LCRO 185/2017

CONCERNING an application for review pursuant to section 193 of the Lawyers and Conveyancers Act 2006

AND

CONCERNING a determination of the [Area] SC [X]

BETWEEN DO Applicant

AND

DP Respondent

DECISION

The names and identifying details of the parties in this decision have been

changed.

Introduction

[1] Mr DO at the relevant time a partner with ZC Law Firm (the firm) has applied for

a review of the decision by the [Area] SC [X] (the Committee) which made a finding of

unsatisfactory conduct against him.

[2] Ms DC and Mr JQ lived on a [orchard] (the property) owned by a trust (the trust).

The trustees were Ms DC, Mr JQ, and the firm’s trustee company. The discretionary

beneficiaries were Ms DC, Mr JQ and their two children. The property was settled on

the trust in March 2002.1

[3] The context of Ms DC’s complaint, and this review, is the implementation of a

relationship property settlement between Ms DC and her relationship partner, Mr JQ.

The central issue is whether Mr DO, when acting on the sale of the property, failed to

1 Trust Deed dated 22 January 2002. The property, previously owned by Mr JQ and his mother in partnership, was settled on the trust pursuant to Family Court orders dated 26 March 2002.

2

obtain her consent before repaying a bank loan, made to Mr JQ and guaranteed by the

trust, from the sale proceeds of the property.

[4] In February 2004 Ms DC and Mr JQ separated. Each continued to live in the

house on the property but in different parts.

[5] In August 2005, Mr JQ borrowed money from a bank to purchase his business

partner’s share in a [redacted] boat (Mr JQ’s boat loan). The trustees, in that capacity,

guaranteed repayment of that loan.2 A year later in May/June 2006 the boat sank. Mr JQ

applied the insurance proceeds towards the purchase of a digger, and a property at

[Area] which Ms DC later acknowledged were his separate property.

[6] In December 2012 Ms DC applied to the Family Court for orders for division of

relationship property.3 Her claim was ultimately heard by the High Court on 19,

20 November 2015.

[7] On 20 November 2015, Ms DC and Mr JQ in their personal capacities, and as

trustees, together with the firm’s trustee company, signed a Memorandum of Consent

(Trust Property) (the consent memorandum) which was incorporated into the consent

orders in the 27 November 2015 Judgment No 2.

[8] In broad terms, the consent memorandum provided for the sale of the property,

payment of the sale costs and expenses, and repayment of the trust’s liabilities, including

bank loans, from the sale proceeds. Mr JQ’s boat loan was not included in the list of the

trust’s liabilities in Annexure “A” to the consent memorandum.

[9] The trust sold the property. Settlement took place on 12 February 2016. That

morning the bank provided a repayment statement to Mr DO. The repayment statement,

as well as requiring repayment of the bank loans listed in the consent memorandum,

required repayment of Mr JQ’s boat loan.

[10] At that time, Ms DC was in Norway visiting her son. Mr DO attended to

settlement of the sale including repayment of Mr JQ’s boat loan. Before doing so he did

not contact Ms DC, or her counsel or instructing lawyer, about the bank’s requirement

for repayment of Mr JQ’s boat loan.

2 Term Loan Agreement, incorporating guarantee, dated 10 August 2005 — see [Case reference redacted]. 3 [Case reference redacted]

3

[11] Ms DC subsequently applied to the High Court to have the 27 November 2015

Judgment No 2 recalled, and Mr JQ’s boat loan declared personal to Mr JQ. The Court

granted that application in the 11 August 2016 Judgment No 4.4

Complaint

[12] Ms DC lodged a complaint with the New Zealand Law Society Complaints

Service on 16 June 2016. She stated she expected Mr DO to provide her “with the

appropriate respect, courtesy and professionalism that a solicitor of his experience ought

to provide”.

[13] There were four aspects to her complaint. She requested a reduction of the

firm’s fees, and reimbursement of the legal costs she incurred in making the recall

application.

(1) Repayment of Mr JQ’s boat loan — authority

[14] Ms DC claimed that contrary to the consent orders which “provided that certain

[bank] loans only had to be paid at settlement” of the sale of the property, Mr DO “without

consultation” also repaid Mr JQ’s boat loan to the bank.

[15] She says this resulted in further costs being “incurred … going back to Court to

[argue] this issue”. She considers this was not “fair or reasonable” since “the problem

was entirely of [the firm’s] making”.

(2) Deduction of fees

[16] Ms DC claimed Mr DO deducted the firm’s fees from the sale proceeds “without

consent and without rendering an invoice”. She said this “breach[ed] the various trust

accounting rules”.

[17] She said before Mr DO did so her lawyer told him that the consent order, whilst

“record[ing] that payments can be made” did not say so “without authority”.

[18] She claimed the fees were deducted on 6 April 2016, but an invoice was not

issued until three weeks later on 27 April 2016, and not sent until 16 May 2016.

4 [Case reference redacted]

4

(3) Mr JQ’s claims for “historic orchard expenses”

[19] Ms DC said following the 27 November 2015 Judgment No 4 Mr JQ made claims

for reimbursement of “historic orchard expenses”.

