Civil and Administrative Tribunal New South Wales

• Medium Neutral Citation: Council of the Law Society of NSW v Kingston [2014] NSWCATOD 21
• Hearing dates: 17 October 2013, 20 February 2014
• Decision date: 27 March 2014
• Jurisdiction: Occupational Division
• Before: M Chesterman, Principal Member; D Fairlie, Senior Member; J Tingle, General Member

Decision

1. The Respondent is reprimanded.

2. Any practising certificate issued to the Respondent with respect to the period between 1July 2014 and 30 June 2019 is to be subject to the condition that he may practise only as an employed solicitor.

The Respondent is to pay the Applicant's costs as agreed or assessed.

• Catchwords: Solicitor - disciplinary proceedings - failure to pay superannuation contributions and remit PAYG tax with respect to employees - failure to give notice of creditor's petition - penalty
• Legislation Cited: Administrative Decisions Tribunal Act 1997; Civil and Administrative Tribunal Act 2013; Legal Profession Act 2004; HYPERLINK "http://www.austlii.edu.au/au/legis/cth/consol_act/sga1992430/" Superannuation Guarantee (Administration) Act 1992 (Cth); HYPERLINK "http://www.austlii.edu.au/au/legis/cth/consol_act/sgca1992314/" Superannuation Guarantee Charge Act 1992 (Cth)
• Cases Cited: Allinson v General Council for Medical Education and Registration [1894] 1 QB 750; Council of the Law Society of New South Wales v Adams [2011] NSWADT 177; Council of the Law Society of New South Wales v Somerfield [2008] NSWADT 235; Council of the Law Society of NSW v Healey [2013] NSWADT 173; Davison v Council of the New South Wales Bar Association [2007] NSWCA 227; Law Society of New South Wales v Bouzanis [2006] NSWADT 55; Law Society of New South Wales v Vosnakis [2007] NSWADT 42; Law Society of NSW v Bannister (1993) 4 LPDR 24; Law Society of NSW v Gillroy [2010] NSWADT 232; Law Society of NSW v Koffel [2010] NSWADT 149; New South Wales Bar Association v Cummins (2001) 52 NSWLR 279; [2001] NSWCA 284; Roy Morgan Research Pty Ltd v Commissioner of Taxation (2011) 244 CLR 97
• Category: Principal judgment
• Parties: Council of the Law Society of New South Wales (Applicant); Christopher Lyall Kingston (Respondent)
• Representation: Counsel; J Gleeson SC (Applicant); The Council of Law Society of NSW (Applicant); Thomas & Barlaw Solicitors (Respondent)
• File Number(s): 122035, 132016

reasons for decision

1 This decision relates to two disciplinary applications that were heard jointly before us on 17 October 2013 and 20 February 2014. We will refer to them as 'the First Application' (file 122035) and 'the Second Application' (file 132016).

The First Application

2 On 14 December 2012, the Council of the Law Society of New South Wales ('the Law Society') filed the First Application in the Administrative Decisions Tribunal ('the ADT'). It sought the following orders under Part 4.8 of the Legal Profession Act 2004 ('the Act') against the Respondent, Christopher Lyall Kingston ('the Solicitor'):-

(1) That the name of the Solicitor be removed from the local Roll

(2) That the Solicitor pay the Law Society's costs as agreed or assessed

(3) That the Solicitor be subject to any other order as the Tribunal deems appropriate.

3 The Grounds of the Application were as follows:-

Christopher Lyall Kingston is guilty of professional misconduct in that during the period 1 January 2008 to 11 February 2011 he failed to pay:

1. Superannuation entitlements of employees; and

2. PAYG Tax to the Australian Taxation Office ['ATO'].

4 In the version of the Particulars that we now reproduce, we have omitted from paragraphs 7 and 8 lists of (a) the names of a number of persons whom the Solicitor employed, (b) the periods during which he failed to pay superannuation contributions or PAYG (respectively) relating to these employees, and (c) the amounts of the payments that he failed to make:-

In these Particulars:

the Solicitor means Christopher Lyall Kingston

the Society means The Law Society of New South Wales

1. The Solicitor was admitted to practice on 19 December 1986. Since 14 May 1987 he has held a practising certificate.

2. At all material times the Solicitor was principal of the law practice known as Kingston Swift Solicitors & Conveyancers ['the Law Practice']. The Law Practice had offices in Nelson Bay and Dubbo.

3. During each of the financial years ended 30 June 2008 to 30 June 2011 the Law Practice had employees in respect of whom superannuation and PAYG Tax was payable.

4.The Deputy Commissioner of Taxation ['DCT'] as plaintiff commenced proceedings against the Solicitor as defendant in the District Court of NSW on 26 March 2010, being case number 1342 of 2010 ['the District Court proceedings']. The DCT claimed a sum of $47,203.61 as assessments of Superannuation Guarantee Charge and a sum of $252,173.60 for other tax liabilities including PAYG Tax.

5. On 20 September 2010 judgment in the sum of $315,536.21 was entered in favour of the DCT in the District Court Proceedings.

6. On 6 December 2010 the DCT filed a Bankruptcy Notice against the Solicitor seeking a principal amount of $315,536.21 plus interest of $6,885.71.

7. By 11 February 2011 the Solicitor's liability for unpaid superannuation entitlements was $103,350.01, calculated as follows:

[a list of employees' names, periods and amounts of outstanding superannuation contributions is omitted]

8. By 11 February 2011 the Solicitor's liability for unpaid PAYG Tax was $184,464.74, calculated as follows:

[a list of employees' names, periods and amounts of unpaid PAYG tax is omitted]

9. In a Statement of Assets and Liabilities dated 22 Feb 2011, the Solicitor represented the value of his assets at $2,977,837 and the value of his liabilities at $1,976,825.

10. The Solicitor failed to make a reasonable effort or to adequately or expeditiously discharge his debts.

a. The Solicitor's land at 10 Danalene Parade, Corlette ['the Corlette Property'] was placed on the market in 2008 with Robinson Property as selling agents. The property was not sold and was removed from the market.

b. The Corlette Property was put back on the market in April 2011 with Raine & Home as selling agents. A bid at auction of $1,500,000 was refused, as was a subsequent offer of $1,600,000. Again the property was removed from themarket.

c. The Corlette Property was put back on the market in April 2012 with Ray White as selling agents. The advertised sale price on 8 August 2012 was $2,250,000.

11. The Corlette Property was advertised for sale at a price in excess of market value and as such was unlikely to attract a buyer:

a. In April 2011 when offers of $1,500,000 and $1,600,000 were refused, the advertised price was $2,150,000 when the property's value range was $1,800,000 to $1,950,000;

b. On 8 August 2012 the advertised price was $2,250,000 when the property's value range was $1,800,000 to $1,950,000;

c. On 26 November 2012 the advertised price was $2,150,000 when the property's value range was $1,800,000 to $1,950,000.

12. By letter dated 8 April 2012 the Solicitor admitted that he failed to make superannuation payments in respect of his employees and that he failed to make PAYG withholding payments to the Australian Taxation Office ['ATO'] in respect of his employees.

13. In the letter referred to in paragraph 12 above, the Solicitor advised the Law Society that he had paid the ATO the following sums to reduce his indebtedness:

a. $80,000.00 from the proceeds of the sale of a property in Dubbo;

b. $250,000.00 from the proceeds of a loan from his sister;

c. $3,971.00 payment made from the Law Practice; and

d. approximately $9,000 of his personal income tax refund retained by the ATO.

14. In the letter referred to in paragraph 12 above, the Solicitor advised the Law Society that he had an arrangement with the ATO for the payment of the outstanding sum of $150,000.00 payable by him to the ATO. No details of this arrangement have been forwarded to the Law Society notwithstanding its request on 24 May 2012.

15. By letter dated 31 May 2012 the Solicitor advised the Law Society that he would provide to it copies of receipts of payments that he had made to the ATO. No copies have been forthcoming.

16. By letter dated 29 June 2012 from Mr Walters of Bowen-Thomas Barlow, solicitors for the Solicitor, to the Law Society, Mr Walters stated that the Solicitor had made payments 'in excess of $480,000.00 but there remains a balance of over $100,000.00 owing and, of course, his continuing obligations for staff...'. No receipt of these payments has been furnished to the Law Society.

17. The Solicitor continues to run the Law Firm staffed by employees whose superannuation entitlements and PAYG withholding tax have not been remitted by him to the ATO. The Law Practice remains in debt to the DCT.

