Failure of the system ... Legal Services Commissioner, Law Society and Supreme Court asleep at the wheel ... Professional standards adrift ... Public protection out in the cold
Keddies - grossly overcharging
HOW many times can a lawyer take flying leaps over all the road blocks erected in the name of professional standards and continually land on his feet?
Endlessly, it seems, if you are Scott Roulstone, a former partner of client-gouging law shop Keddies.
The Legal Services Commissioner, the Supreme Court and the Law Society - all have dropped the ball on Roulstone.
His latest "triumph" has been to head-off moves by the NSW Bar Association to deny him a practising certificate, on the ground he faced an unresolved charge of contempt.
On Friday (Jan. 23) Justice David Davies found him sufficiently fit and proper and ordered the bar the give him an interim ticket, subject to an undertaking:
"The plaintiff undertakes that upon being requested by the court to do so, he will surrender the practising certificate granted."
The Law Society cancelled his ticket in November 2012 believing that there were "impugned transactions" relating to his bankruptcy.
Overcharging
Steve Mark: dropped the ball
That decision was upheld by the ADT in May 2013, which decided that even though it could examine Roulstone's record of overcharging, it didn't do so because the Law Society did not rely on overcharging as a ground of Roulstone's fitness to practice.
Former Legal Services Commissioner Steve Mark also made a hash of the overcharging case against the three Keddies partners.
In June 2012 Mark explained he dropped professional misconduct charges against Roulstone and Barakat because Russell Keddie had taken the blame for overcharging in the Meng case.
Mark said:
"Because Russell Keddie had then admitted that he had done it, he has supervised [employed solicitor Philip] Scroope, he had done all the work … by making that admission, he basically got both Barakat and Roulstone off."
However, nowhere in the findings or orders of the ADT in relation to Keddie or in the agreed statement of facts is there an admission made in those terms.
Nonetheless, Russell Keddie, at the end of his career and after taking the coin from the firm's sale to Slater & Gordon, fell on his sword insisting he alone grossly overcharged.
Bankruptcy
The firm's overcharging was so atrocious that by 2012 cases brought by former clients against the three former partners were banking-up in the District Court.
Here's a record of some of the settlements amounting to over $3.3 million plus costs. In all it is estimated that there were claims in excess of $10 million against the three partners for breach of fiduciary duty and deceit.
Bankruptcy for the Keddies Three loomed and they promptly put their affairs in order. Here's Scott's Roulstone's statement of affairs from August 2012.
The trustee's report to his creditors was not a happy document. Under the heading of "Voidable Transactions" the trustee referred to over $1 million in payments transferred to the Roulstone Super Fund in the five years before his bankruptcy.
Another $1.2 million was transferred to the Roulstone Family Trust just three months before his bankruptcy and funds from the sale of the Keddies' partnership were paid to Mrs Roulstone to offset a mortgage held over one of her properties, to repay personal loans and other creditors, and for family expenses.
However, Justice Robert Beech-Jones in the NSW Supremes rejected the Law Society's argument that the "impugned transactions" showed Roulstone and his former partner Tony Barakat deliberately sought to benefit themselves with reckless disregard for their creditors.
The judge accepted that prior to the "impugned transactions" Barakat and Roulstone got advice from a insolvency specialist, who told them to set aside funds for the purpose of negotiating with their creditors to avoid bankruptcy.
Further, they were advised when bankruptcy loomed not to unravel the squirreled money and assets. These transactions, apparently, were disclosed to their trustees.
Barakat is now back trading as Barton Lawyers in Redfern.
In Roulstone's case, the judge said his composition proposal offered creditors an amount representing the approximate value of two of the three impugned transactions and that the third transaction was found to be undertaken "in the interests of creditors".
Consequently, the court found that the asset transfers were not dishonest and both Roulstone and Barakat should be given practising certificates.
Even though he now had a ticket from the Law Society, Roulstone decided to ply his trade at the NSW bar. The issue for the bar council was whether it could withhold a PC on the ground there is an unresolved case of contempt against the applicant.
In a judgment on Friday (Jan. 23) Justice David Davies gave Roulstone an interim ticket which is subject to the outcome of any future proceedings for contempt.
