AJ v ZQ

JurisdictionNew Zealand
CourtLegal Complaints Review Officer
Judgment Date07 February 2011
Neutral Citation[2011] NZLCRO 4
Date07 February 2011
Docket NumberLCRO 134/2010

[2011] NZLCRO 4

LCRO 134/2010

Concerning An application for review pursuant to Section 193 of the Lawyers and Conveyancers Act 2006

and

Concerning a determination of the Auckland Standards Committee 2

Between
Mr AJ of Auckland
Applicant
and
Ms ZQ of Australia
Respondent

Mr AJ as the Applicant

Ms ZQ as the Respondent

The Auckland Standards Committee 2

The New Zealand Law Society

Application for review of Standards Committee decision finding applicant's conduct constituted unsatisfactory conduct (s12(a) Lawyers and Conveyancers Act 2008 (unsatisfactory conduct defined in relation to lawyers)) — applicant acted for brother and sister (who was the respondent) in connection with the sale of a property, of which the brother and sister were tenants in common — applicant had previously been acquainted with the brother — applicant retained funds post settlement due to a dispute over an amount the brother claimed his sister owed him — respondent complained to NZLS that applicant's friendship with her brother led to the retaining of funds — whether the applicant had acted appropriately in regards to the sale of property and subsequent retention of funds.

Held: There was no conflict between C and Q with regard to the sale of the property. J acted correctly in opening a single trust account ledger for Q and C together. Section 110(1)(b) LCA (obligation to pay and hold money received into trust account at bank) applied to any monies held in that account, so any payment out had to be approved by both Q and C. J would have been in breach of s110(1)(b) if he had paid money out to Q, contrary to the instructions of C.

At settlement, J had conflicting instructions from Q and C. Instructions from Q were on the basis that she be paid out in full. It was accepted that J genuinely believed after the telephone call on settlement day that Q had instructed them to settle, which is what he did. C's instructions were in effect to settle but not to pay Q the disputed amount. J was not in a position to refuse to complete settlement. Both clients had a contractual obligation to settle the sale and by doing so J was not acting other than in accordance with the instructions of Q and C.

From then, disbursement from the trust account ledger could only be made with the approval of both C and Q. J did not attempt to persuade Q she was obliged to pay C and encouraged both to take separate advice to sort the matter out so payments could be finalised. Even if refusing disbursement was incorrect, J's conduct could not be categorised as unsatisfactory under s12(a) LCA. J consulted and discussed the situation throughout with his partners and acted in accordance with their collective views.

J was a stakeholder of the funds and as such had to continue to hold the funds until there was either a Court order directing a particular disbursal or agreement between the parties. J had retained $5,000 in anticipation of potential costs to be incurred by his firm in this regard. In particular it was felt that the firm might have to apply for a declaratory order to enable it to disburse the funds. It was not however proper for J to take any steps to apply for a declaratory judgment. This meant there was no authority to retain any funds to be offset against future costs and doing so constituted unsatisfactory conduct under s12(c) LCA (conduct consisting of contravention of the LCA), not s12(a) as recorded by the Committee.

J was not entitled to charge a client for attendances in relation to complaints. Section 132 LCA gives any person a right to complain about the conduct of a solicitor. Any deduction of the retained funds would constitute a breach of s110(1)(b) (solicitor must hold money, or ensure that money is held, exclusively for person on whose behalf it is received, to be paid to that person or as that person directs). Further, as J was acting as a stakeholder post settlement, he was not entitle to send an account to C for attendances relating to the dispute between C and Q as there should have been little of minimal attendances in respect of this.

Finding of unsatisfactory conduct pursuant to s12(a) LCA reversed in relation to J's conduct in relation to the sale of the property. Finding of unsatisfactory conduct in relation to retention of funds modified to be pursuant to s12(c) LCA.

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

DECISION
Background
1

At the beginning of July 2009, the Applicant was instructed by Mr VC to act for VC and his sister (the Respondent) in connection with the sale of a property in B, Auckland.