18. In his letter referred to in paragraph 16 above, Mr Walters states that the Solicitor's 'outstanding debt will be met from the sale of his (and his wife's) home and/or the sale of one or both his branch offices'.

19. The Solicitor has failed to sell his home or either or both of his branch offices. He continues to breach his statutory and civic obligations and therefore his professional obligations. Such breaches would be regarded as dishonourable and disgraceful by his professional peers.

5 On 14 December 2012, the Law Society also filed an affidavit sworn on 20 August 2012 by its solicitor, Anne-Marie Foord, and an affidavit sworn on 13 December 2012 by John Michalski, a trust account investigator employed by the Law Society. Exhibited to Mr Michalski's affidavit was a copy of relevant extracts from a report dated 12 April 2011 relating to the affairs of the Law Practice.

6 On 5 February 2013, the Solicitor filed a Reply to the First Application. In it, he admitted the matters stated in the Particulars, except for those in paragraphs 10 and 11 and for the assertion in paragraph 19 that his breaches of statutory and civic obligations would be regarded as dishonourable and disgraceful by his professional peers. He maintained instead that these breaches would amount to 'unprofessional conduct'.

7 On 30 April 2013, the Law Society filed a further affidavit sworn by Ms Foord. The date of this affidavit was 30 April 2013.

The Second Application

8 In the Second Application, which was filed in the ADT on 10 September 2013, the Law Society sought the same orders as in the First Application.

9 The Grounds of the Second Application were as follows:-

Christopher Lyall Kingston is guilty of professional misconduct in that in contravention of section 67(2) of the Legal Profession Act 2004, he failed to provide to the Law Society Council:

(a) written notice within 7 days of being served with a notice of a creditor's petition presented to the Court under section 43 of the Bankruptcy Act 1966 Cth ['the Creditor's Petition']; and

(b) a written statement within 28 days explaining why, despite being served with the Creditor's Petition, he considers himself to be a fit and proper person to hold a practising certificate.

10 The Particulars were as follows:-

In these Particulars:

the Solicitor means Christopher Lyall Kingston

the Society means The Law Society of New South Wales

1. At all material times the Solicitor was the holder of a practising certificate.

2. On 30 May 2011 the Deputy Commissioner of Taxation ['DCT'] presented to the Court and against the Solicitor, a creditor's petition under section 43 of the Bankruptcy Act 1966 Cth ['the Creditor's Petition'].

3. The Solicitor was served with the Creditor's Petition sometime between 30 May 2011 and 11 July 2011.

4. On or about 13 July 2011 the Solicitor consented to the DCT filing an Amended Creditor's Petition.

5. The Solicitor failed to give to the Society:

(a) written notice within 7 days or at all of being served with a notice of the Creditor's Petition; and

(b) a written statement within 28 days explaining why, despite being served with the Creditor's Petition, he considered himself to be a fit and proper person to hold a practising certificate.

11 On 10 October 2013, the Solicitor filed a Reply to the Second Application, in which he admitted that he had failed to give 'the required notice' and to provide 'the required statement'. He added that 'the Applicant was aware of the presentation of the ATO petition as early as 12 April 2011', since Mr Michalski's report 'of that date' referred to 'the service of a Bankruptcy Notice and the Federal Court proceedings by the ATO.'

The hearing of the Applications

12 On both hearing days, Ms Gleeson SC appeared for the Law Society and Mr Roberts SC for the Solicitor.

13 On the first hearing day (17 October 2013), Mr Roberts applied for an adjournment of the proceedings, principally on the ground that for various reasons his client had not been able to obtain all the evidence on which he sought to rely. In the course of addressing us, he advised that the Solicitor conceded that the conduct alleged in each of the two Applications amounted to professional misconduct.

14 In opposing an adjournment, Ms Gleeson pointed out that the evidence that the Solicitor still wished to obtain would chiefly relate to the question of what order or orders by way of penalty we should make following any finding or findings of professional misconduct. There was no obstacle, she submitted, to our making such findings forthwith and reserving the question of penalty for a second hearing day, in accordance with normal practice.

15 We ruled that, in line with the argument presented by Ms Gleeson, we should deal forthwith with the question whether the Solicitor's conduct alleged in each Application amounted to professional misconduct, but should reserve the question of penalty for a later hearing.

16 Ms Gleeson then tendered unopposed the affidavits by Ms Foord and Ms Michalski that we have already mentioned, together with two further affidavits by Ms Foord, dated 30 April 2013 and 9 September 2013 respectively.

17 At the conclusion of the hearing on 17 October 2013, having given consideration to this evidence and to a number of authorities cited by Ms Gleeson, and having also taken account of the concessions made by the Solicitor, we ruled that in each Application the Law Society had established professional misconduct on his part. We indicated, however, that we made no finding with regard to the matters alleged in the two contested paragraphs (paragraphs 10 and 11) of the Particulars to the First Application.

18 Our reasons for these findings of professional misconduct are outlined below.

19 On 1 January 2014, between the first and second hearing days, the ADT was abolished and its functions were taken over by the Civil and Administrative Tribunal of New South Wales ('NCAT'). The present proceedings became 'part heard proceedings' as defined in clause 6(1) of Schedule 1 of the Civil and Administrative Tribunal Act 2013. By virtue of clauses 7 and 13 of this Schedule, we continued to hear them sitting as members of the Occupational Division of NCAT. We are required to determine them, however, as if that Act had not been enacted.

20 On the second hearing day (20 February 2014), Ms Gleeson tendered unopposed the full report that Mr Michalski had prepared, a 'bundle of cross examination documents' and a letter dated 11 February 2014 from the Solicitor to the Law Society, advising it that a creditor's petition had been served on him on 3 February 2014.

21 Mr Roberts tendered unopposed the following documents: three affidavits of the Solicitor, sworn on 24 April, 2 August and 6 December 2013; an affidavit of Dr Larry Brash and a letter from him, dated 6 August and 11 December 2013 respectively; an affidavit dated 20 November 2013 by Peter Whealy, accountant; two financial documents relating to the Law Practice that Mr Whealy had prepared; and four affidavits by way of testimonials for the Solicitor.

22 The financial documents that Mr Whealy had prepared were an 'ATO Integrated Client Account', spanning the period from 1 July 2007 to 30 August 2013, and a three-page balance sheet as at 30 June 2012.

23 The Solicitor and Mr Whealy testified and were cross-examined. Having received written submissions and heard addresses on the question of penalty from Ms Gleeson and Mr Roberts, we reserved our decision.

The reasons for our findings of professional misconduct

24 What follows is an outline of the reasons underlying our decision, at the conclusion of the first hearing, for recording a finding of professional misconduct in each of the two Applications filed in these proceedings.

25 The First Application. Ms Gleeson drew our attention to four decisions of the ADT in which failure by a respondent solicitor to make superannuation payments in respect of one or more employees was held to amount to professional misconduct. She relied also on findings of professional misconduct made by the ADT in two further decisions. One of these involved failure to make payments of PAYG tax and the other involved failure to make payments of both superannuation contributions and PAYG tax.

26 It is sufficient at this stage to refer to only two of these six decisions.

27 In Law Society of New South Wales v Bouzanis [2006] NSWADT 55, the respondent solicitor failed over a period of about three years to make superannuation contributions in respect of a single employee. The amount outstanding was $9,532.51. The respondent paid this amount about seven months after the employee had drawn his attention to the default. He admitted that he could have made the payment earlier but that he failed to so because he required the funds for other purposes. The ADT, invoking the authority of New South Wales Bar Association v Cummins (2001) 52 NSWLR 279; [2001] NSWCA 284, held at [18] that this conduct involved a 'sufficiently serious abrogation of his fiscal responsibilities in the practice of law to warrant a finding... of professional misconduct'.

28 We observe that the facts in Bouzanis bear some resemblance to those of the present case, but that the amount of superannuation contributions that the respondent failed to pay was substantially less than the amount left unpaid by the Solicitor.

29 In Council of the Law Society of New South Wales v Adams [2011] NSWADT 177, the relevant conduct of the respondent solicitor included failure over a period of one year to pay superannuation contributions amounting to $21,824.84 and failure to remit amounts of PAYG tax and GST totalling $170,819.03. In the course of ruling that this behaviour constituted professional misconduct and showed him to be not of good fame and character, the Tribunal pointed out at [70] that he understood his legal obligation to make these payments and he knew that they were not being paid, with the consequence that his employees were being denied their entitlements. It added that 'his decision was to prefer the continuing conduct of his business and his finances over the legal rights and interests of his staff'. Ms Gleeson invited us to view the behaviour of the Solicitor in a similar light.