See: Bar wants to protect the public from Roulstone
Contempt
Firth: clinging to his clients
Allegations of contempt arose during the time there was a scramble for settlements of the overcharging cases. Solicitor Stephen Firth was acting for a brace of aggrieved former Keddies' clients, wanting their purloined money back.
Firth discovered some clients decamping from his fold and his generous legal services being sidelined.
He managed to extract undertakings from the Keddies Three that they would not approach his clients directly or indirectly.
On November 24, 2011 Justice Michael Adams ordered:
"That the defendants [Keddies Three] be restrained from, either by themselves or by their servants or agents, at any time contacting, approaching or in any way communicating or attempting to communicate with any of their former clients or any of the former clients of Keddies the Insurance Law Specialists Pty Ltd in respect of whom the third plaintiff [Firth] has served an authority to transfer the file or any other person or persons acting on behalf of such former clients (other than any solicitor acting on behalf of such former clients on the record) who have provided instructions to Firths The Compensation Lawyers to act on their behalf in respect of the subject matter of those instructions."
On December 13, 2011 a statement of charge was filed. It said that a former client of Keddies, Mr Xi Li, for whom Firth was acting in an overcharging case against the partners, was contacted by Hong Mei Li, also known as Helena, on November 29, 2011 and asked to see solicitor Naushad Husaini at the law shop Margiotta.
At the meeting Mr Li was told that his claim would be settled for $80,000 clear. Li had been charged $124,000 by Keddies for work that under the statutory fixed costs regime should have been billed at $25,000.
Li agreed and two days later Roulstone signed a cheque for $80,000 to settle Li's claim.
Helena delivered the payment to Margiotta and asked Li to sign a photocopy of the cheque by way of confirmation of its receipt.
What is relevant is that Husaini, now working for Margiotta, had previously handled Li's matter when he was an employed solicitor at Keddies, and Helena had been contracted by Keddies as the firm's interpreter for Chinese clients.
So two people who had been integral to Keddies' operations secured a settlement from at least one one of Firth's clients. Roulstone was able to deny that he had breached the undertaking to the court or Adam's order not to approach Firth's clients.
This neat arrangement clearly bears closer examination in any contempt proceedings against Roulstone, Barakat or Russell Keddie.
In May 2013 Adams said he would refer Firth's motion for contempt to the prothonotary. Nothing further was heard, so solicitors for the Bar Association wrote to the prothonotary to ask what was going on. The prothonotary replied on January 7, 2015:
"I do recall speaking to Adams J on or about 29 May 2013 when he was at that time contemplating making an order referring contempt proceedings to me. I have also read the transcript of the proceedings before Adams J on 29 May 2013, which was the last time that the proceedings Goritsas & ors v Barakat & ors (2011/370116) was listed in Court, where he notes that the notice of motion for contempt is to be referred to the Prothonotary. However the directions on that day have never been formally entered, and His Honour has not subsequently advised me that he has formally referred the contempt to me. I note that an issue as to costs, which was also raised on 29 May 2013 by Margiotta, Solicitors, and which was to be dealt with by His Honour on the papers also appears to be outstanding. It appears from the Court file, that it was Adams J's intention to refer the contempts to me to prosecute, however it is possible that it has been overlooked. Unfortunately, as His Honour is currently on leave I cannot confirm with him whether what he intended on 23 May 2013 remains his intention. At this stage I have not taken any steps to prosecute the contempt charges."
As Justice Davies put it, "the contempt proceedings are effectively in limbo". It is not clear when they will be commenced, but it is unlikely that they would get underway before the middle of this year.
So there we have it: failure by the Legal Services Commissioner to properly explore the prospect of proceedings against Roulstone and Barakat for overcharging in any other case apart from Russell's blockbuster excapade in Meng, and failure of the Law Society to press overcharging before the ADT; nifty asset arrangements in the bankruptcy that turned what were thought to be "impugned transactions" into benefits for creditors; and failure of Justice Adams to refer the charge of contempt to the prothonotary in a timely manner.
Two-thirds of the Keddies' law shop are back in the game.