclose the sale of the law practice shares or the receipt of any of the sale money.

37 He did not disclose in his affidavit or SJR 3 the bank where his wife's accounts were located. He did not provide any bank statements or other evidence from a bank or other corroboration. However the evidence in his Trustee's report is that the 2 accounts were mortgage offset accounts for 2 mortgages over his family's home at Woollahra which was owned by his wife. In his evidence the Applicant said that "all the families (sic) combined funds went into these accounts until the funds were dispersed (sic) in the payment of debts. Scott's personal business debts were paid from these accounts."

38 The same day the Applicant paid $366,363.19 of those funds to the Roulstone Family Trust in reduction of his debt to the Trust. It is noted that in his Statement of Affairs of 6 August 2012 in support of his Debtor's Petition and in his submissions to the Law Society Mr Roulstone appears to have not disclosed this payment.

39 The evidence of Mr Roulstone and Mr Barakat is that the 3 solicitors had a joint account 1036 5387 with the Commonwealth Bank which from January 2011 till June 2012 they used to pay "business debts", mainly client claims. In Annexure SJR3 to his affidavit Mr Roulstone alleged that he paid $1,300,000 into the Commonwealth Bank account "from Scott's personal earnings from Slater and Gordon" towards paying "business debts", which he said were mainly client claims for overcharging. But his payments to that account that he identified in SJR 3 totalled significantly less than $1,300,000. The evidence is that each time he made a contribution to that account the other 2 solicitors made a contribution in the same amount. Mr Barakat adopted Mr Roulstone's evidence in SJR 3 and did not identify any additional payment. For purposes of this part of the reasons the Tribunal has included only the identified payments.

40 It was not until 19 April 2011 that the 3 solicitors first paid money from the sale of their shares to that Commonwealth Bank account. By then there were 3 consent judgments from July 2010 against them for a total of $50,000.00 plus costs and 49 current District Court proceedings against them for overcharging. Each paid $200,000 into the account.

41 From Exhibit A1 it can be seen that of the 3 claims the subject of consent orders or deed of settlement in 2010, the largest was for only $30,000 plus costs. Then there were no claims the subject of consent orders or settlement deed from 28 July 2010 till 28 April 2011. Then 2 claims by the same person were subject of consent judgments together amounting to $90,000. None of the claims the subject of consent orders or settlement deed before 2012 were for more than $80,000.

42 Apart from the claim by Mr Bazdarov, there were 12 claims for more than $100,000 raised in 2010 that when quantified totalled $2,548,064 plus costs. They were each the subject of consent orders, but the earliest such consent orders did not occur till April 2012 and none of those claims were paid. The client Mr Bazdarov also obtained a verdict for $160,010.61 plus costs on 24 June 2011. None of that was paid.

43 Mr Bazdorov had alleged overcharging by Mr Roulstone, Mr Keddie and Mr Barakat in relation to a common law injury claim. It proceeded to a defended hearing in the District Court on 17 January 2011. The decision of Ashford DCJ was given on 24 June 2011. The decision included findings that:

• at the hearing the solicitors conceded that $7,295.30 of the costs billed related to another matter (the client's workers compensation claim to which a costs cap applied):
• other charges of $1,794.10 were also abandoned at the hearing by the solicitors for other reasons;
• the solicitors had failed to make numerous costs disclosures to Mr Bazdorov required by the Legal Profession Act 1987;
• the client gave instruction that he would settle his claim for $150,000 plus costs and the settlement on the first day was for $450,000 inclusive of costs, but the solicitors' "Results Form" noted that the client's injury claim was settled for $300,000 plus $150,000 for costs;
• The law practice charged the client $290,325.01 for costs and disbursements;
• some entries in the law practice costs assessment were duplicated;
• the bill included counsel's fees for both junior counsel Mr E Romaniuk and Mr D Wheelahan QC for 5 hearing days when the matter settled on the first day; and
• The fair and reasonable professional costs and disbursements for acting for the client were $135,258.40 in lieu of the amount of $290,325.01 charged by the law practice.

44 Ashford DCJ entered a verdict of $160,010.61 plus interest and costs against the 3 solicitors. The 3 solicitors appealed to the Court of Appeal. They did not pay anything in respect of the District Court verdict. The 3 solicitors were represented by Senior Counsel and junior counsel at the appeal hearing and Verekers Lawyers were their Solicitors.

45 The evidence of Mr Roulstone and Mr Barakat is that on 29 June 2011 they each paid another $200,000 from the sale of his shares to the Commonwealth Bank account. Mr Barakat had by then received $1,833,397 since 10 January 2011 from sale of his shares and in that period paid $400,000 towards payment of client claims.

46 In about August 2011 Slater and Gordon Ltd paid $333,333.33 for part of each of the 3 solicitors' entitlement for sale of his shares in the practice company to the account of Verekers Lawyers. Consequently the total paid to Verekers Lawyers at that time was $1,000,000.00.

47 The evidence of Mr Roulstone and Mr Barakat is that on 7 September 2011 each of the 3 solicitors paid another $100,000 from the sale of his shares to the Commonwealth Bank account. Mr Barakat by then had received $2,166,730.33 from sale of his shares since 10 January 2011 and had in that period contributed $500,000 to the Commonwealth Bank account for client claims.

48 The deed of 9 December 2011 discloses that Slater and Gordon paid the 3 solicitors $1,500,000 in deferred consideration on 21 September 2011. Mr Roulstone did not disclose receipt of his third of that amount in the list of amounts received in para 66 and Exhibit SR3 of his affidavit. Because Mr Barakat adopted Mr Roulstone's evidence of the payments received, he did not disclose it either. But we are comfortably satisfied that each received that $500,000 or it was paid to someone else at his direction. Upon receipt of that amount Slater and Gordon had paid Mr Roulstone or to others on his behalf a total of $2,666,730.33.

49 In November 2011 Mr Roulstone transferred to his wife's name his ANZ Bank Account no. 566838232. He had been conducting the account in his own name since it was opened in about February 2011. He said in his Statement of affairs that "over time the account had funds deposited to it relating to my wife's investments including rent and expenditure on investment properties." The trustee in his bankruptcy reported that "a review of the account has confirmed that deposits into 8232 post 2008 were primarily in respect of Mrs Roulstone's businesses (including investment properties)".

50 On 8 November 2011 Curtis DCJ in the District Court of NSW delivered Judgment in respect of the claim by a former client, Ms Liu, against the 3 solicitors. The solicitors charged the client $63,897.45 for costs and disbursements in a claim for injuries sustained in a motor vehicle accident. Curtis DCJ made findings that the law practice had failed to make costs disclosures required by the Legal Profession Act 1987 and also the costs agreement purported to charge costs in excess of the cap imposed by the Motor Accidents Compensation Regulation 2005, but the costs agreement did not comply with the requirements of the Regulation to allow avoidance of the cap.

51 Regulation 11 of the Motor Accidents Compensation Regulation 2005 provides for contracting out of the costs caps specified in Regulation 9. It requires under para 11(1)(c) that before entering into the costs agreement, the law practice must advise the client (in a separate written document) that, even if costs are awarded in favour of the client, the client will be liable to pay such amount of the costs provided for in the costs agreement as exceeds the amount that would be payable under the Act in the absence of a costs agreement.

52 The documents which the law practice had the client sign did not comply with those requirements. The costs agreement did not purport to include any such provision nor was there any such provision in a separate document. It emerges from the findings of Curtis DCJ that the separate "Meeting the Gap" agreement, did not demonstrate any real attempt to comply with the requirements of Regulation 11(1)(c) of the Motor Accidents Compensation Regulation 2005.

53 Curtis DCJ held that the fair and reasonable amount for the costs was $20,923.98; not the amount of $63,897.45 charged. There was a verdict for the client against the 3 solicitors which also provided for interest and costs. The defendant solicitors appealed the decision but later, on advice, withdrew the appeal.

54 The evidence of Mr Roulstone in para 45 of his affidavit, which is adopted by Mr Barakat in his affidavit, is that this decision resulted in "many claims" by clients for overcharging. Exhibit A1 shows, though, that there were only 13 claims raised after the decision of 8 November 2011 and the evidence does not disclose how many were "Meeting the Gap" cases.

55 By 9 December 2011, 96 clients had raised costs claims against the 3 solicitors. Of those one had been dismissed at hearing by the District Court. The 2 claims that had proceeded to a full hearing in the District Court had resulted in verdicts against the solicitors for a total of $200,836.00 plus costs. The 2 matters that went to Costs assessment had resulted in determinations that required the law practice to pay a total of $16,992. The law practice, by settlement deed or consent orders had also incurred liabilities in respect of another 30 claims for a total of $995,660 (an average of $33,188) plus costs and interest. These liabilities incurred together came to $1,213,488 plus costs and interest.

56 Thirty five claims had been quantified (whether paid or not), but there were another 61 claims (almost all of them in the District Court) that hadn't.

57 It is important to note too from Exhibit A1 in the Applicants' case that of the 30 claims that had been resolved before 9 December 2011 without a hearing, only 6 were for more than $40,000 and the average of those 30 was $33,188 plus costs and interest. But of the next 30 matters resolved in the period from 9 December 2011 to 7 May 2012, 21 were for more than $40,000 and the average for the 30 was $76,488. Of those 21, 13 were claims raised in 2010 but not resolved till April/May 2012. The average of those was $156,063; more than 4 times the average for the first 30.

58 In the course of the settling of the first 60 claims, claims that could be resolved for $40,000 or less were usually resolved earlier. Claims that were resolved for greater amounts were generally not resolved but delayed till 2012. Prior to 9 December 2011 it was obviously the practice of the 3 solicitors to settle the smaller claims and defer settlement of the larger claims.

59 On 9 December 2011 the 3 solicitors as the shareholders in the practice company entered into a further agreement with Slater & Gordon Limited varying the sale agreement to bring forward some payments to the 3 shareholders, in return for which Slater and Gordon required some substantial discounting of the amounts payable. The evidence does not disclose the calculations. Mr Roulstone swore that his discounted entitlement to payment on completion of the sale was "approximately $5,700,000.00". Mr Barakat testified that his entitlement on completion of the sale was $5,719,000.

60 Both Mr Roulstone and Mr Barakat by affidavit in these proceedings testified:

"An important reason for the variation was to bring forward payments to enable the partners to meet their Capital Gains Tax obligations arising from the sale. The variations involved are a compromise on the amounts receivable by the partners."

