LAW EXTENSION COMMITTEE

/

WINTER 2016

17 LEGAL ETHICS

/

ASSIGNMENT

INSTRUCTIONS

In Legal Ethics, there is only ONE ASSIGNMENT. This assignment is compulsory and must be submitted by all students. The assignment will constitute 20% of the final mark in this subject.

Assignments must be submitted by the due date unless an extension has been granted. Extensions need to be requested by email prior to the assignment due date and specific supporting evidence provided. Late assignments attract a penalty of one mark out of 20, or 5% of the total marks available, per day. A pass mark is 50%. Assignments that are received more than ten days after the published due date will not be accepted. Please note that students granted an extension must still submit their assignment within ten days of the original assignment due date.

Assignments are assessed according to the “Assignment Grading and Assessment Criteria” outlined in the Guide to the Presentation and Submission of Assignments. Prior to the examination, assignments will be returned to students and results posted on students’ individual Results screen of the LEC Webcampus. Students are responsible for checking their Results screen and ascertaining their eligibility to sit for the examination.

The rules regarding the presentation of assignments and instructions on how to submit an assignment are set out in the Guide to the Presentation and Submission of Assignments available on the LEC Webcampus. Please read this guide carefully before completing and submitting this assignment.

The maximum word length for this assignment is 1200 words (inclusive of all footnotes but not bibliography).

Completed assignments should be lodged through the LEC Webcampus and received by 11:59pm (Australian Eastern Daylight Time) on Thursday 14 July 2016.

Please download the Assignment Coversheet. The coversheet will be the first page of your assignment. Save it with the name you intend to use for the assignment, and begin your answer on the second page. Make sure you complete the Assignment Coversheet by entering in your Full Name and Address Details and the Date you lodged your assignment on the Webcampus. Next to “Signed”, type your name to acknowledge that the assignment is your own work.

COMPULSORY ASSIGNMENT

S was a sole practitioner in one of Sydney’s outer suburbs, Suburbia. Suburbia had a large migrant community. S’s clientele was predominantly migrant. S was married to the daughter of migrants and had been accepted by the community as one of theirs. He attended local clubs with his family and the bulk of his friends were migrants. S's practice was predominantly in conveyancing, some small commercial transactions and the occasional Local Court matter. It was a nice existence for S. He had plenty of time for his family and prized vegetable garden. His income, though not as high as his friends in the city, was more than sufficient for his lifestyle.

S's wife had been pestering him for years to start making some big bucks, as she called it. After all, he was a Solicitor and he owed it to her and the family to get a bigger house, a better car and more holidays. One day S's wife had given him an ultimatum — "we change our lifestyle now, or I go. Up to you.”

Distraught and angry, S came to the office. His waiting room was full of people he knew. There were no suits and ties, only clients in overalls and work boots. S pondered — "there must be something more to work than this. Maybe my wife is right".

S's first client was Joe the plasterer. He was finally going to sell his business. Joe's business had been a quiet achiever over the years and even S was surprised to hear that the purchaser was going to pay $3m for the business. Together with his superannuation Joe was worth nearly $5m. S dealt with Joe's sale expeditiously and by the end of January there was $3m sitting in S's trust account waiting for Joe’s instructions. Joe was a simple and trusting man. He had made money from hard work and at the age of 60 he just wanted to enjoy life. Joe came in to see S after all the transactions had been completed. Joe told S to take his fees and said that he would give it a week or so before deciding what to do. "I'll see you next Friday" were Joe's last words as he left the office.

The following Monday S walked into his office to find his receptionist in tears. "Joe's dead", she said. "Fell off his fishing boat yesterday and got hit by the propeller". Everybody in Suburbia knew Joe. S knew Joe's family well. They had known each other for years. Joe had been a longtime friend of S's wife's family. S headed straight to see Joe's wife, Maria. Needless to say, Maria was distraught. All she could say was, "S, fix things up for me, Joe would have wanted it that way". S was Joe's executor. S started to gather in all of Joe's assets. Aside from the matrimonial house which went straight into Maria's name, Joe had a lot of "bits and pieces". At the end of the day there was an estate worth some $5m. "$5m, that's a lot of money for just being a plasterer", S thought.