[20] She alleged Mr DO “supported” Mr JQ in this claim at the judicial telephone

conference held on 3 June 2016. She refers to Muir J’s minute of that teleconference in

which His Honour stated that in his Judgment No 1 he had “ruled against Mr JQ’s belated

attempts … to file evidence shortly before trial and in breach of earlier orders made by

Associate Judge Bell”.5

(4) Unnecessary calculation exercise — costs incurred

[21] Ms DC claimed Mr DO incurred “unnecessary and very substantial costs

working out” the final distribution from the firm’s trust account. She described the

flowchart prepared by Mr DO as “complicated at best”.

Response

[22] Mr DO’s response to Ms DC’s complaint is referred to in my later analysis.

Standards Committee decision

[23] The Committee delivered its decision on 22 August 2017 and determined,

pursuant to s 152(2)(b) of Lawyers and Conveyancers Act 2006 (the Act), that by

repaying Mr JQ’s boat loan without his clients’ consent Mr DO had failed to act

competently consistent with the terms of the retainer and the duty to take reasonable

care. By doing so he had contravened r 3 of the Lawyers and Conveyancers Act

(Lawyers: Conduct and Client Care) Rules 2008 (the rules) which constituted

unsatisfactory conduct under s 12(c) of the Act.

[24] The Committee ordered Mr DO to pay to the New Zealand Law Society a fine

of $1,000, and costs of $1,000.

[25] Concerning Ms DC’s other complaints, the Committee, pursuant to s152(2)(c),

determined to take no further action.

5 His Honour described Mr JQ’s “intention … to attempt to reopen the evidence” in respect of which Mr JQ’s “only possible vehicle [was] by way of appeal” which was “substantially out of time”.

5

(1) Directions, authority to repay Mr JQ’s boat loan

[26] The Committee concluded that the consent memorandum, whilst authorising

Mr DO to pay “the amounts required to repay the [trust’s] facilities” to the bank “did not

include the loan to Mr JQ”.

[27] In the Committee’s view, the reference on the bank’s repayment statement to

“a guaranteed debt”, not “previously ... disclosed”, ought to “have raised some alarm for

Mr DO” who “should have taken further steps and not have simply relied” on the

repayment statement. Referring to the bank’s note on the repayment statement that

repayment of Mr JQ’s boat loan was required “unless alternative arrangements are

made”, the Committee said this suggested the bank “may have been prepared to waive

its requirement for the loan to be repaid by the [trust]”.

[28] The Committee noted that the bank’s repayment statement was received by

Mr DO “early on the day of settlement”.

[29] The conclusion reached by the Committee was that Mr DO had sufficient time

that day to have “attempted to obtain instructions from Mr JQ and Ms DC”, or their

respective lawyers. Also, to have “contacted” the bank to ascertain whether “alternative

arrangements were possible for repayment of the loan or the provision of alternative

security”.

[30] Whilst acknowledging this could have delayed settlement, the Committee said

Mr DO had a “duty to ensure that the [trust] did not repay more than it was required to”.

(2) Fees — whether fair and reasonable

[31] The Committee determined that Mr DO’s fees were fair and reasonable having

regard to “the complexity of the matter and the level of involvement required from

Mr DO”.

[32] In reaching that conclusion the Committee stated that it had (a) obtained and

considered a report from a costs assessor who considered that Mr DO’s fees were fair

and reasonable, (b) considered the parties’ submissions, and (c) considered the fee

factors in r 9.1.

(3) Deduction of fees

[33] The Committee was satisfied that the authority in the consent memorandum

which required the sale proceeds of the trust’s property to be applied towards the sale

6

expenses and costs, including legal fees and disbursements, was confirmed by the

27 November 2015 consent order, and again five months later in Muir J’s minute of the

10 June 2016 judicial settlement conference.

[34] The Committee accepted Mr DO’s explanation that the deduction of fees on

6 April 2016, three weeks before the invoice was issued on 27 April 2016, “was an error”,

and that “the firm’s trust accounting system did not allow for the deduction of costs”

before an invoice was issued.

Application for review

[35] In his application for review filed with this Office on 3 October 2017, Mr DO

submits that the Committee’s adverse findings against him “could not be supported by

the evidence”. He seeks a reversal of the Committee’s determination, and orders. He

seeks costs, as considered appropriate.

(1) Mr JQ’s boat loan — authority to repay

(a) Consent memorandum

[36] Mr DO submits that the Committee “incorrectly interpreted” the consent

memorandum which he says detailed his professional duties concerning the sale of the

property.

[37] He contends that the schedule of “net assets” of the trust detailed in “Annexure

‘A’” to the consent memorandum “fall[s] outside the conveyancing provisions 1(a) to (e)”.6

[38] He submits it was therefore incorrect of the Committee to conclude that

Annexure ‘A’ “overrode” the “express requirements” for him “to repay the [trust] liabilities”

to the bank.

(b) Trust’s guarantee to the bank

[39] Mr DO says Mr JQ’s boat loan was “known to the parties” and to counsel acting

for Ms DC even though later denied by Ms DC.

[40] He says the bank “correctly included” Mr JQ’s boat loan, which the trust had

guaranteed, in its repayment statement.

6 Reproduced in the later analysis.

7

(c) Bank’s repayment statement, requirements

[41] Mr DO says the 27 November 2015 consent order required the firm “to repay

[the] amounts owed” to the bank by the trust. This included “all amounts owing” as “the

condition of the bank’s authority to release the mortgage over the [property]”. He says

the consent memorandum “request[ed] the [trust] to repay liabilities to the [bank]”.

