LEGAL SERVICES COMMISSIONER ANNUAL REPORT 2012

VCAT decisionsin mattersinvolving the LSCLegal Services Commissioner v Coldham & Ors (Legal practice) [2012]VCAT 74 (19 January 2012)On 18 June 2007, the LSB appointed trust account inspectors to commence a routine investigation into the trustaccount of and records relating to trust money received by a law firm of which Michael Coldham, Donald Brookesand Philip Barton were equity partners.The investigation uncovered unpresented office cheques totalling $541,690. A majority of those cheques related to fundsreceived from clients on account of unpaid disbursements owed to barristers and expert witnesses. At the time of theinvestigation the firm had 216 unsent office cheques in its possession totalling $305,791.97. It was within the knowledgeof the lawyers that unsent cheques had been retained by the firm’s accounting staff, and had deliberately not been sent ordelivered to the payee.Following accounts rendered to clients, the majority of payments made to the firm were first deposited into the firm’strust account and subsequently transferred into the firm’s office account. In all other cases the payments were madedirectly into the firm’s office account. At this time the disbursements owing had not been paid by the firm. Cheques weresubsequently drawn in respect of disbursements for third party service providers and retained and applied by the firm toreduce the level of debt of the firm’s overdraft account.The LSC brought two charges of professional misconduct at common law against the three lawyers, to which they allentered guilty pleas.The lawyers and the LSC agreed that the charges did not allege that the funds were trust moneys or that there was abreach of fiduciary duty. The LSC also conceded that the relevant third party service providers were engaged directly bythe firm and there were no contractual obligations between the clients and the service providers. The proceedings weredetermined by VCAT without consideration of these issues.At the hearing, Counsel for the LSC noted that ‘in some cases the unsent cheques became stale and were reissued bythe firm, but were nevertheless retained by the firm’ Counsel highlighted the respondents’ deferred decision to plead tothe present charges, the length of 30 years experience of all three respondents and the conduct amounting to a longtermstrategy.Counsel on behalf of the lawyers said their clients recognised the wrongfulness of their actions but stressed that theirpleas did not involve a breach of rules in relation to trust accounts or breach of fiduciary duty. They submitted that theLSC’s references to various court and VCAT decisions were not directly applicable to the case at hand. Counsel alsonoted that the delay in bringing this case before VCAT by the LSC should weigh in favour of a more lenient outcome.They said that the delay prevented the partners from taking action to improve the financial situation of the firm. Counselprovided accounting evidence that the firm’s current financial situation was such that if VCAT were to make the orderssought by the LSC the firm would be out of business.VCAT noted that the lawyers had engaged in disgraceful and dishonourable conduct, which should not be reduced inseverity just because the conduct was not found to involve a breach of the trust account rules or fiduciary duty. VCATfound that based on the long period of retention of the cheques, the money was considered to be detained indefinitely bythe firm. It was noted that it was an almost academic distinction to speak of funds being merely obtained as opposed tobeing finally misappropriated.VCAT found it difficult to consider the firm’s financial circumstances as a mitigating factor but acknowledged the direconsequences of ordering the suspension of the respondents’ practising certificates. They noted that ‘in our view itcannot balance out the necessity to impose a relatively severe penalty to send an unmistakable message to the State’slegal profession that this sort of conduct will not be tolerated’.VCAT ordered that the practising certificate of each respondent was to be suspended for a period of nine months andthe respondents were to pay the LSC’s costs of $50,000.Legal Services COMMISSIONER Annual Report 2012 21