61 But Mr Roulstone and Mr Barakat did not pay any of their tax assessed for 2010/2011 tax year. The Tribunal is comfortably satisfied that the 3 solicitor/shareholders each were aware from before October 2010 that each would have a very substantial tax assessment for 2010/2011 tax year if he sold his practice company shares, because of the capital gains tax liability arising on the sale.

62 Mr Roulstone, but not Mr Barakat, also stated in his Affidavit:

"A further reason for wishing to bring forward the payments was to provide funds to the partners for each to deal with the litigation which then had been commenced against us, further particulars of which appear below, initially by way of defending the litigation and meeting the costs of such defence, and additionally to meet any Judgments which we might suffer.

63 It is noted that at the time the sale agreement was varied, there were already judgments, consent orders, settlement agreements or costs assessments, for which the three solicitors had become jointly and severally liable, for a total of at least $1,213,488 plus additional liabilities for costs and interest in respect of the matters already settled or determined by a Court or Costs Assessor plus costs payable to the solicitor against whom the equity proceedings were unsuccessful.

64 Also by 9 December 2011 the 3 solicitors had incurred considerable legal costs in relation to the 96 client claims already raised against them and the District Court proceedings in relation to the vast majority of them. The Applicant also knew that generally the claims not yet resolved would on average cost them considerably more than the claims already quantified because of the deferral of the larger claims. We are comfortably satisfied he also expected there would be more claims made.

65 The deed provided for each of the 3 solicitors to receive another $1,250,000 of the sale money from Slater and Gordon by 22 December 2011. Mr Roulstone says he received $1,000,000 (only) on 21 December 2011 and he paid that into an account in the name of his wife. Mr Barakat in his affidavit supported that evidence.

66 The Roulstone family home at Woollahra owned by Mrs Roulstone was sold by a contract entered into in December 2011 but not completed till December 2012. There is no evidence of the sale price. There is no evidence that any part of the sale proceeds was used to pay income tax or client judgments.

67 On 28 December 2011 The 3 solicitors each paid another $100,000 into the Commonwealth Bank account. Taking into account that payment, since 10 January 2011 each of Mr Roulstone and Mr Barakat had received a total of $3,666,730.33 from Slater and Gordon and had contributed in the same period $600,000 for the payment of client claims.

68 However, Mr Roulstone's evidence is that Slater and Gordon also paid $462,363 of the purchase moneys for the shares of the 3 solicitors into the Commonwealth Bank account for use in meeting client claims. He does not disclose when that happened. If allowance for that amount is made, one third ($154,121) was a contribution by each of Mr Roulstone and Mr Barakat. Taking into account that payment, since 10 January 2011 each of Mr Roulstone and Mr Barakat had received a total of $3,820,851.33 from Slater and Gordon and he had contributed in the same period $754,121 for the payment of client claims.

69 Mr Roulstone's evidence is that on 22 December 2011 he used $160,000 from the sale money to pay a debt for private School fees for his children.

70 Mr Roulstone's evidence is that on 19 January 2012 he paid another $100,000 from the sale of his shares to the Commonwealth Bank account and another $100,000 on 20 February 2012. Taking into account those payments, since 10 January 2011 each of Mr Roulstone and Mr Barakat had received a total of $3,820,851.33 from Slater and Gordon and each had contributed $954,121 in the same period for the payment of client claims.

71 In early February 2012 Mr Barakat and his wife contracted to sell their jointly owned home at Roseville Chase for $2.2 million. It had been the family home for more than 20 years until they moved to another property in 2008. They had the Roseville Chase property on the market from early 2009.

72 Consent judgment was entered on 15 February 2012 against the 3 solicitors in favour of a client, Ms Chowdhury for $62,000 plus costs. The solicitors did not pay any part of the verdict or the costs.

73 In his affidavit Mr Roulstone affirmed (and Mr Barakat in his affidavit adopted):

"62. By March 2012 it became apparent that due to the serious scale of the litigation and the number of pending matters, it was possible that we would be unable to meet our potential debts in full, and we commenced to take advice as to our position in relation to insolvency.

63. Advice was obtained from Mr Mark Green, solicitor of Pikes and Verekers Lawyers and Sally Nash. Each of the 3 partners obtained advice ........"

74 On 2 March 2012 Mr Barakat gifted to his daughter a BMW car, which in his statement of affairs he said was worth $15,000.00.

75 Mr Roulstone acknowledged in cross examination that by March/April 2012 "I had exhausted my funds. I think my partners did too. The ones settled were mostly under $100,000. The number of larger ones were building up". He acknowledged that he knew that in making those payments from March onwards, they were potentially preferential payments that could be set aside. When he was asked what purpose there was in continuing to settle claims, he avoided the question and said, "because of what happened in Bazdarov we couldn't successfully defend the cases. Counsel said we couldn't certify the defence".

76 When asked how he thought the consent judgments entered in April 2012 onwards were likely to be satisfied, he responded "the solicitor advised us not to pay, as if there was a bankruptcy, and then it was likely that payments would be challenged as preferences".

77 On 12 March 2012 Mr Barakat and his wife completed the sale of their jointly owned home at Roseville Chase for $2.2 million. The net sale proceeds were $1,980,494.74 and it appears that Mr Barakat was entitled to at least $990,247.37 of that. The whole $1,980,494.74 was paid to reduce the joint mortgage debt secured over a property of his wife in Macquarie Street Circular Quay. Mr Barakat and his wife were jointly liable for that debt, but the debt was not secured on any asset of Mr Barakat. Mr Barakat testified that because it was a joint liability "it appeared to make perfectly good sense to both of us to apply the funds to reducing our joint liability". He also testified, "That decision was in no way related to the possibility of bankruptcy or otherwise attempting to remove the funds from attachment by creditors."

78 At a time when he knew he was insolvent and likely to become banktupt, Mr Barakat, with the benefit of advice from his Accountants and the insolvency experts made a lump sum contribution to his superannuation fund of $450,000.00 from the proceeds of sale of his Keddies shares. Mr Barakat also paid another $225,000.00 from the sale of his Keddies shares to discharge the joint mortgage debt secured on his wife's property at Circular Quay. As a result, that property was then unencumbered.

79 In his statement of affairs of 2 August 2012 Mr Barakat said his wife's unit at Circular Quay was worth $4.8 million. The payments of $1,980,494.74 and $225,000.00 to reduce and then discharge the mortgage debt on the property were not disclosed in his Statement of affairs, nor was it required to be disclosed, except perhaps to answer the question "As a result of pressure for payment from creditors have you, in the last 12 months paid a total amount of more than $1,000 over and above your normal repayments or surrendered any assets to a creditor?"

80 By 12 March 2012 there were about 107 claims that had been raised against the 3 solicitors by clients for alleged over-charging. Most of the claims were pursued in proceedings in the District Court, a few by costs assessment procedures, and a few by correspondence.

81 The solicitors had succeeded in one matter in the District Court. Costs Assessors in five matters had ordered repayment of a total of $171,595.00 to clients. Defended hearings in 2 matters in the District Court resulted in verdicts against the Defendants for a total of $200,846.00 plus costs. The 3 solicitors had consented to a verdict or entered into a Deed of Settlement or settled in response of a letter of demand in respect of about 38 other client claims, which together required repayment by the law practice of $1,698,904.00 plus costs and interest. The total of these liabilities to clients was $2,071,345 plus costs and interest. There was also the debt for costs of the solicitor who was the defendant in the unsuccessful proceedings in the Equity Division of the Supreme Court.

82 Accordingly, by 12 March 2012 the 3 solicitors were aware that they had debts owing to clients and former clients in respect of 45 client claims that had been determined for a total of more than $2 million plus costs and interest. They also knew there were another 62 client claims outstanding, mostly in the District Court, the claims were significantly higher on average than those already determined, and at least 21 were for more than $100,000 plus costs and interest.

83 On 27 March 2012 the Court of Appeal dismissed the 3 solicitors' appeal against the District Court decision in favour of Mr Bazdarov because the appeal grounds relied upon by the solicitors were not available, as they were inconsistent with admissions made at the trial. The issue of the costs of the appeal was reserved for submissions. The solicitors did not pay any part of that District Court verdict or the costs.

84 On 2 April 2012 Mr Barakat gifted to his son a Subaru car and gifted to his wife a Mercedes car. In his statement of affairs he said each of these vehicles was worth $20,000.00.

85 On 10 April 2012 Mr Barakat applied to the District Court for an order for payment of the Bazdarov judgment by instalments. He proposed instalments of $1,500 at the end of each of April and May and then 2 instalments of $13,750 at the end of each of August 2012 and August 2013. Mr Barakat swore an affidavit in support of his application and in that stated his liabilities were $5,048,254.61 and he valued his property other than the Slater and Gordon shares at $3,933,869.50. The Slater and Gordon shares were subject to restrictions that prevented their sale for some time. Even if the Slater and Gordon shares, despite the restrictions, were worth $1 million, on his figures his liabilities exceeded his present debts. Verekers Lawyers acted for Mr Barakat in that application.

86 Proceedings by a client, Mr Zhou against the 3 solicitors were settled on 5 April 2012. Terms of Settlement were signed and filed with the District Court on 11 April 2012 entering a verdict of $350,000 plus costs in favour of the client. Those proceedings had been commenced in October 2010. The Terms of Settlement show Verekers Lawyers acted for the solicitors. The solicitors did not make any payment pursuant to the judgment.

87 On 16 April 2012 the Applicant used $500,000 of the share sale money as a repayment of a loan he had from a bank.

88 On 17 April 2012 terms of settlement were executed in respect of District Court proceedings by Mr Hsu against the 3 solicitors for a verdict of $143,900 plus costs. The proceedings had been commenced on 10 September 2010. The document shows that Mr Tassell of Verekers Lawyers was the solicitor for the 3 solicitors. No part of the verdict or costs was paid.

89 Mr Roulstone's evidence is that because of the considerable repayments made to clients, the solicitors were able to negotiate refunds from the Tax Office for the GST they had in effect refunded to the clients. He did not provide the precise amount(s) or the date(s) of payment or any corroborative documents. In annexure SR3 to his affidavit he says the refunds totalled "approx. $500,000" and were paid into the Commonwealth Bank Account of the solicitors and used to pay client creditors "up until May or June 2012".