2

The property was owned by the Respondent as to two-thirds, and VC as to one-third, as tenants in common. The background as to how the property came to be owned by them in this manner does have some relevance in explaining the differences between the Respondent and VC, but has no relevance to the complaint or this review.

3

The Applicant practised in P between 1974 and 1986, and became acquainted with VC during that time. However, as described by the Applicant at the hearing, their acquaintance could not be termed a “friendship”.

4

The Applicant cannot recall whether he acted for VC during the time he was in P.

5

He also disputes the statements attributed to him by the Respondent as to the extent of the friendship between VC and himself, that she says were made by him in the initial telephone conversation between them,

6

Inasmuch as it is necessary to do so, I accept the Applicant's portrayal of this relationship. In any event, whatever the extent of the relationship between him and VC was, his obligation to act for both VC and the Respondent impartially did not change.

7

The Applicant was alerted at some stage to the fact that VC claimed money which was owed to him by the Respondent, as well as the fact that VC had made payments to clear rates arrears on the property.

8

The Respondent alleges that these sums were referred to in the initial telephone conversation that she had with the Applicant concerning the sale. She alleges that she made it clear at that time that she disputed that she owed anything at all to her brother. Whether or not the claim by VC, and the denial of liability by the Respondent, was known and referred to at those initial stages, remains in dispute.

9

What is not in dispute, however, is that the Applicant sought instructions from both parties formally in writing on at least four occasions – 31 July, 18 August, 24 August, and 26 August. In each case, the Applicant referred to the disputed amount and sought instructions from both parties as to the disbursement of the sale proceeds.

10

These requests were sent to the Respondent by email, as directed by her. The Respondent was only able to access these emails when she visited an internet cafe. She did not at any time respond in writing, whether by email or otherwise. However, the Respondent states that she contacted the Applicant by way of telephone on numerous occasions, and advised him that she disputed that she owed anything to VC. The Applicant disputes this assertion.

11

By 10 September, the day before settlement, the Respondent had not returned the Authority and Instruction form (A & I) nor, as far as the Applicant was concerned, provided instructions to enable him to settle with the purchaser.

12

The instructions from VC as understood by the Applicant, were that he was not to use the A & I unless sufficient funds to pay the disputed amount were retained by the Applicant in his firm's trust account.

13

On the day of settlement, namely 11 September, the Applicant requested Ms W, a senior solicitor in his office, to communicate with the Respondent to endeavour to get instructions. There was some disagreement between the parties as to the sequence of events, and who telephoned who, but as a result of a telephone conversation between Ms W and the Respondent, during which time the Applicant was in the room, Ms W and the Applicant formed the view that the Respondent had instructed them to settle knowing that they had instructions from VC to retain the disputed amounts.

14

Settlement took place, as required, on 11 September 2009.

15

The Applicant then prepared statements recording the various receipts and payments, and also recording the retentions to be made, and again sought instructions from the parties as to the disbursement of the funds.

16

The Respondent objected to the retentions and asserted her right to be paid two-thirds of the net sale proceeds. This objection was formally provided in writing by her by letter dated 11 September. It is not clear how that letter was forwarded to the Applicant, but in subsequent correspondence he refers to receiving “her letter dated 11 September” by which I take it that it was forwarded by way of post.

The complaint
17

On 11 November 2009, the Respondent complained to the New Zealand Law Society. In her letter of complaint, she advised that she considered that the Applicant had been influenced by his friendship with VC, and had retained funds from her share of the sale proceeds on instructions from him.

18

There is also reference by her to the fees charged by the Applicant in connection with the sale, but her complaint essentially in this regard relates to the fact that he retained the sum of $5,000 against potential costs that may be incurred by his firm (WM) to subsequently resolve the matter.

19

The Respondent also complained that the Applicant had charged for attendances in connection with the dispute, which she states should not be her cost.

The Standards Committee's decision
20

The Standards Committee issued its decision on 23 June 2010.

21

The Committee found that the Applicant's conduct constituted unsatisfactory conduct as defined in Section 12(a) of the Lawyers and Conveyancers Act 2006 (“the Act”).

22

Following that finding, the Standards Committee made...

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