Prothonotary of the Supreme Court v Sharp [2006] NSWCA 27

In this case the opponent solicitor, Peter Lyle Sharpe, was struck off the roll of solicitors after being found guilty by a criminal court of twenty-three counts of offences of making false or misleading statement with intent to obtain a valuable thing, contrary to s178BB of the Crimes Act 1900 (NSW) arising out the Tietyens Mortgage Fraud episode. The solicitor had earlier received a sentence of imprisonment of 5 years with a non-parole period of 3 years.

The solicitor practising as a partner in the Albury firm Tietyens. Throughout that time the firm conducted a substantial mortgage practice, taking deposits from contributories and lending out the money on first mortgage security. The contributories were mainly clients of the firm. Tietyens Investments made written declarations that they held each mortgage on trust for the specific contributories whose funds had been loaned to each mortgagor.

All deposits were taken following representations to contributories that the ratio of the loan to the value of security taken (“the LVR”) would not exceed 66%. The largest borrower of funds from Tietyens Contributory Mortgage Scheme was Tally Ho Towers Pty Ltd. All of the charges  concerned conduct of The solicitor in relation to the lending to Tally Ho.

The solicitor himself caused Tally Ho to be incorporated. A Mr Caines and a Mr Hare,were initially the sole shareholders and directors of Tally Ho. However as directors they acted according to the instructions of the solicitor.

Tally Ho paid substantial fees to Tietyens Investments and Tietyens Solicitors (the legal firm). The taking of these fees amounted to Tietyens Investments profiting from its own trust in respect of the contributories. The contributories were never informed that fees which included:

  • The “Tietyens Investments Fee” was to be $6m
  • The Tietyens Solicitors Contingency Fund” fee was to be $18,000 per month
  • Provision for $50,000 per month on account of the Tietyens Solicitors Loan Fees

Transfers of contributories’ deposit funds for fees, did not constitute the drawing down of funds by the borrower. Funds did not leave the control of the opponent or Tietyens Investments. Thus, the Macquarie Account was de facto a supplementary trust bank account. The existence of the Macquarie Account was not disclosed to Law Society trust account inspectors. Hence, the fact that the fees of $18,000 per month and $50,000 per month, respectively, were being paid to Tietyens Solicitors by under the mortgage scheme was concealed from trust account inspectors.

The LVR for the Tally Ho loan ranged from 77% to 126%, even when calculated on the valuations provided by Australian Independent Valuer Pty Ltd, see below.

On 20 February 1996 a Mr Martin, valuer, of Australian Independent Valuer Pty Ltd (“AIV”) in Melbourne issued a purported valuation of the Tally Ho property at $20m. This lot had been purchased in October 1995 for only $5.8m. The purported valuation showed on its face no plausible reasoning which could possibly support the increase in value from October 1995 to February 1996.

There was a deficiency of $32.48m between the amount that could be realised on the securities for the Tally Ho loan and the amount owing to the contributories. This deficiency was paid to contributories out of the NSW Law Society Fidelity Fund: 50 cents in the dollar in September 1998, 25 cents in the dollar in January 2000 and the balance in about October 2000.

The trial judge who sentenced the solicitor to imprisonment stated in her sentencing remarks:

“Like any solicitor, with a practising certificate, he was a person of good character at the time the offences were committed, and as referred to in the authorities in relation to offences involving defalcation or fraud by solicitors, it is because of that good character and the position of trust occupied by a solicitor that the opportunity exists for such offences to be committed.

Members of the public rely on the good character of members of the legal profession and feel entitled to trust them, particularly so when it comes to depositing money with them. They expect that solicitors will honour that trust, act faithfully and honestly on behalf of their clients and not abuse that trust. Particularly so, not for their own financial advantage.

The [opponent] has abused the trust of each of these individuals in pursuit of his own greed. This abuse of trust by him is an aggravating factor to take into account when sentencing him for each of these offences.

The Court of Appeal agreed with these remarks concluding:

The opponent’s conduct was not such as can be tolerated in the legal profession and has clearly damaged the trust that members of the public are able to repose in solicitors whose names remain on The Local Roll of lawyers of this State. It is therefore in the public interest that this Court should formally record that the opponent is not only not of good fame and character but also that he is permanently unfit to practice as a member of the legal profession and is thus not a fit and proper person to remain on The Local Roll of lawyers. Further, in our opinion, the opponent’s conduct amounted to professional misconduct and that finding also should be formally declared.

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