90 On 26 April 2012 terms of settlement were executed in respect of District Court proceedings by Mr Shi against the 3 solicitors for a verdict of $182,000 plus costs. The proceedings had been commenced on 2 September 2010. The document shows that Mr Tassell of Verekers was the solicitor for the 3 solicitors. No part of the verdict or costs was paid.

91 On 27 April 2012 terms of settlement were executed in respect of District Court proceedings by Mr Hussein against the 3 solicitors for a verdict of $150,300 plus costs on an ordinary basis till 4 March 2011 and thereafter on an indemnity basis. The proceedings had been commenced on 17 December 2010. The solicitor for the Defendants who signed was not identified. No part of the verdict or costs was paid.

92 On 1 May 2012 the Applicant received a further $1,255,000.00 from the sale of his shares in the practice company and that day paid $1,250,000,000 of it into a bank account of the Roulstone Family Trust to further reduce his debt to the Trust. (In Exhibit SJR3 to his affidavit the Applicant stated the deposit to be $1,155,000. His trustee in bankruptcy reports that the Applicant said in his statement of affairs the deposit was $1,205,000, but records showed the deposit was $1,250,000 and the family trust paid the Applicant $100,000 shortly after.) In May 2012 Mr Barakat paid $1,615,000.00 to Vanair Pty Ltd as trustee of a family discretionary trust allegedly in reduction of an unsecured debt to the trust.

93 It should be noted that the evidence is that the payments to the family trusts were made upon the advice to the 3 solicitors of the insolvency advisers, Mr Green of Verekers Lawyers and Ms Sally Nash. Mr Roulstone's evidence is that the 3 solicitors had consultations with those advisers "sometimes separately and sometimes together". That advice was therefore obtained earlier than 1 May when the funds were received from Slater and Gordon Ltd and paid to the trusts. Mr Barakat's evidence is that he was advised by Mr Green that in the event of bankruptcy such a payment would be liable to be set aside as a preference.

94 Taking into account the payments of $1,255,000.00 on 1 May 2012, since 10 January 2011 each of Mr Roulstone and Mr Barakat had each received a total of $5,075,851.33 from Slater and Gordon and had each contributed in the same period $954,121 to the payment of client claims.

95 In the period 4 April 2012 to 7 May 2012 the solicitors consented to verdicts in favour of 12 clients for a total of $2,377,202 plus costs. Ten of those proceedings were commenced in 2010. Ten involved a verdict of more than $100,000 plus costs. No payments were made in respect of any of those 12 verdicts.

96 Mr Roulstone's evidence is that it was not till May 2012 that his accountants/tax agents gave him an estimate $2,350,000.00 for his likely income tax assessment for 2010/2011, the tax year in which the capital gain on sale of the law practice company would be included.

97 In para 19 of his section 67 Statement to the Law Society Mr Roulstone purported that an income tax assessment was issued by the ATO making him liable to pay tax of $2,350,000.00. That is untrue. His return was not lodged before 23 May. It was not an "amended return". The assessment issued on 5 June 2012 and was for $1,260,000,00. Para 67 of his affidavit in these proceedings also suggested that an assessment issued before the advice from his accountant about the CGT concessions. Mr Roulstone says that he was advised by his accountants that he qualified for a number of CGT concessions, which were then taken up by him in his tax return for that year after advice from his accountants/tax agents. One of those was to contribute some of the funds from the share sale to his superannuation for his retirement, thereby making those funds exempt from capital gains tax. The maximum amount that would qualify for the exemption was $500,000.00.

98 Mr Roulstone did not give evidence as to the actual date on which the estimate of $2,350,000 was given. Nor was it or the date of lodgement of his 2010/2011 tax return disclosed by him or by the letter of 23 October 2012 from his accountants, which is exhibit SRJ4 to his affidavit. The payment of funds from the sale of his shares to his superannuation fund occurred on 23 May. It occurred before his tax return was lodged. His income tax assessment for 2010/2011 issued on 5 June 2012. The Tribunal therefore concludes that the return was lodged on about 23 May and the estimate of $2,350.000 was given in early May or earlier, given that the insolvency lawyers were consulted before 1 May.

99 The solicitors in paying client claims had deferred settlement or payment of the larger claims. As at 3 May 2012, 107 claims had been made. There were 13 consent judgments for a total of $2,637,032 plus costs that had not been paid. They were still not paid when the applicant became bankrupt. All but one of them were for more than $100,000 plus costs.

100 As at 3 May 2012 the 3 solicitors knew they owed $2,637,032 plus costs for client claims already quantified but unpaid. No new claim had been made since 9 February. Another 49 claims, generally the larger claims, were yet to be quantified, Mr Roulstone's estimated tax liability for 2010/2011 was more than $2.3 million (or about $1,260,000,00), and (as disclosed in his Debtor's petition) he had other debts of more than $3 million. Having regard also to the limited property he disclosed in his Statement of Affairs on 6 August 2012 and the consultations with insolvency lawyers before 1 May 2012 the Tribunal is comfortably satisfied that he knew well before 1 May that he was insolvent.

101 The 3 solicitors on 7 May 2012 each paid another $100,000 (from the sale of his shares in the practice company) to the Commonwealth Bank account. Taking into account that payment, since 10 January 2011 Mr Roulstone and Mr Barakat had each received a total of $5,075,851.33 from Slater and Gordon and had contributed $1,054,121.33 in the same period to the payment of client claims.

102 The 3 solicitors made no contributions to the Commonwealth Bank account for client claims after 7 May 2012.

103 On 15 May 2012 terms of settlement were executed in respect of District Court proceedings by Mr Sun against the 3 solicitors for a verdict of $178,200 plus costs. The proceedings had been commenced on 20 July 2010. No part of the verdict or costs was paid.

104 On 17 May 2012 a consent Judgment was entered in respect of District Court proceedings by Mr Zoulfikar against the 3 solicitors for a verdict of $398,100 plus costs. The proceedings had been commenced on 28 September 2010. No part of the verdict or costs was paid.

105 On 18 May 2012 the Court of Appeal ordered the solicitors to pay the Respondent's costs in the Bazdarov appeal - on the ordinary basis until 5 August 2011 and thereafter on an indemnity basis. The solicitors did not pay any part of those costs.

106 On 22 May 2012 Mr Barakat used a further $450,000.00 of the funds from Slater and Gordon as a further contribution to his superannuation. On 23 May 2012 Mr Roulstone paid $500,000.00 of the funds from the share sale by way of contribution to his superannuation account with his superannuation fund. That was the maximum amount for which he could secure the "retirement concession". He subsequently lodged his 2010/2011 income tax return. In his documents submitted to the Tribunal the Applicant described this payment as "Compulsory contribution to super re CGT tax concessions to reduce tax liability". That was untrue. The payment was not compulsory; it was voluntary.

107 The Legal Services Division of the Administrative Decisions Tribunal on 4 June 2012 ordered that the name of Mr Keddie be removed from the Role of Practitioners based on findings of professional misconduct, including gross overcharging.

108 On 5 June 2012 the Australian Taxation Office issued a Notice of Assessment to Mr Roulstone the Applicant assessing his income tax liability for 2010/2011 as $1.26 million. There were other CGT concessions Mr Roulstone had claimed in addition to the $500,000.00 contribution to his superannuation. It appears from the evidence that upon receipt of that Assessment from the Taxation Office, Mr Roulstone knew that his debts far exceeded $5 million dollars. Even though the tax debt for 2010/2011 was less than first estimated, he knew he was insolvent. Mr Roulstone did not pay any part of that income tax liability.

109 Mr Roulstone and Mr Barakat continued to consent to further Judgments against them, accruing further joint and several liabilities of $1,380,507.91 plus costs prior to filing their Debtors Petitions.

110 On 15 June 2012 Russell Keddie filed a Debtors Petition and became bankrupt.

111 On 19 June a bankruptcy notice was served on Mr Barakat on behalf of Mahmoud Zoulfikar. On 22 June 2012 Mr Roulstone was served with a bankruptcy notice on behalf of Mr Zoulfikar. On 7 July 2012, a Creditors Petition returnable on 25 July was served on Mr Barakat on behalf of Mr Zoulfikar. A Creditor's Petition was served on Mr Roulstone on 11 July returnable 22 August.

112 In his Debtor's Petition Mr Roulstone states that on 6 July 2012, the Supreme Court of New South Wales made a freezing order in relation to his assets. That was apparently at the behest of a creditor or creditors to protect their interests.

113 On 9 July 2012 terms of settlement were executed in respect of District Court proceedings by Mr Hawkins against Mr Roulstone and Mr Barakat for a verdict of $161,200 plus costs. The proceedings had been commenced on 15 May 2011. The document does not identify the solicitor who signed for the defendants. No part of the verdict or costs was paid.

114 By 30 July 2012 the joint and separate liabilities of Mr Roulstone and Mr Barakat in respect of proceedings by or against the Keddies partnership amounted to $4,809,263.79 plus costs and interest on the client verdicts, plus the costs of Mr Bazdarov of the appeal to the Court of Appeal plus the costs of the solicitor against whom the 3 solicitors took the proceedings in the Equity Division of the Supreme Court. In addition there were another 30 client claims not yet quantified.

115 On 2 August 2012 a consent judgment was entered in the District court in favour of a client Wayne Tregear against Mr Roulstone and Mr Barakat for $314,700 plus costs. The proceedings had commenced in March 2011. Nothing was paid.

116 On 2 August 2012 Mr Barakat filed a Debtors Petition and became bankrupt. Mr Roulstone on 9 August 2012 filed a Debtors Petition and became bankrupt.

117 In his statement of 7 September 2012 to the Law Society, under Section 67 of the Legal Profession Act 2004, the Mr Roulstone said:

"12 The basis of many claims arose out of procedures under the Motor Accident Act Regulations whereby clients of the firm were invited to execute a document described as "Meeting the Gap". The intention of the document was for the client and the firm to enter into an arrangement whereby scale fees prescribed under the Regulations were not applicable to the fees payable by the client."

118 In his Statement of Affairs of 2 August 2012, Mr Barakat stated that his remaining liabilities to clients and former clients amounted to "approx. $11.5 million". He also indicated that he owed the Australian Taxation Office $2,392,307.00 as well as unquantified amounts owing to clients whose claims had not yet been determined or settled.