[42] He submits it “is unrealistic to expect that in [the] circumstances of a liquidation”

of the trust’s assets the bank “would release its only security without receiving” Mr JQ’s

boat loan “owed to the bank under the guarantee”.

(d) Obtaining further instructions

[43] Mr DO submits he “had no reason to believe [the bank] was claiming any

amount it was not due”. In his mind it was “reasonable in all the circumstances to rely

on [the bank’s] repayment statement”. He says the “alarm was not raised” for him by

reading “together” the consent memorandum, and the bank’s 12 February 2016

repayment statement.

[44] He explains that on the settlement day, 12 February 2016, Ms DC was in

Norway visiting her son. He says Ms DC did not have internet access, and he had

difficulty contacting her that morning. He says during the previous two weeks he had

attempted to contact her but without success.

[45] He says Ms DC’s counsel “had not been involved in conveyancing matters since

Court … in 2015”, and “all [Mr DO’s] dealings were with Ms DC personally as co-trustee

of the trust”. He acknowledges he “could have attempted to contact Ms DC and Mr JQ”

on 12 February 2016 but considers “that would have been futile”.

(e) Alternative to repayment of Mr JQ’s boat loan

[46] For his reasons summarised above, Mr DO submits he did not pay “client funds

to a third party improperly”.

[47] He disagrees with the Committee’s findings that the trust paid the bank more

than was necessary. He says it was not realistic for him to find an alternative to

repayment of Mr JQ’s boat loan. He says the amount “claimed by [the bank] had to be

repaid”.

8

(2) Professional standards

[48] Mr DO submits the Committee’s adverse finding “is disproportionate to any

criticism which could be fairly levelled at him”.

[49] He contends the Committee “has applied” a standard “which is “next to

impossible to achieve”, taking into account “limitations of time, resourcing restrictions,

commercial pressures, the clash of deadlines and practical hindrances such as inability

to contact clients and similar circumstances”.

[50] He says he abides by the professional rules and is “a conscientious and

principled lawyer”. He refers to Ms DC’s request that the firm’s trustee company retire

as a trustee. He says the firm declined to do so faced with Mr JQ being unrepresented

at the time.

Response

[51] Ms DC filed her response with this Office on 21 February 2018. She describes

Mr Do’s submissions as “misconceived”.

[52] She asks that the Committee’s finding of unsatisfactory conduct, and the orders

made “be maintained”. She seeks reimbursement for legal fees paid to the firm by the

trust concerning the recall application to the Court. She also seeks publication of

Mr DO’s name.

(1) Mr JQ’s boat loan — authority to repay

(a) Consent memorandum

[53] Ms DC agrees with the Committee’s conclusion that the consent memorandum

set out the “[t]rust’s liabilities to be paid at settlement”. She says Mr DO, having signed

the consent memorandum which included Annexure ‘A’, was aware of this position.

[54] She refers to the 11 August 2016 Judgment No 4 (Recall) in which Muir J stated

that the “liabilities …set out in a schedule to the agreement …did not include the

$27,289.76 personal debt guaranteed by the [t]rust”.7

7 [Case reference redacted].

9

(b) Trust’s guarantee to the bank

[55] Ms DC says she “had no knowledge with respect to any amounts that were

secured against [Mr JQ’s boat loan] and if it had been repaid”. For this reason, she says

the bank’s request for repayment “should have raised ‘alarm’ for Mr DO because it was

not included in schedule A”.

(c) Bank’s repayment statement, requirements

[56] She says there is “no evidence” Mr DO “made any enquiry with [the bank] …or

Mr JQ” as “to what other arrangements” could be made. She says Mr JQ owned a

property which could “have been offered as security” for his bank loan.

[57] She disagrees with Mr DO’s statement that by including Mr JQ’s boat loan with

the trust’s liabilities the trust “did not pay more than it was required to”.

(c) Obtaining further instructions

[58] Ms DC does not accept it was unrealistic for Mr DO to contact her. She says

he could have telephoned her, but did not “try”, or “ask Mr JQ for contact details”.

Review on the papers

[59] The parties have agreed to the review being dealt with on the papers. This

review has been undertaken on the papers pursuant to s 206(2) of the Act, which allows

a Legal Complaints Review Officer (LCRO) to conduct the review on the basis of all

information available if the LCRO considers that the review can be adequately

determined in the absence of the parties.

[60] I record that having carefully read the complaint, the response to the complaint,

the Committee’s decision and the submissions filed in support of and in opposition to the

application for review, there are no additional issues or questions in my mind that

necessitate any further submission from either party. On the basis of the information

available I have concluded that the review can be adequately determined in the absence

of the parties.

10

Nature and scope of review

[61] The nature and scope of a review have been discussed by the High Court, which

said of the process of review under the Act:8

… the power of review conferred upon Review Officers is not appropriately equated with a general appeal. The obligations and powers of the Review Officer as described in the Act create a very particular statutory process.

The Review Officer has broad powers to conduct his or her own investigations including the power to exercise for that purpose all the powers of a Standards Committee or an investigator and seek and receive evidence. These powers extend to “any review” …

… the power of review is much broader than an appeal. It gives the Review Officer discretion as to the approach to be taken on any particular review as to the extent of the investigations necessary to conduct that review, and therefore clearly contemplates the Review Officer reaching his or her own view on the evidence before her. Nevertheless, as the Guidelines properly recognise, where the review is of the exercise of a discretion, it is appropriate for the Review Officer to exercise some particular caution before substituting his or her own judgment without good reason.

