Auckland Standards Committee 2 v Timothy John Burcher

 
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[2015] NZLCDT 47

NEW ZEALAND LAWYERS AND CONVEYANCERS DISCIPLINARY TRIBUNAL

CHAIR

MEMBERS OF TRIBUNAL

Judge D F Clarkson

Mr W Chapman

Mr M Gough

Ms S Sage

Mr P Shaw

LCDT 019/14

LCDT 009/15

BETWEEN

IN THE MATTER OF The Lawyers and Conveyancers Act

Auckland Standards Committee 2
Applicant
and
Timothy John Burcher

and

David Gould Russell Short
Respondents
BETWEEN

IN THE MATTER OF The Lawyers and Conveyancers Act

Auckland Standards Committee 2
Applicant
and
Timothy John Burcher

and

David Gould Russell Short

and

Ronald John Macdonald
Respondents
COUNSEL

Mr N Williams and Mr M Treleaven for the Standards Committee

Mr C Morris for practitioner Mr Burcher

Mr J Katz QC for practitioner Mr Short

Mr G Blanchard for practitioner Mr Macdonald

Decision as to penalty for admitted breaches of the Solicitors Nominee Company Rules 1996 and for the period from 1 August 2008, the rules for nominee companies were the Lawyers and Conveyancers Act (Lawyers: Nominee Company) Rules 2008 — the three practitioners were all partners in a law firm — practitioner A administered the nominee company, practitioner B had some involvement in the company affairs but less and practitioner C, being the litigation partner, had no involvement in the company — each admitted liability but submitted that the penalty should reflect the sliding scale of their relative responsibilities — there were two sets of charges, relating to two reports prepared by the New Zealand Law Society Inspector — the number of breaches identified in the first report were 22, but in the second report 188 — the latter breaches occurred after the partners were on notice about the concerns raised by the first report — whether suspension was required for practitioner B in the public interest — whether compensation for a $50,000 loss should be ordered — whether the costs claimed were reasonable — whether name suppression should be granted for practitioners B and C.

The issues were: whether suspension was required for S in the public interest; whether compensation for the $50,000 loss should be ordered; whether the costs claimed were reasonable; and whether name suppression should be granted.

Held: The problematic existence of an inherent (but sanctioned) conflict of interest where a nominee company operated as between clients of the firm, respectively as borrowers and investors, was highlighted by this case. While of itself there was no breach of the rules until default occurred, at that point different obligations as to the conflict arose, and independent advice had to be offered.

In this case, it was not just that there were some serious breaches in compliance by the manner in which this nominee company was conducted, it was the volume and period over which the breaches had occurred which was of significant concern and formed the basis for the prosecutions. Fifty-three of the breaches occurred after the partners were on notice about the concerns raised by TM's first report. This was where the seriousness of this offending lay.

It was noted that the nominee company had traded for many years without such difficulties emerging. Had it not been for the GFC, the non-compliance and cut corners might never had been discovered. That did not excuse the behaviour. Rules and strict compliance in the handling of client investments were there to protect the public against such adverse events occurring.

When practitioners were jointly charged as here, it was necessary to identify the varying levels of culpability. The Tribunal had to then consider and weigh any aggravating features and mitigating features. Finally, to ensure consistency, the Tribunal had to consider penalties imposed in similar cases in the past.

There was no dishonesty involved in the non-compliance and certainly no intention for personal benefit. Having said that, in B's case, signing monthly certificates certifying to the Law Society that he was satisfied that the practice had complied with any practice rules relating to lawyers' nominee companies, B represented to his professional organisation a position which was patently untrue. Although it might had been inadvertent, it was an error which was repeated a number of times. The conduct, while not dishonest was relatively serious having regard to the risk to the profession's reputation, were the public to know of the scale and duration of the non-compliance.

In terms of relative culpability, B plainly accepted the major responsibility in this matter. However, he was at pains to point out that throughout the relevant period S was also involved in nominee company matters and in referring clients for lending and borrowing, and thus he did not consider that he ought to stand alone or be the only person seen as responsible for the charges now faced.

For his part S expressed his acceptance of guilt on the basis of strict liability. However, it was not possible to accept his contention that he was so divorced from the running of the nominee company that he was not able to exercise better governance than was demonstrated.

While M was the litigation partner and certainly distant from the running of the nominee company, he too had to accept responsibility as a director of that company, which was managing large sums of money on behalf of others. He failed in his obligation to ensure that the company was being run properly and in accordance with all of its compliance regulations.

There were no aggravating features relating to M. However, in respect of S and B, both of whom faced charges arising out of the first report, the numerous breaches of regulations after December 2012 were clearly an aggravating feature.

Both S and B had one previous finding of “unsatisfactory conduct”. In B's case this related to stale trust account balances, thus, at the lower end of the scale and not a seriously aggravating feature.

In S's case the previous finding disclosed a somewhat concerning lack of understanding about conflicts of interest, but was a matter where the practitioner had put things right with the client. Given that S was now retired and would not be holding a practising certificate there was no need to comment further on the conflict issue.

Mitigating features included the fact that all three practitioners had fully co-operated with the Law Society investigation at all stages. All three practitioners had also co-operated in the process of prosecuting these charges and, indicated a willingness to negotiate a plea at a relatively early stage. The practitioners deserved considerable credit for this approach.

A further mitigating feature was the manner in which the practitioners had assiduously worked to wind up the nominee company and return, as far as possible, the investment funds to their clients. They had spent some hundreds of hours in this endeavour.

The partners had also replaced a number of investments with funds of their own, in the order of $500,000. While this was money which might well be returned to them in due course, it would appear that they had taken on some of the less viable investments and they deserved some credit for those actions.

All three practitioners had provided references which attested to their long and committed service to the profession and their clients. All three had enjoyed enviable reputations and were clearly distraught at this fall from grace.

There were a number of overseas authorities supporting that suspension was not necessary to achieve the purposes of penalty ( Daniels v Complaints Committee 2 of the Wellington District Law Society and Auckland Standards Committee 1 v Fendall.) A proper and responsible approach by a practitioner could be taken into account in determining whether suspension was necessary for the protection of the public and upholding of the profession's reputation (Fendall).) The principle of the least restrictive intervention as enunciated in Daniels was also accepted.

Notwithstanding that S had retired, a suspension was necessary to reflect the overall seriousness of the offending and to fulfil the objectives of maintaining public confidence in the provision of legal services. professional standards and the status of the legal profession.

In respect of the two charges of misconduct and two charges of negligence of such a degree or frequency as to tend to bring the profession into disrepute, a proper period of suspension for B was nine months. In addition, censure was imposed.

It was not clear that the loss of the $50,000 by the estate in which the complainant had an interest as a beneficiary was directly attributable to the actions of these practitioners. To make a proper assessment of whether the loss was occasioned by the regulatory defaults in this case would require much more significant evidence including evidence from valuers, possibly real estate agents and others. That was a matter best left to the civil jurisdiction and not assumed by this Tribunal. The practitioners were not insurers of their client's investments ( Waikato Bay of Plenty Standards Committee 2 of the New Zealand Law Society v A). An order for compensation was declined.

This had been a significant prosecution. However, the evidence itself was straightforward, being based on the two comprehensive reports of the Law Society Inspector. Having regard to the constructive approach adopted by the practitioners, the reasonable costs of the prosecution were $65,000. The proper apportionment of those costs to the practitioners ought to be: for B — $36,000 costs; S — $23,000 costs; and M costs of $6,000.

While there was a ground for name suppression advanced as to family members sharing the same...

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