119 On 6 August 2012 in answer to Question 18C in Part A of his Debtor's Petition, Mr Roulstone said that he first had difficulties paying his debts in July 2012. But given what had happened with the client claims, it is clear that there had been such problems even before the agreement of 9 December 2011. In his Debtor's Petition Mr Barakat in answer to the same question nominated June but omitted to state the year. However, on the evidence we are comfortably satisfied that they both had problems paying their debts well before 10 April 2012 when Mr Barakat applied to pay the Bazdorov judgment by instalments, and that they both had recognised the possibility that they would soon become bankrupt and obtained insolvency advice before 1 March 2012.

120 Mr Roulstone in his Statement of Affairs of 6 August said the total amount still owing in respect of claims brought against the Keddies Partners was "approx. $11.5 million". He also stated his debt to the Australian Tax Office to be $2,392,307.00. The assessment in June 2012 for 2010/2011 was only $1,260,000.00. In his affidavit he testified that "Prior to my bankruptcy I always paid my debts as and when they fell due." It appears that the figure of $2,392,307 is incorrect. He and Mr Barakat both disclosed a debt of $3,075,442.00 to the Kedsec Unit Trust, an estimated $50,000.00 owing to the Legal Services Commission, a debt of $15,000.00 owing to Trent Reid, a contingent liability estimated at $240,000.00 owing to Grocon Property Trust under a personal guarantee, a debt of "approx. $56,000.00" to Ask Funding Limited, and a debt to Lexes Lawyers for legal costs of $31,000.00.

121 On 7 September 2012 Mr Roulstone signed his Section 67 Statement for the Law Society. He and Mr Barakat were represented by the same solicitor, Mr Williams. Their Sections 67 statements were described by the Law Society in its reasons as, "pro forma". They are very similar. In their Section 67 statements the 2 applicants did not faithfully represent the findings of Curtis DCJ in the Liu case. They purported that the decision was exclusively in respect of deficiencies in the "Meeting the Gap" document, whereas Curtis DCJ made adverse findings against the 3 solicitors of over-charging and "misleading and/or deceptive conduct". The applicants also suggested that subsequent litigation commenced after the Liu decision was "as a consequence of the defects in the procedures followed by Keddies in relation to opting out of the Motor Accidents Compensation Regulations", whereas the pleadings demonstrated that a key issue was other over-charging.

122 The matters raised in the section of the document headed "Submissions" as to why, despite the show cause events, he considered himself to be a fit and proper person to hold a Local Practising Certificate and under the heading "Recommendation", were the same in the section 67 statements of Mr Roulstone and Mr Barakat.

123 As the Law Society noted in its Reasons:

"Mr Roulstone's pro-forma response does not indicate the effect the substantial voluntary payments made to the Roulstone Superannuation Fund and the Roulstone Family Trust, from substantial funds received following the sale of Keddies to Slater & Gordon may have had on his ability to honour his obligations to pay his taxation liability or the Judgment Debts."

124 In the applicant's submission to the Law Society of 7 September 2012, Mr Roulstone said that a firm of solicitors that had acted for many of the claimants, had recently alleged in a letter that it represents creditors "in the sum of approximately $15,800,000.00". (Mr Roulstone's Trustee in Bankruptcy reported to the creditors in March 2013 that the proofs of debt of creditors of the law practice (mostly client claims) came to $15,247,679.64 and the debt to the Australian Taxation Office was $1,284,631.00.)

125 Mr Roulstone included in his section 67 statement of 7 September 2012 his curriculum vitae which disclosed that since the sale of the practice on 11 January 2011 he had been continuously employed full time by Slater and Gordon in the law practice in the role of Principal Lawyer, Business Development Manager until the decision in November 2012 to suspend his practising certificate. There is no evidence in the proceedings disclosing his income in that role nor his income from any other sources including his shares in Slater and Gordon Ltd, except that on his Debtor's Petition he stated his income for the preceding 12 months was $322.598.20. There is also no evidence that Mr Roulstone used any part of his income after 10 January 2011 to make payments to creditors (including payment of client judgment debts and payment of his tax debt for 2010/2011 assessed in June 2012).

126 After his bankruptcy, Mr Barakat arranged for payment of $1,615,000.00 by the Vanair Trust to his Trustee in Bankruptcy on 24 September 2012 but only after the Trustee took proceedings in the Federal Court, obtained consent orders declaring Mr Barakat's payment to the Trust before bankruptcy was a preference and ordering that the funds to be paid to the Trustee. Mr Bakarat seeks to rely upon the fact that he was not asked for the money before the proceedings and at the hearing he consented to the orders sought. However, his evidence is that before he made the payment he knew that it was a preference that could be set aside under the Act but he became bankrupt on 3 August 2012 and 7 weeks later when the orders were made he still had not voluntarily paid the money to his trustee.

127 Mr Barakat submitted a composition proposal proposing to his creditors that he pay $450,000 within 60 days, his superannuation fund refund the $450,000 preferential payment he had made to it, and a further amount of $1,550,000.00 be provided by 31 March 2013 to his trustee. The Trustee had already collected $2,154,809.00. The Creditors resolved to accept the composition proposal on 6 February 2013. On the signing of the Deed of Composition, Mr Barakat's bankruptcy was annulled.

128 The sale of the Roulstone family home at Woollahra owned by Mrs Roulstone was completed in December 2012.

129 On 17 December 2012 Mr Roulstone proposed a composition to his Trustee, which involved his wife contributing $1,000,000.00 within 21 days of a resolution approving the composition, his shares in Slater & Gordon Limited to be part of the composition, and he would assign to the Trustee "any moneys otherwise payable to him by reason on 'an unjust enrichment/moneys had and received' payment by any barrister briefed by Keddies". The Trustee was holding $693,587.91, most of which was from sale of some of Mr Roulstone's shares in Slater & Gordon Ltd. A meeting of Mr Roulstone's creditors was held on 4 April 2013 and they rejected the composition proposal. At the time of the hearing by the Tribunal Mr Roulstone remained bankrupt.

130 In his Debtors Petition, the only debt Mr Roulstone showed as owing to Verekers Lawyers was for legal costs in an amount of $20,000.00. Mr Barakat did not show any debt owing to Verekers Lawyers. It appears that any costs payable to Verekers Lawyers for legal advice and legal representation of the three solicitors in relation to any claims by clients against them were paid before the bankruptcies or secured by the payment of $1 million in August 2011.

WHAT DID MR ROULSTONE AND MR BARAKAT RECEIVE FOR THE SALE OF THEIR SHARES IN KEDDIES?

131 Mr Roulstone and Mr Barakat each received shares in Slater & Gordon Limited worth about $1 million. Those shares were subject to restrictions as to when they could be sold. Under the sale agreement none of the shares could be disposed of before 30 June 2012; 33% could then be disposed of after 30 June 2012. Another 33% could only be disposed of after 1 July 2013, and the final 34% could be disposed of only after 1 June 2014. In addition, the shareholder was required by the agreement to retain at least 20% of the shares while ever the shareholder remained as an employee of Slater & Gordon Limited.

132 Mr Roulstone on the evidence received payments totalling at least $5,075,851.33. His evidence of the amounts he received contained in Exhibit SJR 3 to his affidavit is incomplete. The amounts he lists total $4,471,730.33. He omits the receipt of $500,000.00 on 21 September 2011 and the payment of $154,121.00. Those and the $4,471,730.33 account for $5,025,851.33. The Tribunal is comfortably satisfied Mr Roulstone and Mr Barakat each received payments to a total of $5,025,851.33 plus shares in Slater and Gordon worth about $1 million.

HOW MUCH WAS DEPOSITED BY THE 3 SOLICITORS INTO THE COMMONWEALTH BANK CLIENT CLAIMS ACCOUNT AFTER 10 JANUARY 2011?

133 According to the evidence of Mr Roulstone adopted by Mr Barakat, the amounts identified as deposited were as follows:

Refund of Goods & Services Taxes approx. $ 500,000.00

Contributions of Mr Roulstone $1,054,121.00

Contributions of Mr Barakat $1,054,121.00

Contributions of Mr Keddies $1,054,121.00

Total $3,662,363.00

134 However, if it were correct that each contributed a total of $1,300,000.00 to the account, as Mr Roulstone alleged in SJR 3, then taking into account the $500,000.00 in GST refunds, the total the 3 practitioners deposited to that account was $4,400,000.00.

WHAT AMOUNTS DID THE THREE SOLICITORS PAY TO THE CLIENTS?

135 According to Exhibit A1, a Schedule tendered on behalf of the Applicants, 2 claims were paid by Slater and Gordon in October 2012 (a total of $52,056). Fifty two claims were not paid by the 3 solicitors. The 23 unpaid claims that had been settled and quantified by consent orders or settlement deed totaled $4,159,839 plus costs and interest.

136 There were 27 matters where there had been no agreement as to the amount which should be refunded to the client. Exhibit A1 does not disclose the amounts claimed by those clients, nor does the other evidence. If they averaged the average of more than $180,000.00 which is the average of the unpaid settled claims, they would total about another $4,160,000.00.

137 The total amount of the 52 claims paid by the solicitors was $2,002,932.00. Three of those were settled in 2010 but the evidence doesn't show that any were paid before 11 January 2011. The evidence does not identify the dates of payment of any of the claims paid. The most the 3 solicitors could have paid the clients after 10 January 2011 is $2,002,932.00, the total of payments to clients.

138 About $3,662,363 was deposited to the Commonwealth Bank Account for client claims. At most $2,002,932.00 was paid to the clients. There is no evidence explaining what happened in relation to at least $1,659,431.00.

139 If Mr Roulstone's claim that each paid $1,300,000.00 to the account were true, then $4,400,000.00 was deposited to the account but a maximum of only $2,002,932.00 was paid to clients and the whereabouts of the balance of at least $2,397,068.00 has not been explained.

WHAT DOES MR ROULSTONE SAY HE DID WITH HIS $5,075,851.33?

140 The evidence of Mr Roulstone is that he used the funds from sale of his Keddies shares as follows:

Total Received $5,075,851.33

Payments for:

Roulstone Family Trust debt $ 366,363.19

Roulstone Family Trust debt $1,250,000.00

$1,616,363.19

The Roulstone Superannuation Fund $ 500,000.00

Verekers Lawyers $ 333,333.33

To pay Applicant's bank loan $ 500,000.00

Private School fees debt $ 160,000.00

Commonwealth Bank Account for

Client claims $1,042,121.00

$4,151,817.52

Balance $ 924,033.81

Funds used for "Taxation payments, accounting fees,

Legal fees, rent, living expenses, credit

cards, school fees etc business expenses

related to future employment prospects" (no other detail) $ 507,034.00

Balance (unexplained) $ 416,999.81

WHAT DOES MR BARAKAT SAY HE DID WITH HIS $5,075,851.33?