[62] More recently, the High Court has described a review by this Office in the

following way:9

A review by the LCRO is neither a judicial review nor an appeal. Those seeking a review of a Committee determination are entitled to a review based on the LCRO’s own opinion rather than on deference to the view of the Committee. A review by the LCRO is informal, inquisitorial and robust. It involves the LCRO coming to his or her own view of the fairness of the substance and process of a Committee’s determination.

[63] Given those directions, the approach on this review, based on my own view of

the fairness of the substance and process of the Committee’s determination, has been

to consider all of the available material afresh, including the Committee’s decision, and

provide an independent opinion based on those materials.

Issues

[64] The issues for consideration on this review are:

(a) To what extent was Mr DO’s role as the trust’s lawyer influenced by him

also being a trustee of the trust through his directorship of the firm’s

trustee company?

8 Deliu v Hong [2012] NZHC 158, [2012] NZAR 209 at [39]–[41]. 9 Deliu v Connell [2016] NZHC 361, [2016] NZAR 475 at [2].

11

(b) Did Mr DO have his clients’ directions or instructions to repay Mr JQ’s boat

loan to the bank from the sale proceeds of the trust’s property? If not,

what professional requirements, obligations did he contravene?

Analysis

(1) Mr DO’s dual role — lawyer, trustee

(a) Mr DO engaged by the trust

[65] There is no argument that the trust was Mr DO’s client for whom he acted on

the sale of the property, and in respect of the proceedings issued by Ms DC.10

[66] Ms DC, and Mr JQ were each represented by independent lawyers to act for

them in resolving both the relationship property, and trust issues between them.

[67] Mr DO’s letter of engagement dated 13 August 2015 was addressed to Mr JQ,

and Ms DC, in their capacities as trustees. He described the “[s]ervices to be provided”

as “Trust administration and services of [the firm] acting in its role as independent

trustee”.

[68] He explained that the firm’s fees “are calculated and charged in accordance

with the requirements of Chapter 9 of the [rules]” and listed a number of the fee factors

contained in r 9.1. He provided his, and an employed lawyer’s hourly charge out rates.

He referred to the firm’s Standard Terms of Engagement and Information for Clients on

the firm’s website.11

(b) Provision of regulated services - misconduct, unsatisfactory conduct

[69] In summary, where it is considered that a lawyer’s conduct warrants disciplinary

sanction there are two findings that can be made. First, misconduct, the more serious

type of conduct, pursuant to s 7 of the Act, and secondly, unsatisfactory conduct pursuant

to s 12. Both sections refer to conduct that occurs at a time a lawyer is providing

“regulated services”.

10 Although not defined in the Act or the rules, the term “client” is included in r 1.2 where “retainer” in described as “an agreement under which a lawyer undertakes to provide or does provide legal services to a client”. In that sense, “client” is described as, and appears in a number of the rules as the recipient of legal services from a lawyer. 11 Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, rr 3.4, 3.5 — Information for Clients — principal aspects of client service, and client care.

12

[70] The term “regulated services”, which is comprehensively defined in the Act,

refers to “legal services” which is defined as services that a person provides by carrying

out legal work for another person. “Legal work” includes “the reserved areas of work”,

namely, legal work in connection with proceedings or anticipated proceedings, giving

legal advice in other matters, preparing legal documents and matters incidental to the

above.12

[71] The High Court has drawn the distinction between “professional misconduct (not

the statutory term)” on the one hand, and “personal misconduct” on the other hand.13 “All

conduct must either be in the course of one or the other. There can be no gap or

lacuna”.14

[72] The former, “professional” misconduct, “means conduct of the lawyer or

incorporated law firm that occurs at a time when he or she or it is providing regulated

services”, whereas “personal” misconduct “includes - conduct which is unconnected with

regulated services”.15

[73] A finding of unsatisfactory conduct “most often arises in connection with the

provision of legal services”.16 It follows that the qualification in ss 12(a) and (b) of the

Act that the conduct of the lawyer concerned must be “conduct … that occurs at a time

when [the lawyer] is providing regulated services”:17

must be construed broadly and consistently with the wider purposes of the legislation to include any conduct which occurs in connection with the practice of law.

[74] In a practical sense “it is necessary to consider objectively whether a reasonable

person in the shoes of the client would consider that he [or she] was obtaining legal

services”.18

12 Lawyers and Conveyancers Act 2006, s 6. 13 Orlov v New Zealand Lawyers and Conveyancers Disciplinary Tribunal [2014] NZHC 1987, [2015] 2 NZLR 606 at [96]–[97]. 14 A v Canterbury Westland Standards Committee No 2 of the New Zealand Law Society [2015] NZHC 1896 at [57]; and Orlov at [102]. 15 Lawyers and Conveyancers Act, ss 7(1)(a), 7(1)(b)(ii). A misconduct finding can only be made by the New Zealand Lawyers and Conveyancers Disciplinary Tribunal, or by the High Court on appeal: s 253 of the Act. 16 IJ v QT LCRO 94/2011 (18 January 2012) at [32]. 17 Morpeth v Ramsey LCRO 110/2009 (12 November 2009) at [20]. 18 At [27] citing Longstaff v Birtles [2001] EWCA Civ 1219, [2002] 1 WLR 470 at 471 per Mummery LJ.