30 She also cited two further decisions of the ADT which she claimed to be distinguishable from this case.

31 In the first of them, Law Society of NSW v Koffel [2010] NSWADT 149, the respondent solicitor failed over a period of two years to make superannuation contributions amounting to $123,998.97. For more than one half of this period, however, his firm was in voluntary administration. Furthermore, the ADT made the following significant finding at [42]:-

... once the matter had been drawn to his attention he did what he believed he could reasonably do in all the financial circumstances to meet his revenue responsibilities, thus demonstrating conduct in a professional (and personal) sense a commitment to pay the outstanding debts including the superannuation payments. Certainly, the solicitor, as principal solicitor, should have kept a more careful eye on his office/general account, his income and expenditure and his statutory obligations, especially in circumstances were there was a substantial decline in income. However, when the issue of outstanding superannuation came to his attention he directed his mind to it and dealt with it. The Tribunal concludes that the solicitor's conduct was that he accepted his fiscal/revenue responsibilities.

32 In deciding that by virtue of these considerations earlier decisions such as Bouzanis should be distinguished and the Law Society's disciplinary application should be dismissed, the ADT made the following observation at [48]:-

... in our opinion, the mere fact of a failure to pay superannuation guarantee contributions on time does not, of itself, constitute professional misconduct. It is the circumstances surrounding the failure, the consequences of the failure, and the actions subsequently taken by the solicitor, that determine whether the conduct constitutes professional misconduct.

33 We agree with Ms Gleeson that in the present case it could not be said that once the default in payment of superannuation contributions and PAYG tax came to the Solicitor's attention, he 'did what he believed he could reasonably do in all the financial circumstances to meet his revenue responsibilities, thus demonstrating conduct in a professional (and personal) sense a commitment to pay' these debts. The conduct outlined in paragraphs 13 to 18 of the Particulars and in the first sentence of paragraph 19, which the Solicitor did not dispute, does not warrant this description.

34 In the second case, Council of the Law Society of NSW v Healey [2013] NSWADT 173, the ground of the Law Society's disciplinary application against the respondent solicitor was that she 'delayed in paying superannuation entitlements of employees' over periods totalling nearly five years. The ADT found, however, (at 16]) that 'there was no evidence that the Solicitor had an obligation to make superannuation contributions for her employees by virtue of a contract or award or a certified agreement'. Having examined relevant parts of the Commonwealth legislation dealing with superannuation contributions and quoted from a leading High Court case interpreting its terms (Roy Morgan Research Pty Ltd v Commissioner of Taxation (2011) 244 CLR 97), the ADT further concluded (at [18]) that the respondent had no statutory or ethical obligation to make such contributions. This, it said, was because the legislation 'left an employer the right (albeit at considerable disadvantage) to elect not to make superannuation payments but instead accept the liability to pay superannuation guarantee charges to the Commissioner of Taxation'.

35 The ADT then gave (at [19 - 22]) the following independent reasons for dismissing the Law Society's application:-

19 In case we are wrong in that conclusion we proceed to consider whether a finding of professional misconduct should be made on the assumption that there was an implied obligation, as Ms Webster submitted, upon the Solicitor to make superannuation contributions and she failed to honour that obligation over a period. If there were an implied obligation it seems to have been established that over a period the Solicitor failed to perform it.

20 The test for professional misconduct is as propounded in Allinson v General Council for Medical Education and Registration [1894] 1 QB 750: "Something.... which would be reasonably regarded as disgraceful or dishonourable by professional brethren of good repute and competency".

21 According to the unchallenged evidence in this case the solicitor employed staff who were charged with ensuring that obligations to her employees were duly performed. She first became aware that this may not have been the case in 2005 when she received default assessments from the Commissioner of Taxation. Thereafter she engaged a forensic accountant in effect to conduct an audit. In light of his report she made payments which have resulted in her establishing an overpayment of some $70000...

22 While with hindsight the solicitor could have been more diligent in complying with financial obligations, the Administration Act was complex and there is no suggestion of dishonesty or of the Solicitor intentionally furthering her own interests at the expense of her employees. Moreover as it seems there was a genuine basis for her to dispute the ATO assessments. In all those circumstances in our judgment the conduct of the solicitor would not reasonably be regarded by her professional colleagues of good repute and competency as disgraceful or dishonourable. Nor in our view does the Solicitor's conduct amount to unsatisfactory professional conduct. We should add that while we do not doubt that failure to pay employees their proper entitlements is capable of constituting professional misconduct, in none of the cases to which we have been referred, was that circumstance, inadvertently committed, alone the foundation of a finding of professional misconduct.

36 Ms Gleeson argued that, as is alleged in paragraph 3 of the Particulars in the present case, the Solicitor, unlike the respondent in Healey, was under an obligation to make superannuation contributions in respect of his employees. A further point of distinction is that he failed to discharge another important fiscal obligation: namely to remit instalments of PAYG tax to the ATO.

37 It was on these grounds, coupled with the admissions made by the Solicitor, that we held at the conclusion of the first hearing that the conduct alleged in the First Application fell within the well-known description of professional misconduct contained in the English Court of Appeal's decision in Allinson v General Council for Medical Education and Registration. It would be' reasonably regarded as disgraceful or dishonourable by professional brethren of good repute and competency'.

38 The Second Application. This Application alleged professional misconduct under section 67(3) of the Act on the ground of contravention of section 67(2).

39 So far as relevant, section 67 states:-

67 Holder of local practising certificate-show cause event

(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.

40 The term 'show cause event', in relation to a person, is defined in section 4 to include ' his or her... being served with notice of a creditor's petition presented to the Court under section 43 of the Bankruptcy Act 1966 of the Commonwealth'.

41 In his Reply, the Solicitor admitted that he had failed to provide either of the documents required by section 67(2) to the Law Society within the periods specified in that subsection. The fact that, as he also stated in the Reply, the Law Society had previously become aware of the service of a bankruptcy notice on him (see above at [11]) is irrelevant to the operation of section 67(3). By virtue of that subsection, to which no exceptions exist, he was guilty of professional misconduct.

The evidence relating to penalty

42 As indicated earlier, a significant quantity of additional evidence was put before us on the second hearing day, 20 February 2014.

43 In a rough and ready way, this evidence can be divided into material on which Ms Gleeson relied in her submissions on penalty and material on which Mr Roberts relied in his opposing submissions. It can be conveniently be summarised by reference to these two broad categories.

Evidence supporting the Law Society's case

44 The components of this additional evidence on which Ms Gleeson principally relied comprised some of the contents of the 'bundle of cross examination documents' that she tendered on that occasion and the Solicitor's answers to questions that she put to him in cross-examination. The matters of major significance emerging from this evidence, outlined in roughly chronological order, were as follows.

45 Although the ATO Integrated Client Account for the Law Practice showed that on 1 July 2007 it owed only the trivial sum of $27.23 to the ATO, this amount increased substantially during the remainder of that year. On 22 November 2007, it stood at $70,273.06.

46 Between 30 June 2006 and 30 June 2007, the summary of balance sheets for the Law Practice showed an increase in the cost of motor vehicles that it owned from $100,290 to $185,313. In the subsequent balance sheets, the last of which was dated 30 June 2012, the latter figure was maintained subject to increasing deductions for depreciation. Mr Whealy testified that as far as he knew the Law Practice owned two vehicles throughout this period.

47 With reference to the matters alleged in paragraphs 10 and 11 of the Particulars - which the Solicitor did not admit - he testified in answer to a question from Ms Gleeson that by late 2007 he knew that the Law Practice had significant debts and that 'in hindsight' it might have been preferable to advertise the Corlette Property for sale at that time. In November 2007, he did in fact obtain a 'marketing submission' from a local estate agent. But he and his co-owner (Janine Potter, his wife) did not advertise the Property for sale until November 2008.

48 The asking price in their advertisement was $3.15 million. The selling that the estate agents quoted in their 'sales inspection report' was $3 million. The Solicitor acknowledged in cross-examination that he and his wife did not ask the agent to obtain an independent valuation, aim for a 'quick sale' or organise an auction. He added that the agent did not recommend an auction to them.

49 On 3 June 2009, the Solicitor advised the ATO by telephone that he had failed to meet his superannuation guarantee obligations during every quarterly period between 1 October 2007 and 31 December 2008.

50 In a letter written to him on the following day, the ATO confirmed this advice from him and explained, amongst other things, that if he had missed the due date for payment of any superannuation contribution, he should remit the unpaid amount to the ATO, not to the relevant superannuation fund.