141 The evidence of Mr Barakat is that he used the funds from sale of his Keddies shares as follows:

Total Received $5,075,851.33

Payments:

Payment to Family Trust $1,615,000.00

Barakat Superannuation Fund $ 475,000.00

Verekers Lawyers $ 333,333.33

To reduce joint debt secured by

Mortgage on wife's property at

Circular Quay $ 244,039.90

Commonwealth Bank Account for

Client claims $1,042,121.00

School and university fees for children $ 12,696.00

Tax paid $ 113,000.00

Amounts spent on setting up law practice

and website $ 133,000.00

Accountant's fees $ 25,000.00

Paid to Anthony Ghalloub and John Sukar$ 350,000.00

Balance in NAB account $ 500,000.00

Middleton Lawyers - costs $ 6,000.00

$4,856,494.23

Balance unaccounted for $ 219,357.10

WHAT WERE THE DETAILS OF THE PAYMENTS TO GHALLOUB AND SUKAR ?

142 Mr Barakat made no reference to this in his affidavit. In a document in the secition 58 bundle supplied by the Law Society there is a reference to this payment and it is described as "Disclosed in question 31". That appears to be a reference to his answer to question 31 in his Statement of Affairs of 2 August 2012. The question is "do you have any debts owed to you?". The list of debts he has disclosed in the answer includes a debt of $200,000.00 owing to him by Mr Ghalloub from "2009/2011"and $250,000.00 owing to him by Mr Sukar from July 2011. Apparently he made loans of a total of $350,000.00 to these people from the money from the sale of his Keddies shares.

143 Mr Barakat has not provided any details of these loans, such as what relationship each borrower has to him, the purpose of the loan, any documentation, what security was provided and when the debt is repayable. In the report of his Trustee in Bankruptcy of 3 August 2012 the Trustee reported that the 2 borrowers are relatives of Mr Barakat, the amounts owing by them (total $450,000) have not been paid, the Trustee has made a demand on each for payment, there has been no response and solicitors have been instructed to recover the debts.

144 Clearly Mr Barakat has not provided reasonable information in relation to the disposal of $350,000.00 of those funds from the sale of his shares. He has not accounted for those funds.

WHAT HAPPENED TO THE $1 MILLION PAID TO VEREKERS LAWYERS IN ABOUT AUGUST 2011?

145 In exhibit SJR3 to his affidavit Mr Roulstone says the payment of his $333,333.33 was "paid into Verekers account to pay bills of the partnership" and in a note below that he said "Monies paid into Verekers accounts was used to pay Keddies debts". Mr Barakat in his affidavit adopts that evidence.

146 There is evidence that Verekers Lawyers acted for the 3 solicitors in some of the proceedings and also provided insolvency advice to all 3 (sometimes together) by an insolvency expert, Mr Green at Verekers Lawyers. The solicitors also obtained insolvency advice from another insolvency expert, Ms Sally Nash. Verekers had also performed legal work for the 3 solicitors in relation to some client claims. The $1 million could also have wholly or partly been on account for the ongoing legal costs of the 3 solicitors in relation to the client claims. It is possible that Verekers Lawyers also acted for the solicitors in the proceedings in the Equity Division of the Supreme Court against the solicitor who acted for many of the clients.

147 Mr Roulstone and Mr Barakat do not say, and the other evidence does not disclose, that any of the funds paid to Verekers Lawyers was used to pay client claims, except that in his document "Disbursement of Monies From Sale of Keddies - Total $5.19 million" he states that the amount of $333,333.33 he paid to Verekers was "for Payment of Legal fees and claims". But none of the client claims paid has been identified as being paid from those funds.

148 There is no evidence as to what debts of the law practice, if any, were paid from the $1,000,000.00. The evidence does not provide any accounting for the $1 million paid to Verekers Lawyers.

LAW SOCIETY PARA 4(a): MR ROULSTONE'S VOLUNTARY PAYMENTS TO HIS WIFE'S MORTGAGE OFFSET ACCOUNTS

149 The payments were of $1,833,397.00 on 11 January 2011 and $1,000,000.00 on 21 December 2011. The evidence is that the bank accounts were offset accounts in that the deposit balances generated interest reductions against 2 mortgages of his wife's to the relevant bank over real estate of his wife. His wife received a benefit by way of reduced interest charges on the mortgage loans. The evidence does not quantify that benefit. The Law Society made reference in its reasons to "a mortgage over an unidentified property". The Trustee's report SJR 6 to Mr Roulstone's affidavit identifies that the property the subject of the mortgages was the Roulstone family home at Woollahra owned by Mrs Roulstone. Mr Roulston did not directly provide the Tribunal any evidence identifying the bank or the loans, and has not provided any corroborative evidence of any of that. He has not disclosed the extent of the offset benefits his wife has had.

150 At March 2013 the Trustee in Bankruptcy calculated that Mr Roulstone's net contribution (deposits less payments out) to the offset account(s) in his wife's name stood at $877,635.00. The Roulstone family home at Woollahra owned by Mrs Roulstone was sold by a contract entered into in December 2011 and not completed till December 2012.

BARAKAT: LAW SOCIETY PARA 6(a): VOLUNTARY PAYMENT OF HIS SHARE OF SALE PROCEEDS FROM SALE OF ROSEVILLE CHASE TO REDUCE JOINT MORTGAGE DEBT SECURED OVER WIFE'S PROPERTY AT MACQUARIE STREET, CIRCULAR QUAY

151 It appears from the evidence there was no mortgage debt owing on the Roseville Chase property when it was sold. The net amount received from the settlement and deposited into a National Australia Bank account was, according to the solicitor's settlement figures, $1,980,494.74. On the evidence it appears that Mr Barakat was entitled to at least one half of those funds ($990,247.37). He authorised his funds to be paid in reduction of the joint mortgage debt secured on his wife's unit at Circular Quay. That increased his wife's equity in the property while reducing the funds available for unsecured creditors (including the Tax Office and the client creditors) in the likely bankruptcy.

BARAKAT: LAW SOCIETY PARA 6(b), (c) and (d): MOTOR VEHICLES

152 In his report to creditors of 3 August 2012, the Trustee in Bankruptcy recorded that the Mercedes Benz motor vehicle and the Subaru Outback vehicle had been delivered to his control by Mr Barakat and had been sold at auction. The Trustee considered that the recovery of the BMW vehicle was not commercially viable given the likely costs of recovery and sale.

153 In his Affidavit, Mr Barakat gave evidence:

"The three vehicles were transferred, two to my children and one to my wife who had the use and benefit of the motor vehicles. In each case the vehicle had been purchased from funds belonging to my wife and myself from our joint account. The vehicles were registered in my name so as to contain the insurance premiums which would otherwise be payable because of the age of my children or because it was a former work vehicle. There was no commercial consideration involved in the transfer of the vehicles at all."

LAW SOCIETY PARA 4(b) MR ROULSTONE'S PAYMENTS "TO REPAY PERSONAL LOANS AND OTHER UNSPECIFIED CREDITORS" AND PARA 4(e) "CONTRIBUTIONS WERE MADE TO UNSPECIFIED FAMILY EXPENSES"

154 Mr Roulstone says he paid $500,000 to "repay loan from bank for Scott Roulstone". The evidence is that the loan was secured over real estate, but it was not his real estate. The mortgage therefore was not his. The bank was not identified by Mr Roulstone. He did not identify the nature or purpose of the loan, and did not put the mortgage or any bank records of the mortgage, the loan or the payment into evidence. The payment of the debt benefited the owner by releasing the title from the $500,000.00 liability. In the absence of evidence to the contrary the Tribunal is comfortably satisfied that Mr Roulstone's wife is the owner of the property and she received the benefit of the payment of the debt secured against her property.

155 Mr Roulstone alleges that on 22 December 2011 he paid $160,000.00 from the proceeds of sale of his shares to discharge a debt for school fees. He did not identify the school. He produced no record or other evidence of the debt or the payment.

156 There was no evidence as to whether the debt was a joint debt of him and his wife or a debt of Mr Roulstone alone. His evidence of the debt and the payment was not corroborated. He made no reference to this alleged debt or the alleged payment in his Section 67 Statement to the Law Society or in subsequent submissions after the Law Society raised its concerns as to what money he received from the sale of the shares and what he did with those funds. The Law Society in its reasons referred to his explanation that part of the funds from sale of his shares were used for what the Law Society described as "to repay personal loans and other unspecified creditors".

157 In his Debtor's Petition he completed on 6 August 2012, where he was required to disclose "a total amount of more than $1,000 over and above your normal repayments" paid in the last 12 months "as a result of pressure for payment" he did not disclose any payment of $500,000.00 to a bank, nor any payment of $160,000.00 for school fees or any other amount for any purpose.

158 In SJR 3 Mr Roulstone states as to $507,034.00 of the funds he received from sale of his shares (after 10 January 2011) that it was used for "taxation payments, accounting fees, legal fees, rent, living expenses, credit cards, school fees etc, business expenses related to future employment prospects". He provided no other detail and no corroboration.

159 Mr Roulstone alleged he used $1,616,363.19 of the sale money to make payments to reduce his debt to the Roulstone Family Trust. In SJR 3 Mr Roulstone says that the payment of the $366,363.19 to the trust on 11 January 2011 was "partial repayment of Scott Roulstone debt" to the Trust and the payment of $1,250,000.00 (referred to as "$1,155,000.00") to the trust on 1 May 2012 was "partial repayment of debt - Scott Roulstone".

160 The Law Society at para 5 of its reasons stated that Mr Roulstone had informed it that as at 30 June 2011 he owed the Trust $1,721,146.00 and in May 2012 he paid the Trust $1,205,000.00 (sic), but "no further explanation has been proffered" as to why the payment was made in May 2012. In the body of his affidavit in the Tribunal Mr Roulstone did not offer any further explanation.

161 There is no disclosure of the first payment in his Statement of Affairs and Bankruptcy Petition, in SJR 4, or his Trustee's Report to Creditors.