13

(c) Discussion

[75] As noted above, as well as acting for the trust, through his directorship of the

firm’s trustee company, Mr DO’s input, as one of three trustees, was required concerning

both the sale, and as a second defendant concerning Ms DC’s claim against Mr JQ, and

the trust.

[76] It can often be a difficult exercise to differentiate legal work from trustee work.

A helpful point of differentiation referred to by the Court of Appeal is that it is for a lawyer

to advise whether a proposal is lawful or not, but not to make a decision on the matter.19

This necessarily requires an examination of the nature of the work carried out in each

role.

[77] Where a lawyer has such a dual role, there is:20

a heavy onus … on [the lawyer concerned] to show that the conduct complained of did not have a connection with [his or her] status as a lawyer and the client could not reasonably have thought he was acting as a lawyer.

[78] For example, in the context of an estate administration, this Office has held

that:21

… where the services provided by a lawyer are services of a type that it is usual for a lawyer to provide, and they are provided in conjunction with legal work (as defined in paragraphs (a) to (c) of the definition of that term) they are properly considered to be incidental to that work and also “legal work”. In light of this the work of an executor/trustee who also acts as a solicitor will be regulated services.

[79] However, Ms DC’s complaints about Mr DO’s conduct were directed not so

much at his trustee role, but as the trust’s lawyer acting on the sale of the property, the

subsequent distribution of the sale proceeds, and in defence of Ms DC’s application to

recall the 27 November 2015 Judgment No 2.

[80] It is evident from the narrations on the firm’s time records produced that Mr DO’s

legal work acting on the sale, administration of the trust, and in respect of Ms DC’s

proceedings were closely connected to his attendances in his role as a trustee on those

matters. Whilst some of that work may have related more to his trustee role, the firm’s

time records do not make that differentiation clear.

19 Hansen v Young [2004] 1 NZLR 37 (CA) at [33]–[36]; the principle in Hansen is cited in AW v ZK LCRO 230/2012 (28 March 2014) at [39]. 20 Morpeth v Ramsey, above n 17 at [28]. 21 Shrewsbury v Rothesay LCRO 99/2009 (13 November 2009) at [31].

14

[81] It is my view that in carrying out this work, as well as acting for the trust on the

sale of property, Mr DO was providing “regulated services” to the trust, that is, “legal

work” within “the reserved areas of work” referred to above.

(3) Did Mr DO have authority from the trustees to repay Mr JQ’s boat loan?

(a) Law

[82] A lawyer who holds a client’s money in [the lawyer’s] trust account, can only

deal with that money as the client directs, instructs, and authorises. This is spelt out in

both the Act, and the Lawyers and Conveyancers Act (Trust Account) Regulations 2008

(the TA Regs).

[83] Section 110(1)(b) of the Act requires that:

A [lawyer] who, in the course of his or her practice, receives money for, or on behalf of, [the client]: … (b) must hold the money, or ensure that the money is held, exclusively for that

person, to be paid to that person or as that person directs.

[84] To that end, reg 12(6) of the TA Regs sets out the pre-conditions that must be

met before a lawyer can make a transfer or payment of a client’s money held in the

lawyer’s trust account. The first three requirements concern payments outside the firm.

The fourth concerns client to client transfers or payments within the firm’s trust account:22

(6) A practice may make transfers or payments from a client’s trust money only if - (a) the client’s ledger account has sufficient funds and they are

available for that purpose; and (b) the practice obtains the client’s instruction or authority for the

transfer or payment, and retains that instruction or authority (if in writing) or a written record of it; and

(c) payments to a third party are made in a form that permits the crediting of the money only to the account of the intended payee; and

(d) transfers to another client are by way of trust journal entry

[85] Section 110 has been considered by the Courts. In Heslop v Cousins,23 the

High Court discussed the interrelationship of the predecessors to s 110 of the Act, and

reg 9 of the TA Regs.24 Reg 9 prohibits a lawyer from deducting his or her fees from a

22 Lawyers and Conveyancers Act (Trust Account) Regulations 2008, reg 3(1) — "practice means and includes a sole practitioner, a partnership and an incorporated firm". "Practitioner" is defined in Section 6 of the Act provides that "practitioner means a lawyer", and also defines "incorporated firm" to include "an incorporated law firm". 23 Heslop v Cousins [2007] 3 NZLR 679 (CA) at [195]. 24 Law Practitioners Act 1982, s 89 (LPA 1982), and reg 8 of the Solicitor’s Trust Account Regulations 1998 (TA Regs 1998).

15

client’s money held in the lawyer’s trust account without having first issued an invoice to

the client, or obtained the client’s written authority.

[86] The question in Heslop v Cousins was whether, contrary to the client’s

instructions, the lawyer concerned was entitled to deduct fees from the client’s funds held

in trust. The lawyer’s argument was that reg 9 “effectively provides a code which enables

fees to be deducted once an account has been rendered regardless of the client’s

directions”.25

[87] In rejecting that approach, the Court stated that the lawyer’s “position [was]

untenable”. It “is clear from [s 110] that a client’s direction is fundamental and must be

obeyed”. Concerning the effect of the TA Regs, the Court stated that reg 9: 26

is subordinate to that requirement and cannot override it. Thus even if an account is rendered a solicitor is not entitled to deduct his or her costs from funds held in the trust account if the deduction would be contrary to the client’s direction.