51 The Solicitor said in cross-examination that even after these events he took no additional steps to achieve a sale of the Corlette Property. He added that the measures that he adopted instead included discussing the matter of superannuation with some of his employees. He adhered to this statement even though Ms Gleeson pointed out to him that he had not mentioned doing this in any of his three affidavits.

52 He acknowledged further that even after he had received letters from the ATO dated 11 August 2009 and 20 October 2009 claiming indebtedness in amounts exceeding $220,000 for PAYG tax, income tax and superannuation guarantee charge, he still did not take any additional steps to sell the Corlette Property. In a letter to the ATO dated 2 November 2009, he offered to pay the superannuation charge by the end of that month and to reduce his other indebtedness by weekly instalments, but indicated that he would not be able to make full payment until the Property had been sold.

53 On 26 November 2009, however, the Solicitor took the Property off the market. According to his testimony, his reasons for doing so were that the estate agent advised it and that he anticipated receiving a large sum on account of costs following the recent settlement of a substantial test case in which he had acted for the plaintiff. Relevant features of this case, which we will call the Broken Hill litigation, are outlined below.

54 According to a statement sent to him by the ATO on 27 February 2010, the amount that he then owed to the ATO was $252,022.36.

55 On 1 March 2010, he made a written offer of employment to a solicitor called Tim Cullenward. The letter of offer proposed an annual salary 'plus statutory superannuation'. Ms Gleeson put it to him in cross-examination that it would therefore have been 'fair' to advise Mr Cullenward in this letter that he was currently in default in paying superannuation contributions with respect to his other employees. He acknowledged that 'in hindsight' this was 'perhaps' true, but added that he expected that the payment to him of his costs in the Broken Hill litigation would resolve the problem.

56 On 26 March 2010, the ATO instituted District Court proceedings against the Solicitor claiming $299,377.21 on account of unpaid superannuation charge, PAYG tax, penalties and interest.

57 The employee of the Solicitor who first complained about his failure to pay superannuation contributions was a solicitor called Nick Ledingham. Mr Ledingham did so in a letter dated 2 July 2010. He pointed out that the Solicitor had not made any contributions to his superannuation fund for more than two years. He added that he had considered complaining to the ATO about this, but so far had refrained from doing so. He also maintained that the Solicitor was in debt to him for travel expenses and disputed the Solicitor's claim (implied in a printout that he had received from the ATO) that superannuation contributions at the then prescribed rate of 9% were not payable on amounts of his income that pursuant to an agreement with the Solicitor were the subject of salary sacrifice.

58 In a reply by email dated 19 August 2010, the Solicitor referred first to the recent death of his mother. He then made observations to the effect that he had been unhappy with the standard of Mr Ledingham's work at the Law Practice, particularly in relation to two matters in respect of which a significant sum was owed to this firm. He then stated that he had refrained from dismissing Mr Ledingham because of his embarrassment about the default in superannuation payments. Near the end of this email, the Solicitor wrote: 'All I can say is "go for it". For the immediate future it doesn't matter who you complain to. The money is not there to pay it.'

59 Mr Ledingham replied by email on the same day. After conveying sympathy for the Solicitor's bereavement, he denied having failed to deal satisfactorily with one of the matters mentioned by the Solicitor and referred to 'numerous past promises' by the Solicitor to meet his obligations in relation to superannuation.

60 In the course of questioning the Solicitor about these events, Ms Gleeson put it to him that at that time he did not engage in communication with any of his employees other than Mr Ledingham about his failure to pay superannuation contributions on their behalf. She pointed out that in his affidavits he had not claimed to make any such communication. The Solicitor answered that some of these other employees were 'aware' of the situation. He acknowledged (a) that the employees with whom he did not communicate did not have any opportunity to decide if they were content with the situation or to discuss it with him, and (b) that he was prepared to continue in practice without telling them about it. When it was put to him that he used the unpaid contributions to maintain his practice, he agreed, but added that they also served to maintain the employment of his staff.

61 During November 2010, Ledingham Super Pty Ltd ('Ledingham Super'), in its capacity as trustee of a superannuation fund of which Mr Ledingham was a member, instituted Local Court proceedings against the Solicitor, claiming a total debt of $25,875.98. This debt had the following components: superannuation at 9% on the whole of Mr Ledingham's salary between 1 January 2008 and 30 June 2009 ($5,109.23); salary sacrifice over this period ($18,230.92); and interest ($2,536.13).

62 In a letter dated 28 November 2010, the Solicitor sought further and better particulars of this claim from Ledingham Super. The matters on which he sought particulars included the contract or offer of employment on which the claim was based, the basis on which it was alleged that superannuation was payable and the standing of Ledingham Super to bring the claim.

63 In a statement of defence filed on 1 December 2010, the Solicitor pleaded inter alia that he was 'not required to pay the amounts alleged or any amount to the Plaintiff' and that 'the Plaintiff has no standing to bring this claim'.

64 The Solicitor was asked during cross-examination whether at this stage he had considered paying to Ledingham Super the part of its claim that he did not dispute - i.e., the amounts of salary sacrificed by Mr Ledingham and 9% of the non-sacrificed salary. He answered that at that time the Law Practice had no funds, except those payable to it in the two files which (according to him) Mr Ledingham did not handle satisfactorily.

65 When asked why he had contested the standing of Ledingham Super to bring the claim, the Solicitor said that he believed that the ATO was also claiming from him the superannuation contributions that he should have paid with respect to Mr Ledingham's employment. He pointed out that the ATO had in fact commenced proceedings against him (as is stated in paragraph 4 of the Particulars) and that he did eventually pay $21,200 to Ledingham Super, representing a substantial proportion of its claim.

66 On 13 September 2010, the ATO advised the Solicitor by letter that it had applied to the District Court for judgment for the sum of $315,536.21 in the proceedings that it had instituted six months earlier.

67 In a reply to the ATO sent later that month, the Solicitor confirmed his previous advice that he and Ms Potter had taken the Corlette Property off the market at the end of 2009 because he anticipated that he would soon receive payment for his costs in the Broken Hill litigation. He went on to say that they had taken action to make the Property ready to be put back on the market and that he anticipated this occurring before the end of October 2010.

68 The Property was not in fact put up again for sale until March 2011, with an asking price of $2.5 million. This followed an appraisal by an estate agent during the preceding month, in which the estimated selling price was $2.2 million. When asked why nothing else had apparently been done in the period since his letter to the ATO, the Solicitor replied that during this period he had 'spoken to' this agent and to 'other agents'. He added that the agent whom he had engaged had recommended against an auction at this stage. He also acknowledged that once again he and Ms Potter had not adopted any particular measures that might bring about a quick sale of the Property.

69 Following instructions given during August, the Property was offered for sale by auction on 1 October 2011. The reserve price stipulated was $2.35 million, but the auction failed because the amount offered by the only registered bidder was $1.5 million.

70 The evidence admitted on the second day of hearing also showed that on a number of occasions, the Solicitor's handling of correspondence with the Law Society failed to meet deadlines stipulated by it or (in one instance) by a provision of the Act. This occurred in the following circumstances:-

1. The Solicitor did not comply until 30 March 2011 with a notice under section 660 of the Act that was served on him on 21 February 2011 and required compliance within 21 days thereafter. In the intervening period, he sought and was granted two extensions of time.

2. He did not comply until 8 April 2012 with a letter dated 24 May 2011 from the Law Society seeking his response to the complaint in these proceedings on or before 14 June 2011. In the intervening period, he sought and was granted four extensions of time. In a letter to him dated 9 March 2012, being the third of the four letters granting an extension, the Law Society described his failures to respond as 'discourteous'.

3. His application for renewal of his practising certificate for the year 2011-2012 was required to be filed by 15 May 2011, but was in fact not filed until 27 June 2011.

4. On 3 February 2014, a creditor's petition based on a debt claimed to be owed by him to the ATO was served on him. By a letter dated 11 February 2014, he gave notice of this 'show cause event' to the Law Society under section 67(2)(a) of the Act. When asked by Ms Gleeson why he did not adhere strictly to the time-limit of seven days after service which is stipulated in that provision, he answered that he believed that time ran from the day after service. He also admitted that if this belief was incorrect he had contravened section 67(2)(a) and in so doing had engaged in professional misconduct.

71 In addition, the Solicitor did not comply with requirements of mandatory continuing legal education (MCLE) attaching to two practising certificates that had been issued to him. The evidence relating to this was as follows.

72 In his renewal application dated 27 June 2011, he admitted that he had not completed the MCLE units required in the certificate that he then held.