162 The Trustee in Bankruptcy reported that as at 30 June 2010 the law practice owed the Trust $2,927,887. He reported that at the same date the Trust owed Mr Roulstone $1,828,201. He further reported that as part of the sale of the law practice, Mr Roulstone assumed responsibility for the amount owed by the law practice to the Trust. As at 30 June 2010 the net effect would have been to leave a net debt owing by Mr Roulstone to the Trust of $1,099,686.00. But Mr Roulstone's evidence is that in January 2011 he paid the Trust $366,363.19 to reduce the debt. The Trustee in Bankruptcy, however, states that according to the financial statements of the Trust, as at 30 June 2011 the debt of Mr Roulstone owing to the Trust was $1,221,146.00.

163 Mr Roulstone provided no evidence to explain how that came about and no evidence to establish that receipt of the alleged first payment is recorded in the financial records of the Trust.

164 The Trustee report of 15 March 2013 states that the payment of 1 May 2012 (in fact $1,250,000.00) is shown in the bank statement for the Trust. He says that the records show a payment shortly after by the Trust of $100,000.00 to Mr Roulstone. At the time of the report, and at the time of the hearing in the Tribunal in May, 9 months after the payment of $1,250,000.00 to the Trust, the Trust and Mr Roulstone had not paid any part of the $1,250,000.00 to the Trustee in Bankruptcy. The Trustee reported that there were "good prospects of recovering" the $1,250,000.00 from the Trust under Section 122 of the Bankruptcy Act 1966 as a preference payment.

165 In cross examination Mr Roulstone testified that the three solicitors were advised that the funds from the sale "had to be parked somewhere" and were advised that if they paid their income tax assessments, the payments could be set aside as a preference. He conceded that other than "parking" funds in his wife's accounts and payments to the family trust, he made other payments with some of the proceeds of the sale of his shares. He conceded that the debt owing to the Roulstone's Family Trust "wasn't pressing". There was no penalty interest payable. The debt had been owed for "a couple of years".

166 There were, of course, other alternatives available, such as collecting the available funds in an interest bearing account till the bankruptcy or a composition occurred, or paying the tax debt and avoiding the high rate of interest.

167 It was put to Mr Roulstone that he "made a conscious decision not to pay tax". He said that he did it on the advice of his solicitor and he "dissuaded me from paying tax. He said it would be a preference to others. He said as to paying off mortgages etc. "in my own mind, I would have paid the tax and not paid the trust".

ROULSTONE LAW SOCIETY PARA 4(c): "TRANSFERS..... TO THE KEDDIES PARTNERSHIP TO PAY THE FIRM'S UNSPECIFIED LEGAL COSTS AND TO FUND UNSPECIFIED CLIENT SETTLEMENTS"

168 The only evidence of funds that on the evidence may have been used for legal costs of the Keddie's law practice is of the balance of the $3,662,363.00 deposited to the Commonwealth Bank account and the $1,000,000.00 paid to Verekers. If all the money to pay client claims came from the Commonwealth Bank account the remainder of those funds would have been $1,659,431.00. That gives a total of $2,659,431.00 which would have been available after payment of client claims. The applicants have not provided evidence of what legal costs, if any, were paid from the funds in the Commonwealth Bank or from the $1 million paid to Verekers. They have not provided any accounting for the balance of the funds in the Commonwealth Bank account or for the $1 million paid to Verekers.

ROULSTONE: PAYMENTS TO FAMILY TRUST.

169 Mr Roulstone alleged he used $1,616,363.19 of the sale money to make payments to reduce his debt to the Roulstone Family Trust. In SJR 3 Mr Roulstone says that the payment of the $366,363.19 to the trust on 11 January 2011 was "partial repayment of Scott Roulstone debt" to the Trust and the payment of $1,250,000.00 (referred to as "$1,155,000.00") to the trust on 1 May 2012 was "partial repayment of debt - Scott Roulstone".

170 The Law Society at para 5 of its reasons stated that Mr Roulstone had informed it that as at 30 June 2011 he owed the Trust $1,721,146.00 and in May 2012 he paid the Trust $1,205,000.00 (sic), but "no further explanation has been proffered" as to why the payment was made in May 2012. In the body of his affidavit in the Tribunal Mr Roulstone did not offer any further explanation.

171 There is no disclosure of the first payment in his Statement of Affairs and Bankruptcy Petition, in SJR 4, or his Trustee's Report to Creditors.

172 The Trustee in Bankruptcy reported that as at 30 June 2010 the law practice owed the Trust $2,927,887. He reported that at the same date the Trust owed Mr Roulstone $1,828,201. He further reported that as part of the sale of the law practice, Mr Roulstone assumed responsibility for the amount owed by the law practice to the Trust. As at 30 June 2010 the net effect would have been to leave a net debt owing by Mr Roulstone to the Trust of $1,099,686.00. But Mr Roulstone's evidence is that in January 2011 he paid the Trust $366,363.19 to reduce the debt. The Trustee in Bankruptcy, however, states that according to the financial statements of the Trust, as at 30 June 2011 the debt of Mr Roulstone owing to the Trust was $1,221,146.00.

173 Mr Roulstone provided no evidence to explain how that came about and no evidence to establish that receipt of the alleged first payment is recorded in the financial records of the Trust.

174 The Trustee report of 15 March 2013 states that the payment of 1 May 2012 (in fact $1,250,000.00) is shown in the bank statement for the Trust. He says that the records show a payment shortly after by the Trust of $100,000.00 to Mr Roulstone. At the time of the report, and at the time of the hearing in the Tribunal in May, 9 months after the payment of $1,250,000.00 to the Trust, the Trust and Mr Roulstone had not paid any part of the $1,250,000.00 to the Trustee in Bankruptcy. The Trustee reported that there were "good prospects of recovering" the $1,250,000.00 from the Trust under Section 122 of the Bankruptcy Act 1966 as a preference payment.

175 In cross examination Mr Roulstone testified that the three solicitors were advised that the funds from the sale "had to be parked somewhere" and were advised that if they paid their income tax assessments, the payments could be set aside as a preference. He conceded that other than "parking" funds in his wife's accounts and payments to the family trust, he made other payments with some of the proceeds of the sale of his shares. He conceded that the debt owing to the Roulstone Family Trust "wasn't pressing". There was no penalty interest payable. The debt had been owed for "a couple of years".

176 There were, of course, other alternatives available, such as collecting the available funds in an interest bearing account till the bankruptcy or a composition occurred, or paying the tax debt and avoiding the high rate of interest.

177 It was put to Mr Roulstone that he "made a conscious decision not to pay tax". He said that he did it on the advice of his solicitor and he "dissuaded me from paying tax. He said it would be a preference to others. He said as to paying off mortgages etc. "in my own mind, I would have paid the tax and not paid the trust".

BARAKAT: LAW SOCIETY PARA 6(e): PAYMENT OF $1,615,000.00 IN MAY 2012 TO VANAIR PTY LTD AS TRUSTEE FOR HIS FAMILY TRUST

178 Mr Barakat's evidence is that his payment of $1,615,000.00 to the Family Trust was made after advice from the insolvency expert, Mr Green regarding the proposed payment, and that the meetings that he had with Mr Green occurred: "When it became apparent that I was likely to go bankrupt". The expert insolvency advice he had before he undertook this payment was that in the likely event of him becoming bankrupt, it would be considered a preference and liable to be recovered by his Trustee in Bankruptcy.

179 Mr Barakat did not place in evidence any records or other corroboration of his loan account with the Trust. In his Statement of Affairs of 2 August 2012 he did not allege there was any debt then owing to the Trust. After he filed his Debtors Petition on 2 August, he did not voluntarily arrange for the payment of the $1,615,000.00 to his Trustee in Bankruptcy. The Trustee obtained a freezing order from the Federal Court on 10 August 2012 in respect of funds paid to the family trust by Mr Barakat.

180 It was not until proceedings in the Federal Court by the Trustee in Bankruptcy that on 20 September 2012 he consented to orders declaring the original payment a preference and void against the Trustee, and ordering that the trustee Vanair Pty Ltd to pay the funds to the Trustee in Bankruptcy. The Trustee in Bankruptcy received the amount of $1,615,000 from the Trust on 24 September 2012. There is no evidence that any interest was paid to the Trustee in Bankruptcy in respect of use of the sum of $1,615,000.00 for about 4 months.

LAW SOCIETY PARA 4(d) "CONTRIBUTIONS..... TO THE ROULSTONE SUPERANNUATION FUND TO OBTAIN CGT CONCESSIONS AVAILABLE AS A RESULT OF THE SALE OF THE KEDDIES PARTNERSHIP IN THE AMOUNT OF $500,000 SOME TIME IN 2012"

181 The sale of the shares in the legal practice occurred in the 2010/2011 tax year and the capital gain fell to be included in Mr Roulstone's tax return for that year. The evidence from his accountants is that in order to be able to claim the "retirement" tax concession, the $500,000.00 had to be paid to the superannuation fund before he lodged his 2010/2011 income tax return.

182 The payment was made on 23 May 2012. Mr Roulstone did not refer to the payment in his section 67 Statement to the Law Society. He referred to the payment as "compulsory" in SJR 3, but it was not. That payment may have reduced the tax payable to the Australian Taxation Office, but regardless of the amount of his tax liability, it reduced the liquid funds available to the unsecured creditors by $500,000.00 and increased the superannuation account of Mr Roulstone by the same amount.

183 As at the report of Mr Roulstone's Trustee in Bankruptcy in March 2013, nearly 10 months after the payment, no part of those funds had been recovered from the Roulstone Superannuation Fund, but the Trustees' opinion was that the contributions of $526,849.00 during 2011/2012 tax year were "prima facie void pursuant to section 128B of the Bankruptcy Act" as superannuation contributions made to defeat creditors. He proposed that if the creditors did not accept the composition proposed by the bankrupt, proceedings should be taken against the Superannuation fund for recovery of the $526,849.00. He said the prospects of recovery were "good". It is noted that the value of the bankrupt's interest in the fund at that time was $2,525.295.00.

184 At the time of the hearing, about 12 months after the payment to the superannuation fund, there was no evidence of any part of the $500.000 or any interest thereon having been paid to the Trustee in Bankruptcy. Mr Roulstone in cross examination conceded that the trustee had said that there are prospects of recovering that amount from the superannuation fund, and that it had been indicated by his solicitors to the trustee that he would vigorously oppose any attempted recovery of the $500,000 from the Roulstone Superannuation Fund.