[88] For lawyers who operate trust accounts, practical assistance in complying with

these requirements is contained in the Lawyers Trust Accounting Guidelines (TA

Guidelines) published by the New Zealand Law Society.27 Guideline 6.2 states:

[a lawyer] must have authority before [the lawyer] make[s] any payment from a client’s trust money …

[89] That Guideline explains that where a lawyer acts on verbal instructions then “a

file note must be recorded to ensure compliance with [reg] 12(6)(b)”. In such

circumstances the Guideline recommends that:28

a letter or email be sent to the client confirming the payment. If the client instruction is not inherent in other documentation, there should be reference to the client authority as the final part of the transaction narration.

[90] Guideline 6.2 also gives examples of “[s]ituations where express client authority

is not required”. These include “where the payment is to the client”, or “where the transfer

is to the client’s interest-bearing deposit account”, or “where the authority is inherent in

other documents (such as a will or agreement for the purchase of a property)”.

Authorities must be made available for inspection by the Law Society Inspectorate.

25 Heslop v Cousins at [195] per Chisholm J. See also Fletcher v Eden Refuge Trust [2012] NZCA 124, [2012] 2 NZLR 227 at [74]. Considered were s 89(1) of the LPA 1982, and reg 8 of the TA Regs 1998. 26 At [196]. As far as I can ascertain, there have not been any subsequent decisions which disapprove this position. 27 New Zealand Law Society “Lawyers Trust Account Guidelines” <www.lawsociety.org.nz>. 28 See Guideline 6.6 which states that "[e]ach payment transaction must include the date, payee, account debited, amount and a complete narration as to its purpose".

16

(b) Parties’ positions

(i) Ms DC

[91] Ms DC claims that contrary to the 27 November 2015 consent orders, Mr DO

repaid Mr JQ’s boat loan without first obtaining her instructions to do so.

[92] She says this necessitated her having to apply to recall the 27 November 2015

Judgment No 2 to have Mr JQ’s boat loan declared personal to Mr JQ.

(ii) Mr DO

[93] Mr DO contends that the Committee “incorrectly interpreted” paragraph 1(e) of

the 27 November 2015 consent order which required that the trust pay, from the sale

proceeds of the property, “the amounts required to repay the…trust liabilities to the

[bank]”.

[94] He says the requirement in paragraph 1(e) of the consent memorandum stands

apart from the “trust liabilities detailed in Annexure ‘A’”, and therefore does not limit the

trust’s liabilities to be paid.

[95] He says the bank, before providing a release of the bank’s mortgage over the

property, was entitled to call for repayment of Mr JQ’s boat loan which the trustees, in

that capacity, had guaranteed. As such, he says the trustees, and the firm were required

“to repay [the] amounts owed” by the trust to the bank which included “all amounts

owing”.

[96] As noted earlier, Mr DO explains that the bank’s 12 February 2016 repayment

statement was not received by him until that morning. He says the “alarm was not raised”

for him when reading the bank’s repayment statement “together” with the 27 November

2015 consent orders. He refers to his difficulty that morning contacting Ms DC who was

in Norway at that time.

[97] In response to the Committee’s finding that he ought to have explored an

“alternative” to repayment of Mr JQ’s boat loan, as invited to do so on the bank’s

repayment statement, for the above reasons he says it would have been “futile” trying to

contact Ms DC before settlement that day.

17

(c) Discussion

(i) Was Mr DO’s aware of Mr JQ’s boat loan before settlement of the sale

[98] Mr DO refers to Ms DC’s counsel having drawn attention to Mr JQ’s boat loan,

not disclosed by Mr JQ at the 19–20 November 2015 hearing, some 22 months earlier

in October 2014.

[99] It is undisputed that the trustees guaranteed repayment of Mr JQ’s boat loan

and is therefore a contingent liability of the trust. The issue is whether, upon receiving

the bank’s 12 February 2016 repayment statement Mr DO ought to have referred the

bank’s request for repayment of Mr JQ’s boat loan to his co-trustees for their authority to

make that payment.

[100] In particular, to Ms DC who would be disadvantaged if Mr JQ’s boat loan were

to be treated as a liability of the trust.

[101] The 27 November 2015 consent orders, which incorporated the consent

memorandum did not include Mr JQ’s boat loan as a trust liability.

[102] Ms DC applied to have the 27 November 2015 Judgment No 2 recalled. In his

11 August 2016 Judgment No 4 (Recall), Muir J, referring to Mr JQ’s boat loan, stated

that “new information has come to light which makes the declaration of the quantum of

[Mr JQ’s] current account debt … incorrect”.

[103] His Honour stated that Ms DC had “long forgotten about the contingent liability”

and was not “able …to obtain information about it from [the bank] even if she had asked”.

In his assessment, Mr JQ “did not demonstrate an adequate level of candour in relation

to these issues”, and it was “an available inference that [Mr JQ] was aware of the

guarantee position” at the 19–20 November 2015 hearing.

[104] Having considered the information provided to both the Committee, and to this

Office, I respectfully agree with His Honour’s finding in reaching my conclusion that

before Mr DO received the bank’s repayment statement on 12 February 2016 it was

more probable than not that he and Ms DC had lost sight of the fact that the trust had

guaranteed Mr JQ’s boat loan.