73 He made the same admission in a renewal application dated 13 May 2013. In his covering letter, he requested an extension of time to complete these units. In a reply dated 27 May 2013, the Law Society granted him an extension until 31 August 2013, on condition that he sign and return an undertaking to complete the units within the time allowed and provide evidence of compliance on an attached form. In a letter to him dated 30 September 2013, the Law Society advised that it had received no evidence of compliance. In cross-examination, he stated that he did not know whether he had any such evidence. He added that he had complied with MCLE requirements, but did not know whether they were the requirements referred to in this correspondence with the Law Society or requirements relating to an earlier period of practice.

Evidence supporting the Solicitor's case

74 The main topics in this evidence were the Solicitor's attempts to reduce the scale of his practice; the Broken Hill litigation; his attempts, ultimately successful, to sell the Corlette Property; the other steps taken by him to reduce his debt to the ATO; his evidence as to why he did not comply with section 67(2) of the Act; Dr Brash's opinion on his psychological condition; and the favourable opinions of him expressed in the testimonials that he tendered.

75 The Solicitor's attempts to reduce the scale of his practice. The Solicitor testified that between 1988 and 1998, he was a partner in a Broken Hill firm. In 1994, this firm established a branch office in Dubbo. On its dissolution in 1998, he retained the Dubbo office. In that year, he purchased a practice in Nelson Bay. Since then, he has practised as a sole practitioner, with his principal office at Nelson Bay, a branch office at Tanilba Bay and a third office in Dubbo.

76 During 2007, he became concerned about the impact on his practice of a decrease, since 2002, in the number of personal injury matters being brought to him. He suggested to his practice manager that a position of this kind might no longer be viable. His practice manager resigned early in 2008, but did not fulfil a promise to provide occasional assistance during a period of long service leave. In consequence, the Solicitor had to assume many managerial duties while attending to his practice and, in the circumstances outlined below, to the Broken Hill litigation.

77 In December 2008 and again in September and October 2010, being concerned about his financial difficulties and about the demands placed on him by the work undertaken at these three offices, he advertised his Nelson Bay practice for sale. On several occasions between late 2008 and late 2011, he held discussions with individual solicitors whom he hoped might purchase his Dubbo practice. None of these attempts to reduce the overall scale of his commitments was successful.

78 The Broken Hill litigation. In his affidavits sworn on 24 April and 6 December 2013, the Solicitor described at some length his involvement in the Broken Hill litigation. It came about because, while practising in Broken Hill, he became aware of claims by local residents that their children suffered serious health problems on account of lead in the atmosphere in that city. After conducting some research, he discussed the possibility of a class action or a test case with senior counsel. On the dissolution of the Broken Hill partnership in 1998, he left the matter to his former partner. But during 2000 he was asked to become involved again.

79 Late in 2005, he filed a Supreme Court statement of claim in negligence in what was intended to be a test case. The plaintiff was a young man who as an infant in Broken Hill claimed to have been exposed to high levels of lead. The defendants were Broken Hill City Council and the State of New South Wales.

80 The Solicitor and a number of his employees devoted very substantial periods of time to preparing for the hearing. Before the case was listed, senior counsel whom he had briefed advised that the claim against the Council was likely to fail. This claim was accordingly settled on the basis that the Council made a contribution towards the plaintiff's costs. On the last working day before the hearing, which was set down for three weeks commencing on 23 November 2009, he received an offer of settlement from the State of New South Wales. Late on that day, the case was settled.

81 The Solicitor expected at that point that he would soon receive a substantial sum from the State on account of the plaintiff's costs and disbursements. Costs assessors whom he retained assessed these costs at about $588,000 and the disbursements at an amount just short of $900,000. He undertook that he would not require the plaintiff to make any contribution towards the difference between assessed party/party costs and solicitor/client costs.

82 On 8 November 2010, however, he was notified that the assessor appointed to determine the party/party costs payable to him assessed them at only $705,833. He was advised that an appeal against this determination had good prospects of success, but because he was being pressed to pay senior counsel's fees he decided not to embark on a lengthy appeal process.

83 In reply to a question from the Bench, the Solicitor testified that this figure of $705,833 embraced disbursements as well as costs and that after he had paid certain additional disbursements, the net amount remaining for profit costs was only about $200,000. During December 2010, this amount was paid into the Law Practice's office account.

84 The sale of the Corlette Property. On 28 October 2013 (this was eleven days after the first hearing day in these proceedings), a sale of the Corlette Property for the sum of $1.87 million was settled. After discharge of a mortgage, a net amount of $240,258.05 was paid to him and Ms Potter. Ms Potter received about $43,000 from these proceeds of sale. On 13 November 2013, he paid the ATO $131,500, being the amount of its current judgment debt against him, plus interest. He had been advised, however, that the ATO still claimed money owing from him, and he anticipated that a sequestration order might be sought based on the creditor's petition that had been served on him on 3 February 2014.

85 The other steps taken by the Solicitor to reduce his debt to the ATO. The principal evidence as to the state of accounts between the Solicitor and the ATO comprises his affidavit and the Integrated Client Account that he tendered. The picture that this evidence gives is not entirely clear. It does appear, however, that following the presentation by the ATO (on 30 May 2011) of its first creditor's petition against him, he made payments as follows: $80,000 (on 2 June 2011) out of the proceeds of the sale of his property at Dubbo; $250,000 (on 5 March 2012), using money that he borrowed from a member of his family; and $141,000 (on 21 June 2012). In consequence, this creditor's petition was dismissed.

86 The Solicitor's reasons for not complying with section 67(2) of the Act. In his affidavit sworn on 2 August 2013, the Solicitor stated that at the time when he should have complied with this provision, he was not aware that it required notice of the service of a creditor's petition to be provided to the Law Society. He had believed that the only such event of this nature that had to be notified was a sequestration order, since applicants for renewal of a practising certificate were only asked whether they were bankrupt, not whether a creditor's petition had been served on them. He added that in a letter dated 8 April 2012 to the Law Society and in a copy of letter dated 25 June 2012 from the ATO to him, which he produced to the Society in response to a summons to produce, he had, he believed, 'indirectly' disclosed the service of the petition on him.

87 The opinions expressed by Dr Brash. The Solicitor visited Dr Larry Brash, a consultant psychiatrist, on 17 June, 8 July and 11 November 2013, having been referred by his local doctor for management of depression. Dr Brash confirmed this diagnosis of depression. He stated that at the first visit the Solicitor 'described quite substantial depressive symptoms' of a 'melancholic type' and that the depression, being 'quite severe', would have made it 'difficult for him to work fully and effectively as a solicitor' at that time. He persuaded the Solicitor to take anti-depressant medication, and by the time of the second visit there were 'some early promising signs of improvement'. After the third visit, Dr Brash reported that the Solicitor's mood had 'improved significantly with treatment' and that he appeared to be 'functioning a lot better'. His account of this visit included the following passage:-

My opinion is that when depressed Mr Kingston would have significant problems with procrastination and avoidance of dealing with difficult issues because of the depth of his depression. This is a quite common phenomenon in people with depression, they have difficulty organising themselves, and will often put off important paperwork because of difficulties with concentration. Unfortunately, this tends to lead to a snowballing effect where more things are delayed the harder they become to do.

88 The testimonials. The four witnesses who provided testimonials for the Solicitor all indicated that they were aware of at least the general nature of these proceedings.

89 Brian Walters, who described himself as a consultant to the Solicitor's Nelson Bay practice, has acted pro bono for him in these proceedings. Mr Walters described the Solicitor as 'a diligent, compassionate, thorough and competent solicitor who always goes beyond what can reasonably be expected of a solicitor in representing his clients' and as 'honest and fair in his dealings with clients, other practitioners, counsel and the Courts...' He referred to the Solicitor's 'large and demanding general practice' and to his working for 'exceedingly long hours'. His opinion was that removal of the Solicitor's name from the Roll would cause a 'considerable and unnecessary loss to the profession and, importantly, to his many loyal clients and employees'.

90 Lea Smith is currently the solicitor on the record for the respondent Solicitor. A significant proportion of her testimonial was in the same terms as those quoted above from the affidavit of Mr Walters.

91 Roderick Foord, a barrister, was instructed by the Solicitor as junior counsel in the Broken Hill litigation. With reference to this litigation, he wrote that the Solicitor 'passionately pursued' it, 'largely on his own resources'. He described the Solicitor as 'a dedicated professional who works long hours', who 'always has his clients' best interests at heart' and who 'enjoys a formidable reputation with Magistrates and Judges'. Parts of his testimonial were in the same terms as those quoted above from the affidavit of Mr Walters.