BARAKAT: LAW SOCIETY PARA 5: PAYMENT OF $475,000.00 TO THE BARAKAT SUPERANNUATION FUND

185 The total contributions made to the Barakat Superannuation fund in respect of Mr Barakat for the 2010/2011 tax year was $475,000.00 which Mr Barakat says was $25,000.00 paid on 27 June 2011 and $450,000.00 paid on 22 May 2012 and both payments were made from the proceeds of sale of his Keddies shares.

186 Mr Barakat's evidence is that after "It became apparent that I was likely to go bankrupt", he had two meetings with the insolvency expert, Mr Green of Verekers Lawyers at which he received advice regarding the proposed payment of another $450,000.00 to his superannuation fund. His evidence is that he also obtained advice about proposed payment from his accountants, H.L.B. Mann Judd regarding the proposed payment to the superannuation fund. Those were the same accountants that were the accountants for Mr Roulstone and gave him similar advice, except that it appears Mr Barakat was entitled to claim the retirement benefit for only $475,000.00 contributed to superannuation from the proceeds of sale of his interest in Keddies.

187 The payment was made on 23 May 2012. Mr Barakat did not refer to the payments or to any amount received from the sale of his interest in Keddies or the sale price in his section 67 Statement to the Law Society. The corresponding payment by Mr Roulstone is referred to as "compulsory" in SJR 3, and Mr Barakat adopted that evidence, but it was not. That payment may have reduced the tax payable to the Australian Taxation Office, but regardless of the amount of his tax liability, it reduced the liquid funds available to the unsecured creditors by $475,000.00 and increased the superannuation account of Mr Barakat by the same amount.

188 As at the report of Mr Barakat's Trustee in Bankruptcy in November 2012, about 7 months after the larger payment, no part of the payment of $475,000.00 had been received from the Barakat Superannuation Fund, but the Trustee expressed the opinion that:

"We would have good prospects of recovering the payment of $450,000.00 as voidable under section 128B of the Act. To date our solicitors have issued a demand on the superannuation fund, however, we understand the Bankrupt intends to defend our claim on the basis the payment was not out of character."

189 There was a second Trustee in Bankruptcy subsequently appointed to replace the first, and that Trustee reported on 12 February 2013. While Mr Barakat had by then proposed a revised composition proposal, which included payment of $450,000.00 from his superannuation fund to the Trustee for the benefit of the creditors, the money still remained in the Barakat Superannuation Fund more than 9 months after the payment to the fund. It is noted that in his Debtors Petition of 2 August 2012, Mr Barakat stated that his superannuation entitlements in the Barakat Superannuation Fund were then worth $2.94 million.

MR BARAKAT'S PAYMENT OF $244,039.90 TO DISCHARGE THE MORTGAGE ON HIS WIFE'S PROPERTY

190 Mr Barakat made this voluntary payment from the money from sale of his Keddies shares at a time when he knew he was insolvent and he knew he had a taxation debt and unpaid client judgments against him for overcharging.

INADEQUATE ACCOUNTING BY MR ROULSTONE

191 Both solicitors have not accounted for a significant part of the funds they received from the sale of their Keddies shares.

192 Mr Roulstone has not provided any accounting for about $416,999.81 of the funds he received from the sale of his shares and the explanation he has given for more than $507,034.00 is cursory, without any detail and uncorroborated. It is inadequate, particularly in the context of the other large amounts involved and the inadequacies already discussed.

193 The evidence to support the alleged debt of $160,000.00 for school fees is and alleged payment is, in all the circumstances, inadequate and in the context of the other inadequacies, not persuasive.

194 Mr Roulstone did not provide evidence as to his income from paid work and other sources since 10 January 2011 and what was done with it, in the absence of any evidence that any of it was used to pay client judgments or other creditors.

195 For reasons set out in this judgment, the inadequacies for Mr Roulstone are in relation to the following amounts:

funds received not acknowledged $ 604,121.00

funds deposited to Commonwealth Bank

account for client claims but unaccounted for $1,659,431.00

amount paid to Verekers unaccounted for $1,000,000.00

sale monies -inadequate details of how spent $ 507,034.00

alleged payment of alleged school fees debt $ 160,000.00

Funds received, but no explanation of how

dissipated $ 416,999.81

Inadequate accounting in relation to his loan

account transactions with Roulstone Family Trust $ Not known

inadequate accounting - income since January 2011 $ not known

INADEQUATE ACCOUNTING BY MR BARAKAT

196 Mr Barakat has not provided:

· any adequate explanation in relation to "loans" of $350,000 of the sale proceeds to relatives;

· any adequate evidence of the transaction history of his loan account with the Vanair Trust;

· any details of an alleged payment from the funds from Slater and Gordon of tax of $113,000.00. (Mr Barakat did not allege that he paid any part of his 2010/2011 assessment. The figure he stated for his tax debt in his statement of affairs in August less than 2 months after the assessment is $2,392,307 and suggests there had been no payment in respect of that assessment. There is no evidence of him being assessed for his 2011/2012 tax before he became bankrupt 2 months after his 2010/2011 assessment. It is most unlikely. His evidence in his affidavit that "since I began paid employment I have always paid my tax ... and have paid all outstanding tax except for this last tax bill" suggests that if he paid tax it was not for 2009/2010 or earlier years.)

· any details or corroborative evidence for his alleged payments for Middleton Lawyers, his accountants, and school and university fees; and

· adequate evidence as to his income from paid work and other sources since 10 January 2011 and what was done with it, in the absence of any evidence that any of it was used to pay client judgments or any part of his 2010/2011 income tax assessment.

197 Taking the inadequacies together the amounts involved for Mr Barakat are as follows:

Funds received but no explanation of how

dissipated $ 219.357.10

Account for client claims - $1,659,431.00

Loans to relatives -insufficient evidence $ 350,000.00

Amount paid to Verekers unaccounted for $1,000,000.00

Inadequate accounting - income since January 2011 $ not known

Inadequate evidence for alleged payments of $ 156,696.00

198 Those amounts listed in the preceding two paragraphs are very significant given that the total paid by the 3 solicitors to client creditors was only $2,002,932.00. Mr Roulstone's tax assessment was for only $1,260,000.00 and Mr Barakat's tax assessment of 15 June 2012 in respect of 2010/2011 was only $2,350,000.00.

RELEVANT CASE LAW

199 It has been well recognised in New South Wales since at least the decision of the court of appeal in New South Wales Bar Association - v - Hamman [1999] NSWCA 404 that failure of the lawyer to fulfil the civic duty to pay tax, even though in the particular circumstances it may not involve any offence, constitutes unsatisfactory professional conduct or professional misconduct. (See also NSW Bar Association - V - Somosi [2001] NSWCA 285; NSW Bar Association - V - Cummins [2001] NSWCA 284.)

200 In New South Wales Bar Association - V - Murphy [2002] NSWCA 138 the Court of Appeal held that the test to be applied when determining fitness to hold a practicing certificate in the context of an act of bankruptcy, is not whether the indebtedness which led to the bankruptcy was brought about by or associated with dishonest conduct by the applicant for or holder of the certificate, but whether the circumstances in which the act of bankruptcy was committed are such as to persuade a Council that, at the time of its determination, such person is not a fit and proper person to hold a practicing certificate".

201 In that decision Giles JA (with whom Ipp AJA agreed) said:

"[107] .... The fact of commission of an act of bankruptcy, an indictable offence or a tax offence is not what matters. The Council, and the Court, must look to the circumstances in which the act of bankruptcy, indictable offence or tax offence was committed."

202 As to the words "fit and proper" Spigelman CJ in NSW Bar Association - V - Cummins (2001) 52 NSWLR 279 at 284 endorsed what was said by Kitt OJ in Ziens - V - Prothonotary of the Supreme Court of NSW (1957) 97 CLR 279 at 298:

" .... They should be understood as a reminder that a barrister is more than his client's confidant adviser and advocate, and must therefore possess more than honesty, learning and forensic ability. ....... If a barrister is found to be, for any reason, an unsuitable person to share in the enjoyment of those privileges and in the effective discharge of those responsibilities,he is not a fit and proper person to remain at the Bar."

203 In the Murphy decision of the court of appeal, Giles JA (with whom Ipp AJA agreed) held at [113]:

"...... Fitness to hold a practising certificate is to be assessed having in mind the high standards required of legal practitioners in the practice of their profession. The standards are required because the relationship between the legal practitioner and client, between legal practitioners, and between legal practitioners and court is one of trust in the performance of professional functions, and because there must be confidence in the public and in those engaged in the administration of justice that legal practitioners will properly perform those functions."

204 In Wardell - v - New South Wales Bar Association [2002] NSWSC 548 the Supreme Court was reviewing a decision of the Bar Council canceling the practising certificate of a barrister following his bankruptcy, which occurred as a result of his debtor's petition. The Bar Council had resolved that Wardell was not a fit and proper person to hold a practicing certificate.

205 Cripps AJ said in his judgement at [36]

"...it is not only legal competence and the trust of the professional associates that determines fitness and propriety to hold a practising certificate. If that were all there were to it, Mr Wardell would have to succeed in this appeal. In my opinion, however, the test also extends to embrace aspects of character derived from conduct."

206 Cripps AJ stated that Wardell had committed no crime and had filed affidavits "representing the views of senior counsel and Judges of the court before whom he regularly practised as to his competence and the trust others repose in him." But His Honour also said at [43]:

"I am not dealing with the consequence of an unexpected or untoward event resulting in an indebtedness that cannot be met. What I am dealing with is the conduct of a person who is able to pay his debts, but who elected instead to spend money, over a long period of time, on what has been described as 'discretionary lifestyle pursuits'. In one sense, therefore, it does not seem to be of great moment whether the money was spent on holidays in Barbados and/or Hawaii etc or whether it was spent on pursuits within Australia, such as gambling. As it seems to me, it does not matter so much how the money was spent, once it is established that it was spent in pursuit of discretionary objectives. Thus, the circumstances that Mr Wardell decided to gamble thousands of dollars on poker machines over a long period of time is not much different in consequence than spending a similar amount of money on annual overseas holidays. Mr Wardell's expenditure had the consequence, known to him, that the money spent ceased to be available to be used to meet his indebtedness to the ATO. Whether that was the result of expenditure on trips to Hawaii and Barbados, luxury cars or gambling.

207 Cripps AJ concluded at [45] that Mr Wardell "has shown such a reckless disregard for his obligations as to amount to an intention to avoid them."