A few weeks after Joe's death S went to see Maria and sat her down. "Maria, Joe left you and the kids well off, there's $5m sitting in my trust account. What do you want to do?" Maria was clearly shocked. "S, you've been our friend for many years. We all trust you. Do what you think is best. I don't need much and I really don't want the kids to get anything until they're much older. I want you to deal with the money as though you were Joe. Prepare a Power of Attorney and I'll sign it." S immediately set about investing the funds in all matter of things — shares, property etc. He worked out that without any risk he could bring in at least 10% after tax every year.

By the end of the first year, S had exceeded all his expectations in relation to his investment strategy. So much so that there was a net income of $1m and the asset base had itself increased to $7m. He was good at this, he thought — maybe his wife had a point — he deserved better. S initially decided that he would ask Maria if he could borrow funds from her and invest them in his own name, however, he just didn't have the strength to ask her — "what if she thought that he was making a grab for the money. What if she told others, what if....?”

In a moment of exasperation S withdrew $1m from the investments he had made and advanced it to his private company, S & Co., but at a commercial rate. S & Co. entered into a number of speculative dealings and by the end of the following 12 months had returned some 50% on its investments. After repaying Maria the $1m and interest of $100,000, S still had a $400,000 profit. Maria was none the wiser and S's wife thought that for once she had got through to S. The family had had a lovely holiday on the Sunshine Coast, bought a new car and there was now talk of further investments. Not satisfied with the profits he had just made, S again borrowed another $1m from Maria's funds but this time with even better results — a net $500,000 profit.

S & Co. was the subject of a tax audit. Questions were raised about interest payments made to Maria in respect of borrowings from her. The auditor required a letter from Maria that she had approved the loans. S went to see Maria and told her what had happened, and what the tax department required [he didn't tell her that S & Co. was his company]. She signed the letter prepared by S for the tax department and nothing more was said — after all, the income which S had been generating for her was going to result in a small fortune for her children. She would forever be grateful to S.

The auditor was handed the letter but, knowing that S & Co. was S's company, remained suspicious. The auditor decided to speak to Maria. Maria was shocked to hear what the auditor had to tell her. No, she didn't know that S had any relationship with S & Co., she just trusted him. Maria called S who, confronted with the inevitable, told her everything. "Why didn't you just ask me, I would have said yes"— said Maria — "anyway, let's not have any more of this. You have my permission to continue doing as you have."

Needless to say, S was a most relieved man until a letter came from the Professional Standards Department of the Law Society. The auditor had reported the matter to the Law Society which had determined to make the following complaints against S:

1.  The Solicitor misappropriated client funds.

2.  The Solicitor willfully breached the provisions of Sections 138 and 139 of the Legal Profession Uniform Law (NSW).

3.  The Solicitor misled an officer of the Australian Taxation Office.

4.  The Solicitor misled his client.

In response to the complaints, S acknowledged the facts and went on to say that although Maria had authorized him to make further advances to S & Co. he had determined not to take up her offer. All funds had been paid back and Maria had received her interest. There had been no loss to Maria. S assured the Society that there would be no repetition of the conduct.

The matter has now been referred to the Council for determination of the complaints and you have been requested to provide a written report.

You are a member of the Council of the Law Society of NSW and have been requested to prepare a short written report as to what, if any, action should be taken against S in respect of the factual matters set out above.

In your report you will necessarily set out the relevant legislative provisions and common law authorities which may affect your ultimate recommendation.

If it is your recommendation that disciplinary action be taken against S, clearly set out what orders you would recommend be sought and why.

Page 4 of 4