92 Christopher Hickey, a barrister, stated as follows: (a) he had been briefed by the Solicitor in many cases over the last 25 years; (b) he had always received the fees due to him; (c) he had never had any reason to believe that the Solicitor had acted dishonestly towards him or towards anyone else involved in these cases; (d) he regarded the Solicitor as a 'most compassionate and caring' solicitor who 'frequently places the best interests of his staff and clients above his [own]'; (e) the Solicitor's practice was 'very busy' and imposed 'considerable strain' on him; (f) the Solicitor was 'competent, diligent and hardworking'; and (g) removal of his name from the Roll would 'constitute a loss to the profession and more importantly a loss to those clients he has provided and continues to provide exceptional service to'.

The Law Society's submissions

93 The Law Society maintained that the evidence before us provided sufficient justification for the order by way of penalty that it sought in the Application: namely, that the name of the Solicitor be removed from the Roll.

94 Ms Gleeson pointed out that four instances of professional misconduct had been alleged and proved against him. These were (a) failure to pay employees' superannuation entitlements, amounting to $103,350.01, over a period of about three years; (b) failure to pay PAYG tax, amounting to $184,464.74, over the same period; (c) failure to give notice to the Law Society of service of a creditor's petition on him within the stipulated period of seven days; and (d) failure to provide to the Law Society, within the stipulated period of 28 days, a statement explaining why, despite being served with this petition, he considered himself to be a fit and proper person to hold a practising certificate.

95 She referred to well-known passages in Law Society of NSW v Bannister (1993) 4 LPDR 24 at 28 and NSW Bar Association v Cummins (2001) 52 NSWLR 279; [2001] NSWCA 284 at [19 - 20] stating general principles to be borne in mind when deciding whether a legal practitioner should be struck off on the ground that he or she is unfit to practise. The gist of these is as follows: (a) it is essential to ensure that high standards of honesty and integrity are maintained by practitioners, in order that clients, fellow-practitioners, judges and the general public may have confidence in the legal profession; and (b) the maintenance of such standards requires that offenders be deterred from re-offending and other practitioners be deterred from offending.

96 There were, in Ms Gleeson's submission, a number of 'aggravating features' of the Solicitor's conduct. In summary, these were as follows: (i) his non-compliance with superannuation and PAYG obligations amounted to a 'systematic failure' to fulfil his responsibilities; (ii) he was aware of his non-compliance at all relevant times; (iii) his employees, except for Mr Ledingham, were unaware that he was using the funds that should have been contributed to their superannuation in order to maintain his business; (iv) he misled Mr Cullenward by including a promise to pay superannuation contributions in an offer of employment while not disclosing his failure to maintain contributions for his existing employees; (v) about 75% of the payments that he failed to make to Mr Ledingham's superannuation fund were in respect of sacrificed salary, not superannuation guarantee contributions; (vi) when Mr Ledingham raised concerns about the amounts not paid to this fund, the Solicitor put him to the trouble of instituting proceedings, sought unnecessary particulars from him and filed a defence to the whole claim even though no genuine ground for such a defence existed; (vii) the evidence was 'unclear' as to why it took the Solicitor five years to sell the Corlette Property; (viii) during that period of five years, he continued to live in the Property, which was a spacious one, and also to maintain two motor vehicles whose combined purchase price was about $185,00; (ix) apart from his having dispensed with a practice manager, there was no evidence of his having reduced his expenditures; (x) he did not show any 'real contrition', at least up to the date of the hearing: and (xi) he continued until the present time to fail to comply strictly with his professional obligations (this having occurred in the context of MCLE and also very recently when he notified the Law Society of the service of a creditor's petition eight days later, instead of within the seven-day period required by section 67(2)).

97 In response to a question from the Bench about the significance of Dr Brash's reports, Ms Gleeson pointed out that they did not relate to the period of the Solicitor's misconduct, but only to more recent times.

98 Ms Gleeson drew to our attention two cases in which the ADT, having found that failures by the respondent solicitor to pay superannuation contributions and PAYG tax amounted to professional misconduct, went on to order removal of the respondent's name from the Roll. She acknowledged, however, that in each of these cases the respondent had also been guilty of other misconduct of a serious nature.

99 In the first of them, Law Society of New South Wales v Vosnakis [2007] NSWADT 42, the additional misconduct of the respondent included misappropriation of deposit funds held by him on trust for his clients, wilful breaches of statutory requirements regarding trust accounts and failure without reasonable excuse to comply with a notice from the Law Society requiring him to provide information within a specified time. The respondent admitted all the matters alleged against him and did not oppose the orders being sought against him.

100 The second case, Council of the Law Society of New South Wales v Adams [2011] NSWADT 177, has already been mentioned in this decision (at [29]). In addition to failing to pay superannuation contributions and to remit PAYG tax, the respondent solicitor failed to file tax returns over a period of 21 years. Although in an instrument of consent the penalty proposed was a reprimand, the ADT held that he was not a fit and proper person to remain on the Roll and ordered removal of his name. At [152 - 153] it summed up as follows its reasons for so ordering:-

PROFESSIONAL MISCONDUCT

152 We find each of the 3 grounds have been established. They are part of a pattern of behaviour from 1987 through to August 2008 that involved systematic failure to comply with legal obligations for the purpose of preferring his own financial interests over those of others. Each of the grounds is inconsistent with the Respondent being of good fame and character. Each is inconsistent with him being a person of integrity. Each of them constitutes professional misconduct.

A FIT AND PROPER PERSON?

153 The Respondent is not a fit and proper person to engage in legal practice. For protection of the public and the reputation of the profession there should be an order that he be removed from the Roll. The proposal in the Application and the Instrument of Consent that the Respondent be dealt with by only a reprimand and a costs order would have been an inadequate response to such serious professional misconduct. It would not have provided protection of the public and would not have addressed the need to protect the reputation of the profession. Similarly, a result that allowed the Respondent to continue to practice, but only as an employed solicitor, would not have addressed those needs.

101 Ms Gleeson sought to distinguish another ADT decision, in which failure to pay superannuation contributions, PAYG tax and GST was held to constitute professional misconduct but not to warrant a striking-off order. In this case, Law Society of NSW v Gillroy [2010] NSWADT 232, two solicitor directors of an incorporated law practice failed during two tax years to pay amounts in these three categories totalling $213,852.81. The amount of superannuation contribution withheld was $34,101.81.

102 At [21 - 32], the ADT, under the heading 'Response by solicitors', summarised a number of statements made in their evidence that it took into account in determining the question of penalties:-

21 The essence of the solicitors' case (and the two solicitors' cases are identical on this respect) is the allegation that the solicitors were forced by the substantial deterioration of the financial performance of the firm, and its loss of clients and work to undertake remedial steps. Significantly the two solicitors say they made a decision to postpone the relevant statutory payments as referred to in paragraph 8 above. 22 Mr Gillroy's affidavit sworn on 16 December 2009 sets out in some detail the history of the deterioration of the financial position of the firm between about 2002 and 2006. These factors included a reduction in personal injury work, the financial collapse of a major client, what Mr Gillroy alleges was poor performance on the part of individual solicitors and competition from a former principal of the firm who had established his own practice in the area. 23 The solicitors say that, in essence, a management decision was taken to preserve the firm at its existing size and state of operation in light of these disrupting factors and the fact that, in Mr Gillroy's view:

"Professional staff, particularly commercial staff did not or could not lift their game to compensate for the loss of the substantial corporate client."