208 Meredith - v - Legal Profession Admission Board of NSW [2008] NSWSC 1170 is a decision of McClellan CJ at CL. The plaintiff had been practising as a solicitor and was struck off for misappropriations. His application to the Legal Profession Admission Board to be readmitted was refused. The reasons given included (at [2]):

"The admitted misappropriations were committed over an extended period which spanned the five year period from 1993 until 1998. The offences resulted in severe losses to clients and were prolonged, deliberate and quite antithetical to the position of trust that you held as a solicitor of the supreme court of NSW";

"The context and duration of the past misappropriation is destructive of present satisfaction of your good character and therefore your suitability for the readmission".

209 The plaintiff appealed that decision to the Supreme Court. The evidence disclosed that in relation to the misappropriated funds, which the Fidelity Fund had paid out, the Fidelity Fund was still owed a sum of $231,771.37. In his reasons the judge said at [27]:

"It is apparent that until I raised the matter the plaintiff did not recognise an obligation to repay these monies. Although he rightly had concluded that his legal liability was confined to his bankruptcy, he entirely failed to recognise his moral obligations."

210 The plaintiff had been earning about $115,000 per annum. His outgoings had included repayments of a mortgage on the family home and repayment of monies owing to his brother in law and daughter. McClellan CJ at CL said at [28]:

"By choosing to advance the interest of his family, maintain the mortgage on the family home and make repayment of his wife's debt rather than meet his obligation to the Fund, the plaintiff has demonstrated a serious misunderstanding of the attributes required of a person who seeks to be readmitted to the legal profession."

211 His Honour also said at [29-30]:

"When this matter was pointed out to the plaintiff's solicitor and an opportunity granted for reflection he provided the court with an offer which contemplated his readmission on condition that he entered into binding arrangements to repay the Fidelity Fund over time. Although this offer indicates that the plaintiff now has some appreciation of the conduct expected of him it suffers from the problems identified by Kirby P in Dawson - V - Law Society of NSW (Court of Appeal, 17 November 1989 and 21 December 1989, unreported) in relation to conditional readmissions. The fact that the offer was only made in response to my raising of the issue confirms that the plaintiff has not yet come to a proper appreciation of the conduct required of him if he is to be readmitted as a legal practitioner. I am satisfied that he is not a fit and proper person to be readmitted to the legal profession".

ADDITIONAL EVIDENCE IN THE APPLICANT'S CASE

212 The applicant married with three children. He completed a Bachelor of Arts (Psych) at the University of Wollongong in 1982, graduated as a Bachelor of Laws from the University of Sydney in 1985 and was admitted that year as a solicitor of the Supreme Court of New South Wales. He worked as a volunteer law student from 1982 to 1985 at the Redfern Legal Centre. He practiced from 1985 to 1998 in Nowra doing litigation work. He joined Keddies and Associates in 1998 in the litigation department and from 1992 to 2011 he was a partner. He also worked as a part time volunteer in that period at the Inner-city legal centre.

213 In 1996 he graduated with a Master of Laws degree from the University of Sydney and also became an accredited specialist in personal injury law.

From 1998 to 2004 Mr Roulstone was the managing partner for the firm's defendants' practice in CTP and public liability. He was a joint Managing Director of Keddies from 2007 to 2011.

214 Mr Roulstone gave voluntary service for the Law Society of New South Wales. From 1998 to 2008 he was a member of the Professional Conduct Committee and was a member of the Council of the Society from 2006 to 2009. He was Junior Vice President in 2007. At various times he chaired the Litigation Law and Practice Committee and the Injury Compensation Committee. He was also Deputy Chair of the Medico-Legal Liaison Committee.

215 He is a former Trustee of the Public Purpose Fund and has been a member of the Supreme Court Rules and Practice Committee and a member of the Academic Board, Faculty of Law (University of Technology Sydney) and a Law Society Board member of the Public Interest Law Clearing House.

216 Mr Roulstone in 2008 graduated as a Master of Laws (Dispute Resolution) from the University of Technology Sydney.

217 Affidavits testifying as to Mr Roulstone's good character were in evidence from a forensic accountant Warwick Newton Dolman and Michelle Castle, a barrister, both of whom have had professional dealings with Mr Roulstone. There are also affidavits by Mr Macken a fellow practitioner who has known Mr Roulstone for about thirty years since their student days and also as a fellow Councillor of the Law Society. There is an affidavit by Mr Neil Peter Wickenden, a partner in HLB Mann Judd, the accountants for Mr Roulstone and Mr Barakat, and Mr Robert Royce Leitch, senior partner LHD Lawyers, who has known Mr Roulstone since 1986 and has had a commercial relationship with Mr Roulstone insofar as they have "referred various conflict matters between our firms". They also have a social relationship between their families.

218 All the deponents of these affidavits have expressed an opinion that Mr Roulstone is a "fit and proper person to hold a practising certificate".

219 All these witnesses have stated in their affidavits that they have read the Law Society's reasons for its decision. Ms Castle and Mr Leitch also state that they have read the section 67 statement by Mr Roulstone and the submissions on his behalf by his solicitor.

220 The Tribunal accepts that these witnesses have known Mr Roulstone to be a person of good character. These proceedings do not relate to conduct prior to 2010. They relate particularly to the conduct described in the findings in the context that is set out in many pages of detail. The character witnesses, of course, have not had the benefit of reading those findings.

221 The Tribunal has taken into account that there have been no prior findings of unprofessional conduct or professional misconduct against Mr Roulstone.

222 The Tribunal relies only on the findings of conduct that are set out in the reasons of the Tribunal.

CONCLUSIONS AS TO THE PAYMENTS SPECIFIED BY THE LAW SOCIETY IN PARAGRAPH 4 OF ITS REASONS AND OTHER PAYMENTS

223 Between 11 January 2011 and 1 May 2012 payments to a total of at least $5,075,851.33 were made to Mr Roulstone or to others on his behalf as part of the consideration for the sale of his shares in the Keddies practice. Of those funds his share of the amounts actually paid to creditor clients was only $667,644, despite his liability for millions more dollars under court judgments from defended hearings and consent orders in favour of clients in respect of overcharging. Apart from the $667,644 none of the funds he received were paid to creditors who had a judgment against him. None of the $5,075,851.33 was paid in respect of his taxation assessment for 2010/11 despite much of that assessment relating to his receipt of the $5,075,851.33.

224 Mr Roulstone knew from when he commenced negotiating the sale of his shares in the law practice in October 2010 that he would be liable for capital gains tax in respect of the sale proceeds. He says that he did not pay all or any of his taxation assessment from the funds he received from the sale of his shares as he was advised by his insolvency advisers not to do so.

225 Instead, he chose to:

1. pay $1,616,363.19 to the Roulstone Family Trust for the benefit of him and/or his family;

2. pay $500,000.00 in superannuation contributions to the Roulstone Superannuation Fund for the benefit of him or his family and thereby reducing the funds available to unsecured creditors in his bankruptcy;

3. authorise a payment of $333,333.33 to Verekers Lawyers for his own benefit;

4. pay $500,000.00 to a bank to discharge the loan secured over his wife's property thereby benefiting his wife;

5. pay other funds to the client claims account that have not been accounted for;

6. use $667,034 allegedly for a private school fees debt and for "taxation payment, accounting fees, legal fees, rent, living expenses, credit card, school fees etc, business expenses related to future employment prospects", which alleged expenses have not been substantiated; and

7. Fail to account for $416,121.00 of the funds he received.

226 The Tribunal does not accept that the payments by Mr Roulstone to the Roulstone Family Trust or to the Roulstone Superannuation Fund or to reduce a bank loan were made with the intention of "parking" the money pending a possible bankruptcy. Viewed in the context of knowledge and transactions since the first claim in 2010 the Tribunal is comfortably satisfied that those transactions and others were motivated primarily by consistent intention to protect or salvage as much wealth as possible for himself and his family, even when it would be at the expense of the taxpayers and client judgment creditors. They were made on the chance that there would not be a bankruptcy and also the chance that if there were, the transaction would not be challenged or would survive challenge. That is also consistent with his conduct after he became bankrupt, which was inconsistent with the transactions being intended merely to "park" money.

227 The applicants both raised in their defence the fact that they acted on the advice of insolvency experts. But that does not absolve them from failure to adhere to ethical obligations. Similarly, they submitted that their conduct in arranging the availability of funds for their composition proposals to their creditors reduced the culpability of that conduct. But again, that conduct cannot excuse them from their unethical behaviour before and since bankruptcy, which had the effect of dissipating more funds than would be available to the creditors under their composition proposals. Also the composition proposals came only after the bankruptcy and in the context that each of them had by some of his conduct been less than supportive of his Trustee in his role of collecting funds the subject of the unethical transactions.

228 Mr Roulstone paid little regard to the ethical implications of not paying even consent judgments for overcharging in favour of former clients when he was using available funds to pay the family trust, to pay private school fees for his children and to use very substantial amounts from the sale of shares and his income for accumulation of family wealth, increasing his superannuation and affording his family a very high standard of living.

229 Mr Roulstone and Mr Barakat received sufficient funds from the sale to pay the client verdicts and the income tax assessed. For his part, Mr Roulstone chose not to. He consistently preferred the interests of himself and his family over those of the taxpayers and his judgment creditor clients, who had been overcharged by his law practice. That motivation commenced before the first resolution of client claims, as demonstrated by the delays generally in negotiation and payment and particularly in relation to larger claims.

230 In 2010 there was no certainty that insolvency would eventuate, but by the decision of Curtis DCJ was delivered on 8 November 2011, the 3 solicitors knew there was a very real possibility of bankruptcy.

231 Mr Roulstone, with considerable experience in the law and of the concern of the profession that lawyers behave ethically, chose to prefer the financial interests of himself and his family over those of the taxpayer and his judgment creditor clients. Those transactions were unethical conduct by a solicitor. The conduct of Mr Roulstone in failing to properly account for much of the money he received from the sale of his shares is further evidence of his failure to understand the ethical obligations of a solicitor.

232 The Tribunal finds that Mr Roulstone is not a fit and proper person to hold a local practising certificate. The finding of the Council of the Law Society to that effect is confirmed. The correct and preferable decision is to suspend his practising certificate, as was decided by the Council of the Law Society.

ORDERS

233 The Tribunal confirms the decision of the Council of the Law Society of New South Wales on 22 November 2012 determining that the applicant is not a fit and proper person to hold a local practising certificate and the decision to suspend his practising certificate.

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Decision last updated: 28 November 2013