18

(ii) Consent memorandum, orders

[105] Paragraph 1(e) of the consent memorandum incorporated into the 27 November

2016 consent orders provided that:

(a) the …property shall be sold as soon as possible on the basis of paragraphs 1(b) to 1(e)

… (d) [the firm] to act on the conveyance and sale … (e) upon settlement of the sale the proceeds …of the property are to be paid

in the following order and priority: (i) All costs and expenses of sale including legal costs and

disbursements, agent’s fees, valuer’s fees and auctioneer’s fees (ii) The amounts required to repay the…trust’s liabilities to the [bank]… … (iv) Repayment of any debts owed by the [trust] including but not limited

to debts owed to [accountant], and [IRD], and [the firm …

[106] Paragraph 1(f) added “[t]he net assets of the [trust] are as set out in Annexure

‘A’” which listed the trust’s assets and liabilities. The liabilities included four bank loans,

004, 005, 006, and 007, plus an overdraft facility with the same bank. The 006 loan was

“To be assumed as [Mr JQ’s] sole responsibility”. No loan amount was stated.

(iii) Bank’s repayment requirement

[107] The bank’s 12 February 2016 repayment statement also listed the four loans

with corresponding repayment amounts, plus the overdraft facility.

[108] Mr JQ’s boat loan was specifically, and separately, named “Guarantor Loan

Account: [account no.] Mr JQ” with a note that “[u]nless alternative arrangements are

made repayment will be required” of “$27,602.78”.

[109] In summary, Mr DO says he relied on the 27 November 2015 consent order as

authority to repay Mr JQ’s boat loan. He contends that the requirement in paragraph

1(a) to (e) to repay the trust’s liabilities does not necessarily incorporate the trust liabilities

listed in Annexure ‘A’.

[110] He refers to it having been “unrealistic” on 12 February 2006 to have attempted

to make alternative arrangements as invited in the bank’s repayment statement, and

having been “futile” trying to contact Ms DC who was overseas.

[111] I have difficulty accepting Mr DO’s argument. It was plain on the bank’s

repayment statement that to release its mortgage the bank required repayment of

Mr JQ’s boat loan as well as the bank loans.

19

[112] From his attendances for the trust concerning Ms DC’s proceedings, and his

preparation for settlement of the sale, Mr DO would have been familiar with the

27 November 2015 consent order.

[113] He acknowledges he saw the bank’s requirement on the repayment statement

that Mr JQ’s boat loan was also to be repaid. It would have been evident to him from

reading the repayment statement alongside the consent memorandum that Mr JQ’s boat

loan was not included in the consent memorandum.

[114] For these reasons, in my view it was incumbent on Mr DO to obtain instructions

from both Ms DC, and Mr JQ, to whose advantage it was for his boat loan to be repaid

from the sale proceeds of the trust’s property. With settlement that day it was necessary

that the issue be brought out in the open and resolved expeditiously.

[115] Unable to contact Ms DC, Mr DO or an assistant could have telephoned

Ms DC’s counsel or instructing lawyer (and Mr JQ, or his lawyer) for directions. The

outcome of those communications may or may not have delayed settlement, but that

was a decision for the trustees, including Mr DO, to make collectively.

(d) Conclusion

[116] The statutory provisions and regulations which regulate lawyers’ trust accounts

are to be observed to the letter. This reflects the consumer protection purposes of the

Act referred to frequently in decisions from this Office, particularly concerning trust

accounts.29

[117] I consider that Mr DO failed to obtain the direction and authority he required

from his co-trustees to make that payment. In so doing, he contravened s 110(1), and

reg 12(6) which constitutes unsatisfactory conduct under s 12(c) of the Act.

Decision

[118] For the above reasons, pursuant to s 211(1)(a) of the Lawyers and

Conveyancers Act 2006 the decision of the Committee that Mr DO contravened r 3 which

constituted unsatisfactory conduct under s 12(c) of the Act is modified by my finding that

Mr DO contravened s 110(1) of the Act, and reg 12(6) of the TA Regs. which constitutes

unsatisfactory conduct under s 12(c) of the Act.

29 Lawyers and Conveyancers Act 2006, s 3(1) — purposes of the Act. See also New Zealand Law Society v YJ LCRO 201/2010 (11 April 2011) at [14]; Law Firm A v Standards Committee LCRO 319/2012 (31 May 2012) at [23]–[26].

20

Orders

[119] Having made a finding of unsatisfactory conduct, s 156 of the Act includes

among the orders that a Standards Committee can make, orders in the nature of penalty.

The functions of penalty in the disciplinary context have been described by the Court of

Appeal as:30

(a) punishing the practitioner;

(b) a deterrent to other practitioners; and

(c) to reflect the public’s and the profession’s condemnation or opprobrium of

the practitioner’s conduct.

[120] The starting points for penalty are the seriousness of the conduct and culpability

of the lawyer concerned. Mitigating and aggravating features, as applicable, are also

taken into account. Acknowledgement by the lawyer of error, and acceptance of

responsibility are matters to be considered in mitigation.

Fine

[121] A fine is one of the orders a Standards Committee, or this Office on review, can

make. The maximum fine available is $15,000.31 Concerning an appropriate fine, this

Office has stated that in cases where unsatisfactory conduct is found as a result of a

breach of applicable rules (whether the conduct and client care rules, regulations or the

Act) and a fine is appropriate, a fine of $1,000 would be a proper starting place in the

absence of other factors.32

[122] In reaching its decision to order Mr DO to pay a fine of $1,000, the Committee

stated that because “the issues … that arose regarding the undisclosed debt were not of

Mr DO’s making”, his conduct was “at the lower end of the spectrum of unsatisfactory

conduct”.