24 The solicitors say that they took steps to attempt to redress this position including reducing practice overheads, reducing the number of employees slightly, streamlining office procedures and obtaining external financial advice. 25 However it would appear that these steps were not sufficient to reverse the decline in the financial performance of the firm. The solicitors were reluctant to terminate further staff. Accordingly, the solicitors allege, decisions were taken by the solicitors which form the basis of the pleaded particulars of professional misconduct, namely decisions to defer the statutory payments by way of superannuation contributions, Group Tax and GST. 26 The solicitors say, and it appears to be accepted by the Law Society, that they opened a course of correspondence with the Australian Taxation Office at an early stage, and were negotiating a settlement of the arrears in Group Tax with the Australian Taxation Office at the time that the Law Society Investigator commenced his investigation of the practice. 27 The solicitors say that notwithstanding their failure to make the statutory payments and remittances in the relevant period they continued throughout that time to lodge Business Activity Statements (BAS Statements) and taxation returns with the Australian Taxation Office including whilst negotiating with the Australian Taxation Office. 28 Significantly the solicitors say that they notified relevant staff of their firm of the non-payment of their compulsory superannuation contributions. 29 Ms Hendy in her affidavit of 20 October 2009 alleges (and it appears to be accepted by the Law Society) that she had the Australian Taxation Office apply her personal tax refund for 3 years in the sum of approximately $12,000 towards reduction of the firm's outstanding tax debt. 30 Ms Hendy also alleges (and again it appears to be accepted by the Law Society) that for extended periods during the 4 years between 2005 and late 2009 neither she nor Mr Gillroy had drawn income from the practice. 31 It is conceded by both solicitors however that they failed to take the fundamental necessary management and financial actions necessary to redress the reduced financial success of the practice. In particular, they concede now that perhaps they should have taken the morally difficult step of considering and implementing a reduction in staff numbers. 32 It is conceded by both solicitors that their actions in deferring the statutory payments, well-intentioned as they might have been, resulted in a serious breach not only of their statutory obligations to the Commonwealth, but also a serious breach of their professional obligations, and that these failures amounted to professional misconduct.

103 In deciding that removal of the respondents' names from the Roll was not warranted, the ADT took express account (at [49] and [53]) of the fact that at an early stage they both informed relevant employees of their defaults and opened negotiations with the ATO. It decided that in the case of Ms Hendy, who had expressed contrition from an early stage of the proceedings, a reprimand was a sufficient penalty. Partly because Mr Gillroy had appeared inclined at first to try to justify his conduct and did not display contrition until he gave evidence in the proceedings, it made an additional order requiring him to undertake certain educational courses.

104 According to Ms Gleeson, we should regard this case as distinguishable from the present proceedings for the following reasons: (a) the scale of and duration of the Solicitor's defaults were much greater; (b) he did not voluntarily disclose them to his staff; (c) he did not enter into early negotiations with the ATO; (d) he did not take steps such as applying his own funds to meet his defaults or refraining from drawing remuneration from his firm; and (e) he did not display contrition until the hearing.

The Solicitor's submissions

105 Mr Roberts argued that the evidence did not justify an order removing the Solicitor from the Roll, but that it would instead be appropriate to order that he be reprimanded and that for a specified period he should be permitted to practise as an employed solicitor only. To a significant extent, he based his argument on three specific aspects of the evidence.

106 The first of these was that the Solicitor was, to use Mr Hickey's phrase, a 'most compassionate and caring solicitor'. This was demonstrated by his long-term commitment to acting for disadvantaged clients in the highly demanding Broken Hill litigation (Mr Roberts described this commitment as 'quixotic') and in the opinions of all of the fellow-practitioners who furnished testimonials for him.

107 The second was that Dr Brash's diagnosis of depression, from which the Solicitor was now recovering, provided an explanation for the fact that, as the Law Society itself had suggested, the Solicitor had shown himself to be inclined to 'put his head in the sand' when encountering financial difficulties. He had never squarely faced up to these matters, but had hoped optimistically that they would resolve themselves. This was particularly the case when following settlement of the Broken Hill litigation he looked forward to receiving what he believed would be a substantial sum for his costs and disbursements.

108 Thirdly, the Solicitor had in fact paid very substantial sums to the ATO in recent years. These had been sufficient to bring about dismissal of the ATO's first creditor's petition against him and to discharge a more recent judgment debt owed to it.

109 With reference to the Solicitor's attempts to sell the Corlette Property, Mr Roberts pointed out that when in November 2008 and in February 2011 this Property was advertised for sale the asking price on each occasion was not significantly greater than the selling price estimated by the estate agent.

110 Mr Roberts described in the following terms the Solicitor's current feelings about his failure to discharge his superannuation and tax obligations. The Solicitor acknowledged that, in hindsight, it would have been preferable for him, when his financial problems came to bear heavily on him in 2008, to take steps such as abandoning the Broken Hill litigation, dispensing with the services of his employees and ceasing to practise on own account. He now regretted the course of action that he had adopted and suffered 'acute shame and embarrassment' on account of these proceedings being maintained against him.

Discussion and conclusions

111 Two preliminary points may usefully be made at this stage.

112 First, during the second day of hearing, Ms Gleeson agreed with a suggestion from the Bench that the evidence regarding (a) the Solicitor's engagement of Mr Cullenward as an employee, (b) his resistance to Mr Ledingham's claim for unpaid superannuation guarantee contributions and unpaid amounts of 'sacrificed' salary and (c) his failures to meet deadlines stipulated by the Law Society or by the Act could not be treated as adding new grounds of misconduct to the Law Society's case. The reason for this is that these matters were not alleged in either the Grounds or the Particulars.

113 As indicated above, Ms Gleeson submitted nonetheless that these matters could and should be taken into account as 'aggravating features' of the misconduct that had been alleged and admitted. Mr Roberts appeared to agree with this submission.

114 In our view, the significance that we may attribute to these matters is better formulated as follows. It may serve to weaken such evidence as the Solicitor himself has adduced, at the 'penalty stage' of the proceedings, to seek to dissuade us from deciding that present unfitness on his part to engage in legal practice - which is the established criterion for removal from the Roll - should be inferred from the past misconduct that has been established against him.

115 Secondly, the legal consequences of default, such as the Solicitor committed, in paying statutory superannuation contributions for the benefit of his employees should be clarified. This may conveniently be done by quoting a passage from the judgment of Heydon J in Roy Morgan Research Pty Ltd v Commissioner of Taxation (2011) 244 CLR 97. As mentioned above at [34 - 37], the ADT took account of this High Court case when deciding in Council of the Law Society of NSW v Healey [2013] NSWADT 173 that a disciplinary application brought by the Law Society on the ground of failure to pay superannuation contributions should be dismissed.

116 At paragraphs [53], [54] and [57] in the Roy Morgan case, Heydon J said (footnotes omitted):-

53. There is no general duty on private employers to pay superannuation contributions to superannuation funds for the benefit of their employees. But particular obligations to pay superannuation contributions can arise in various ways. They may be created by an award or certified agreement. They may be created by contract. This appeal concerns the legislative validity of an indirect method of ensuring the payment of superannuation contributions

The legislation

54. Sections 5 and 6 of the Superannuation Guarantee Charge Act 1992 (Cth) impose a superannuation guarantee charge on employers. It is calculated by reference to an employer's "superannuation guarantee shortfall": Superannuation Guarantee (Administration) Act 1992 (Cth), s 17. That shortfall is the difference between nine percent of a given employee's total salary or wages for a quarter and what the employer contributed to a retirement savings account or certain types of superannuation fund for the employee's benefit, plus a nominal interest component and an administration component. The function of the interest component is to compensate for fund earnings foregone by the failure to pay the nine percent. The function of the administrative component is to recover expenses associated with administering the superannuation guarantee charge. The legislation creates an obligation on the employer to pay that charge to the Commissioner of Taxation which is enforceable as a debt due to the Commonwealth. The superannuation guarantee charge is to be paid into the Consolidated Revenue Fund. A similar sum (but without the administration component) is then to be paid out to a superannuation fund for the benefit of the relevant employee.

The function of the legislation

57. The superannuation guarantee charge provides an incentive to employers to make superannuation contributions at the rate of nine percent of employees' wages. It ensures that in relation to the employees of employers who fail to do so there will be payments into approved superannuation funds equivalent to those which the employers did not make. There are significant factors influencing employers to make superannuation contributions directly to superannuation funds for their employees' benefit rather than pay the superannuation guarantee charge. Direct superannuation contributions are tax deductible; payments of the superannuation guarantee charge are not. Payments of direct superannuation contributions avoid the nominal interest component and the administration component of the superannuation guarantee shortfall. And in other respects the superannuation guarantee charge may be higher than the corresponding direct superannuation contribution. In a perfect world, no superannuation guarantee charge would be levied at all. But it tends to persuade employers to make direct superannuation contributions. This achieves public purposes quite independently of any revenue collected through it. Those public purposes centre on the encouragement of employers to contribute to superannuation funds so as to meet the needs of aged or infirm employees and to reduce the pension burdens which would otherwise have to be funded by the government.

117 We regard this passage as significant in the present context because it explains that default by an employer, such as the Solicitor, in making statutory superannuation contributions does not cause the relevant employee to be wholly deprived of the benefit of these contributions until recovery measures against the employer have been successfully undertaken. Instead, the unpaid amounts, plus interest, will be transferred out of Consolidated Revenue into the employee's superannuation fund.

