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Hellfire Club
31 January, 2004  
Slow trickle of money to barristers gives rise to terrible penalty

Victorian government looking at Mills Oakley’s participation on general legal panel following awful whack for not paying barristers smartly enough

Victorian law shop Mills Oakley Lawyers Pty Ltd, to give the outfit its full title, is still licking its wounds over its less than salubrious brush with “Slick” Nikytas Petroulias.

January 31 was the deadline for payment of fines totalling $110,000 imposed in October by the Legal Profession Tribunal of Victoria. Seven partners have already had to muscle up $50,000 each to pay off the shop’s creditors.

What with costs, the fines, borrowings and interest the whole sorry saga has cost Mills Oakley over $500,000. The government is also understood to be reviewing the firm’s continued participation on the general legal panel for State legal work. To lose any of that fodder would be a double whammy for the old shop, particularly as it is far from alone in perpetrating the awful sin of not paying barristers pronto.

Petroulias, a former Assistant Commissioner at the Australian Tax Office, is to stand trial on charges of defrauding the Commonwealth and corrupt conduct. For a dazzling, yet brief, period between April 1999 and March 2000, Petroulias was a salaried partner of Mills Oakley, one of Bleak City’s oldest firms.

This unfortunate arrangement proved to be – in the words of the tribunal – nothing short of a “professional, public relations and financial disaster” for the firm and seven of its partners.

The dreadful consequences of not sending money to barristers with the utmost promptitude is the harsh lesson that has been hammered home by Judge Dee QC, Mrs L. Cooney and Mr K. Stone – who comprised this particular Bureau de Spank.

Quaintly, all the Mills Oakley partners had no idea that failure to pay barristers pretty damn quick amounted to beastly behaviour, even misconduct. The managing partner, Stephen Moulton, thought there was a “convention” that the LIV insisted on barristers being paid promptly. Rather like one’s tailor, the tradition was that barristers might be paid when one got around it.

Ironically, the firm itself precipitated the charges of statutory misconduct to which it pleaded guilty.

Managing partner Stephen Moulton was so concerned by Petroulias’ arrest in 2000 he invited the Law Institute to inspect Mills Oakley’s trust account for any “defalcations”.

imageNot a good call. As it happened the LIV discovered some unwholesome practices that had nothing to do with Petroulias (right).

The firm’s bank had reduced its overdraft, which together with the involvement of Petroulias, “created a cash flow problem”. To better manage the difficulty the firm began depositing clients’ payments for counsels’ fees into the office account, rather than the trust account.

Office account cheques then were used to pay barristers on a timetable that was in tune with managing the firm’s internal cash flow.

Section 137(a)(1) of the Legal Practice Act, Vic, defines misconduct as including “wilful or reckless contravention” of the Act, the regulations or the practice rules.

The trust account practice rules stipulate that:

” a legal practitioner may apply trust money for the legal practitioner’s own use if, but only if, the legal practitioner applies that money – by way of reimbursements of money already paid by the legal practitioner on behalf of the relevant client.”

The Law Institute inspector, Gary Cameron, found that between November 15, 1999 and April 3, 2000 the firm had paid clients’ cheques into its office account and written office account cheques for unpaid counsels’ fees. Those cheques were retained by the firm and only posted to the relevant barristers’ clerks when “suitable to the firm’s internal cash flow”.

The idea was that the oldest debts would be paid first.

The inspector found 403 unpresented cheques of which 175 totalling $293,719 were payable to 10 separate barristers’ clerks. Another $33,948.42 was payable to a further 10 payees. Happily no complaints from impecunious counsel about this tardy timetable of payments had been made to the LIV.

imageMoulton (right) and six other partners (Michael Smith, Roger Jepson, Ivan Sest, Laurance Davis, Peter White, Stephen Walters) pleaded guilty to contravening the Legal Practice Act.

None of them seems to have been specifically aware of how the slow payment policy was being applied, but each of them accepted equal responsibility for the wickedness.

Technically the strategy gave rise to a trust deficiency and in an effort to pay the creditors each partner raised a loan of $50,000.

David Thompson, Peter Stockdale and Robert Gulotta had no findings recorded against them, as at the relevant time they were salaried partners and not shareholders or directors.

“Powerful character evidence” called by the firm (including from the LIV’s former CEO Ian Dunn, David Curtin QC, Michael Green and Frank Lynch) failed to move the flint-hearted souls on the tribunal, who declared:

“The sums of money involved were significant and disadvantaged a number of counsel in their right to prompt payment of fees. There must in this case be a high element of general deterrence considered.”

Interestingly, it was Dunny as CEO to whom the firm first notified its concerns about Petroulias and the need to check the trust account.

imagePeter Riordan, for Mills Oakley, pleaded with the Bureau de Spank that mercy be shown. There were no prior convictions, only a reprimand in relation to unsatisfactory conduct in April 2002. The shop employs 130 people of whom 34 are practitioners and then, bless them, there are the partners.

The whole outfit was heavily dependant on clients such as the Victorian WorkCover Authority. If the partnership were to be suspended from practice it would most likely mean the collapse of the firm.

All of this was taken into account, forcing the tribunal to admit: “The penalties we do impose are much less than we otherwise would.”

The firm was fined $40,000 and the seven partners $10,000 each. Two of the partners must attend instructions on trust account management.

Let this be a terrible lesson to those law shops that are struggling to keep within their overdraft limit and thereby become slow at flinging cash in the direction of barristers.

NB: The NSW Court of Appeal last October overturned a decision of Justice Carolyn Simpson who had quashed a magistrate’s decision that Nikytas Petroulias should stand trial for defrauding the Commonwealth. Now he is to stand trial on three charges: defrauding the Commonwealth, corrupt conduct and possessing ATO documents. The police allege that instead of shutting down tax avoidance schemes he had become a party to an arrangement to market them through issuing private binding rulings.