When is money trust money? … When it belongs to someone else … It’s easy to get muddled … Brothers-in-law … Jennifer Cooke reports from NCAT on wrangling the payment of disbursements 

Brent Arthur Hedges and his brother Stephen Lewis Hedges, the only principals of Walker Hedges & Co, ran their practice from January 2010 with offices in Sydney city and suburban Forestville, where Stephen supervised trust and office account records with a part-time bookkeeper. 

Initially disbursements not yet paid were the subject of a separate bill. For a single unpaid disbursement, like the fees of an expert witness or a barrister, the client was asked to pay that fee directly to the person who provided the service. 

However, if the client had paid the amount to the law practice, the payment was deposited into the practice’s general trust account and a trust account cheque was issued to the third party. 

A different bill was issued for professional legal fees and disbursements already paid. Payments for that bill were deposited in an “office” account. 

Things began to slide in 2012 when an insurance company client of Brent Hedges had trouble calculating a GST input credit because the practice separated its costs from disbursements and fees payable to other providers.

So, at Brent Hedges’ instigation and with agreement from his brother in the burbs, gone was the separate bill for disbursements not yet paid. 

In its place was a single bill, all of which was deposited into the office account. 

Both brothers testified to an agreement that upon payment of a bill that included an unpaid disbursement, subject to the clearance of a cheque payment, immediate payment would be made of the unpaid disbursements.

But that did not always happen. In several instances, there were delays of months – in one case more than 17 to a silk – in paying disbursements. 

The Civil and Administrative Tribunal also found instances of deposits of up to $10,450 into a CBA overdraft account, which had the benefit of reducing the firm’s debt. 

It all came to a head when another law practice made a complaint, a trust account inspector was dispatched in 2013 and disciplinary action commenced in 2016.

But proceedings were delayed several times due to the same trust money issue raised in the case of Council of the Law Society of New South Wales v Bouzanis where the tribunal decided that amounts for unpaid disbursements included in a bill were not trust money.  

Several adjournments of the Hedges’ case later the Court of Appeal subsequently held it was trust money. 

On July 10, 2018, a rehearing of the matter before a differently-constituted tribunal in Council of the Law Society of New South Wales v Bouzanis followed the path cleared by the Court of Appeal. It reprimanded Bouzanis and fined him $5,000. 

At their one-day hearing on July 12, at which no oral evidence was adduced and no witness was cross-examined, the Hedges mostly admitted to alleged breaches of sections 254 and 255 of the Legal Profession Act 2004. 

These were the first two grounds of the complaints against them – that the relevant amounts were trust money. 

Brent Hedges, a solicitor of 28 years standing when the breaches occurred, said he “was unaware [of them] at the time” and he had given no instructions or directions to do what was done.  

Stephen Hedges, admitted to practice 32 years before the change in billing, said he did not know the money was trust money, was unaware of the breaches, the matters were those of his brother as he was “wholly based in the practice at Forestville” and there was no “intentional or wilful” breach on his part.

The tribunal found it was “not credible”, given their length of time in the law, that the brothers did not know that money paid to a solicitor by a client for payment of a debt to a third party is trust money. 

NCAT itself, at one stage, had not realised that either. 

In addition, it found that the “level of urgency” implicit in the directions to the bookkeeper to “immediately” draw a cheque from the office account on receipt of funds from the client when the new system was introduced, “suggests that money from a client for payment of unpaid disbursements was recognised by the brothers as trust monies”. 

Barrister Paul Stockley, a friend, said in an affidavit that Brent Hedges was “of the utmost good character”. This was after two payments to him were delayed by between 10 and 16 months.

Peter Deakin QC, who had known Brent Hedges for more than 30 years but was unaware of the Law Society’s allegations, said he would “astonished if the practitioner ever engaged in any conduct that was even questionable” or worse – an experience the tribunal found “inconsistent” with Brent Hedges’ conduct. 

The tribunal found the conduct of Stephen Hedges, “wholly inconsistent” with the good and honest reputation attested to by barrister Michael Galvin, who had known him since age 10, and accountant solicitor David Fisher. 

Brent Hedges was also found guilty of unsatisfactory professional conduction in relation to a complaint of failure to communicate in relation to seven unpaid invoices totalling $9,971.75 to another firm instructed for three interstate actions. 

In the absence of fraudulent intent and because some of the amounts were relatively small, the tribunal decided $6,000 was an appropriate fine for Brent and $5,550 for brother Stephen.

Council of the Law Society of New South Wales v Brent Hedges  

Council of the Law Society of New South Wales v Stephen Hedges