118 This is not to say that an employer's failure in this regard is of no consequence to the employee. It may still - as is the case in these proceedings - constitute the breach of a contractual obligation. The lapse of time between the date when the payment should have been made and the date when the employee's fund receives a payment from Consolidated Revenue will be detrimental to the employee if the income that would have generated by the unpaid amount exceeds the amount of interest included in this payment.

119 For these reasons, at least, we agree with Ms Gleeson's submission that the employer is under an obligation to notify his or her employees if any such defaults have occurred or are likely to occur. They should have the opportunity of deciding whether to continue in the same employment.

120 If, however, for a reason such as bankruptcy the recovery proceedings instituted by the Commissioner of Taxation against the employer prove fruitless, the most substantial loser is the Revenue, not the employee.

121 On this reasoning, and subject to an important qualification, the conduct described in Ground 1 of the First Application should be regarded primarily as a wrong against the Revenue and only secondarily as a wrong against the relevant employees of the Solicitor.

122 The qualification relates to the Solicitor's failure to make payments to Mr Ledingham's superannuation fund, in so far as these related to salary sacrificed by him. There was no statutory guarantee by the Revenue of payment of these amounts in the event of default by the Solicitor. The Solicitor's undisclosed failure to pay them over a significant period was akin to an undisclosed failure on his part to pay part of the salary owed to Mr Ledingham. As Ms Gleeson pointed out, the aggregate of these amounts was about 75% of the Solicitor's total default in paying Mr Ledingham's superannuation entitlements.

123 Our findings on three disputed questions of fact should be recorded at this stage. The first and second of these relate to the two paragraphs of the Particulars (paragraphs 10 and 11) on which we expressly abstained from making any finding in our orders at the conclusion of the First Hearing.

124 First, in relation to paragraph 10, we find that, in view of the Solicitor's substantial indebtedness to the ATO from the end of 2007 onwards, the periods of time during which he and his wife advertised the Corlette Property for sale were unduly short.

125 Secondly, the Law Society has not established the allegation in paragraph 11 that this Property 'was advertised for sale at a price in excess of market value and as such was unlikely to attract a buyer'.

126 Thirdly, Ms Gleeson's claim that the Solicitor did not show any contrition until the hearing is not wholly accurate. In a letter to the Law Society dated 8 April 2012, having admitted the matters alleged in the First Application, he wrote: 'I hereby concede that such admission acknowledges a serious breach of my professional obligations amounting to professional misconduct.'

127 After careful consideration, we have come to the conclusion that a striking-off order is not warranted in these proceedings (though the case is very close to the line) and that we should instead make orders under section 564(2) of the Act of the kind suggested by Mr Roberts. They should be that the Solicitor is reprimanded and that for a period of five years any practising certificate held by him should be subject to the restriction that he is only permitted to practise as an employed solicitor. We will defer until 1 July 2014 the commencement of the second order so that the Solicitor may make the necessary arrangements regarding his current clients.

128 In reaching this conclusion, we have taken account of two important considerations. One is that the basic test for determining whether a legal practitioner should be struck off is that he or she must be found, on the balance of probabilities, to be permanently unfit for practice. The other is that the purpose of orders made against a practitioner by way of penalty should be protection of the public, not punishment of the practitioner. This is the case even though, as was stated in Law Society of NSW v Bannister (1993) 4 LPDR 24 at 28, the maintenance of professional standards will require that offenders be deterred from re-offending and other practitioners be deterred from offending.

129 The most serious forms of misconduct in which the Solicitor engaged were failure to pay superannuation contributions and failure to remit PAYG tax. For reasons that we have just explained, the principal harm resulting from both these forms of behaviour (not just from failure to remit PAYG tax) is loss to the Revenue. In recent years, the Court of Appeal has delivered a number of important judgments relating to such behaviour, of which the best known is probably NSW Bar Association v Cummins (2001) 52 NSWLR 279; [2001] NSWCA 284.

130 For present purposes, a noteworthy feature of the facts of these cases is that, generally speaking, a striking-off order has not been made unless the respondent practitioner failed to file tax returns (thereby committing an offence under tax law in each case) and/or engaged in a deliberate strategy (such as going bankrupt on one or more occasions with assets of insignificant value) in order to prevent the ATO recovering tax due to it. In Cummins, for instance, the former type of misconduct occurred. Davison v Council of the New South Wales Bar Association [2007] NSWCA 227 provides an example of the latter.

131 In the present proceedings, neither of these types of misconduct occurred. The Solicitor did not fail to file tax returns. While he blatantly ignored his fiscal responsibilities over a significant period of time and did indeed become the subject of two creditor's petitions taken out by the ATO, it has not been alleged (and there is no evidence) that he deliberately embarked on the strategy of going bankrupt in order to escape paying what he owed.

132 His response to the crisis facing him was undoubtedly inadequate. He made insufficient attempts to try to sell his home; he did not take significant steps to reduce his expenses, but in fact engaged at least one additional employee (Mr Cullenward); he was unduly optimistic in believing that he could 'trade his way' out of his difficulties; and he in effect gambled on obtaining a large sum on account of his costs in the Broken Hill litigation. But he did not attempt to use bankruptcy or any other strategy to escape his tax debts. In recent years, as Mr Roberts emphasised, he has in fact paid substantial sums towards the discharge of those debts.

133 In this context, it should be noted that one of the two ADT decisions cited by Ms Gleeson as showing that failing to pay superannuation contributions and to remit PAYG tax may give grounds for a striking-off order, Council of the Law Society of New South Wales v Adams [2011] NSWADT 177, is in accordance with the foregoing statement of principle. In that case, the respondent solicitor also failed to file tax returns.

134 In another ADT decision that Ms Gleeson drew to our attention, Council of the Law Society of New South Wales v Somerfield [2008] NSWADT 235, the respondent solicitor admitted failure to pay superannuation contributions for the benefit of 26 employees during a period of more than four years. Towards the end of his period, he presented a debtor's petition, on which he was declared bankrupt. He also admitted a number of failures to adhere to professional standards in acting for his clients. In conformity with proposals in an instrument of consent, the ADT found him guilty of professional misconduct and ordered by way of penalty that he be fined and reprimanded and that he attend and pass a course on trust accounts. At [6], it stated as follows:-

6 The Tribunal gave consideration to the particulars of the alleged professional misconduct and noted the terms of the respondent practitioner's affidavit. Importantly, that material and the Agreed Facts indicate that there was no dishonesty involved in the several incidents particularised and that the failure to pay contributions under the Superannuation Guarantee Charge Act 1992 arose from Mr Somerfield's lack of financial resources flowing from the poor financial performance of his practice. He had undertaken to pay the superannuation contributions, and intended to do so, but ultimately did not have the financial resources to meet his undertaking. The other two matters disclose an intention to act in the interests of clients but demonstrate a lack of adherence to professional standards in doing so...

135 It is apparent from this passage that the ADT treated a solicitor's failure to pay superannuation contributions on account of insufficient income being received into his practice as distinctly less serious than the deliberate avoidance of fiscal obligations through strategies such as dispersal of assets followed by bankruptcy.

136 Among the 'aggravating factors' that we take into account in considering the Solicitor's defaults in relation to superannuation and tax are his failure to disclose them to his employees generally, his specific failure to disclose them to Mr Cullenward and his treatment of Mr Ledingham. We would also regard his acknowledgment of the seriousness of his misconduct (in his letter of 8 April 2012 to the Law Society) as a very brief expression of contrition. During his testimony on the second hearing day, he once again did not acknowledge at any length his regret at what he had failed to do.

137 We are bound, however, to count in his favour his dedication to the cause of the plaintiff for whom he acted in the Broken Hill litigation and the very positive statements made in the testimonials about his capability, conscientiousness and commitment in acting on behalf of his clients. The orders that we make by way of penalty will permit him to continue to display these qualities, while also serving to protect the public from the type of harm caused by the most serious instances of his misconduct.

138 As Mr Roberts submitted, the misconduct involved in the Second Application - that of not notifying the Law Society of the service of a creditor's petition - involved an understandable (though not excusable) mistake as to the scope of his statutory obligation to notify and, standing alone, would warrant at most a reprimand.

139 Ms Gleeson applied for an order that the Solicitor pay the Law Society's costs. There being no opposition from Mr Roberts, we order accordingly, pursuant to section 566(1) of the Act.

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I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar

Amendments

15 May 2014 - typographical error, 122032 changed to 122035
Amended paragraphs: Paragraph 1

Decision last updated: 27 March 2014