[123] For that reason, and also for the reason that, following Ms DC’s counsel’s

13 October 2014 memorandum, the parties appear to have lost sight of Mr JQ’s boat

loan which Mr JQ did not disclose at the earlier 19–20 November 2015 hearing, I consider

that the fine of $1,000 ordered by the Committee is sufficient.

30 Wislang v Medical Council of New Zealand [2002] NZAR 573 (CA) at [21]. 31 Lawyers and Conveyancers Act, s 156(1)(i). 32 Workington v Sheffield LCRO 55/2009 (26 August 2009) at [68].

21

Compensation

[124] Ms DC, in both her complaint, and in her response to Mr DO’s application for

review, sought reimbursement of the costs she incurred with her counsel in her

application to have the 27 November 2016 Judgement No 2 recalled.

[125] In making the recall application Ms DC did not seek costs. Her subsequent

request for costs made by her counsel was declined on the grounds that there were “no

more justiciable issues”, and “[s]uch costs [had] already been determined in …

Judgement No 3”.

[126] However, in the disciplinary context concerning the regulation of lawyers, s

156(1)(d) of the Act provides:33

Where it appears to the Standards Committee that any person has suffered loss by reason of any act or omission of a practitioner … [it may] order the practitioner … to pay to that person such sum by way of compensation as is specified in the order, being a sum not exceeding [$25,000].

[127] The section provides that the person who seeks compensation must have

“suffered loss by reason of any act or omission of [the lawyer]”. There must therefore be

a clear “causative link” between Mr DO’s conduct and the loss claimed by Ms DC.

[128] Ms DC claims reimbursement of the firm’s costs, invoiced to the trust, in respect

of her recall application. From her analysis of the firm’s time records she calculates a

sum of $10,560 plus GST.

[129] The Committee, in declining to make a compensation order, stated that the

issue concerning Mr JQ’s boat loan “had to be resolved regardless of whether Mr DO

repaid that amount on settlement or afterwards”. Also, there was “no evidence that the

payment on settlement added significantly to Ms DC’s costs” which might have increased

had settlement be delayed pending resolution.

[130] As noted earlier, the firm’s time records show that from the settlement date,

12 February 2016, until 11 August 2016, the date of Judgment No 4 (Recall), Mr DO’s

attendances for the trust largely concerned both the sale of the property, and Ms DC’s

recall application. Although Ms DC has identified attendances which, from the

narrations, seem to relate to the recall matter, some of those attendances also include

other trust matters.

33 Lawyers and Conveyancers Act (Lawyers: Complaints Service and Standards Committees) Regulations 2008, reg 32.

22

[131] Before compensation can be ordered, it must be shown that the lawyer’s

conduct caused the loss claimed. This is made more difficult where, as in this matter,

fault may be apportioned. For example, whether Mr DO should pay all or part of the

costs claimed is likely to require a consideration of the part played by Mr JQ who could

have acknowledged, at any time, that the boat loan was personal to him thereby avoiding

the need for further proceedings. Such considerations are best determined by the Courts

where evidence can be tested by cross-examination.

[132] For these reasons I decline Ms DC’s request to order payment of compensation

by Mr DO.

Fee reduction

[133] Under s 156(1)(e), a Standards Committee may:

order [a lawyer] … to reduce his, her ... fees for any work (being work which has been done by the [lawyer] … and which is the subject of the proceedings before the Standards Committee) by such amount as is specified in the order.

[134] For the purpose of “giving effect” to such an order, under s 156(1)(g) a

Standards Committee may order the lawyer “to refund any specified sum already paid to

the [lawyer]”.

[135] For the same reasons I have expressed in declining Ms DC’s request for

compensation, I decline Ms DC’s request for any adjustment to the firm’s invoice dated

31 May 2016.

Orders

[136] Pursuant to s 211(1)(a) of the Lawyers and Conveyancers Act 2006 the decision

of the Standards Committee is:

(a) Confirmed as to the Committee’s order that Mr DO pay to the New

Zealand Law Society the sum of $1,000 by way of a fine within thirty (30)

days of the date of this decision. (s 156(1)(i))

(b) Confirmed as to the Committee’s order that Mr DO pay to the New

Zealand Law Society the sum of $1,000 by way of costs within thirty (30)

days of the date of this decision. (s 156(1)(n))

23

Costs

[137] Where an adverse finding is made, costs will be awarded in accordance with

the Legal Complaints Review Officer Costs Orders Guidelines. It follows that pursuant

to s 210(1) of the Act Mr DO is ordered to pay costs in the sum of $1,200 to the New

Zealand Law Society within thirty (30) days of the date of this decision. Pursuant to s

215(3)(a) of the Act, the costs order may be enforced in the District Court.

Anonymised publication

[138] Pursuant to s 206(4) of the Act, this decision is to be made available to the

public with the names and identifying details of the parties removed.

DATED this 18th day of March 2019

_____________________

B A Galloway Legal Complaints Review Officer

In accordance with s 213 of the Lawyers and Conveyancers Act 2006 copies of this decision are to be provided to: Mr DO as the Applicant Ms DC as the Respondent Mr LM as a related person [Area] SC [X] New Zealand Law Society