Auckland Standards Committee 2 v Timothy John Burcher

• Jurisdiction: New Zealand
• Judge: Judge D F Clarkson,Mr W Chapman,Mr M Gough,Ms S Sage,Mr P Shaw
• Judgment Date: 18 December 2015
• Neutral Citation: [2015] NZLCDT 47
• Docket Number: LCDT 019/14
• Court: Lawyers and Conveyancers’ Disciplinary Tribunal
• Date: 18 December 2015

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

[2015] NZLCDT 47

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

NEW ZEALAND LAWYERS AND CONVEYANCERS DISCIPLINARY TRIBUNAL

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.

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 OF THE TRIBUNAL

1 Messrs Burcher, Short and Macdonald are senior, respected practitioners, formerly in partnership with each other, who have come before the Tribunal on charges relating to non-compliance with the rules governing the operation of solicitors' nominee companies.

2 The breaches of the rules cover periods dating back before the coming into force of the LCA, 1 so the charges are divided into the periods before 1 August 2008 and after that date.

3 There are also two sets of charges, relating to two reports prepared by the New Zealand Law Society Inspector, Mr Tim Maffey. 2

4 What makes the later charges more serious, are that a number of the breaches occurred after the first report was delivered, when the partners ought to have been acutely aware of the need for scrupulous compliance.

5 The nominee company was managed on a day to day basis by Mr Burcher, who accepts he must bear the primary responsibility for the defects identified by Mr Maffey. For this reason he has pleaded guilty to two charges of misconduct relating to the breaches identified by Maffey 2, and two charges of “negligence … of such a degree or so frequent as to tend to bring the profession into disrepute”, arising out of Maffey 1.

6 Mr Short also pleaded guilty to charges arising from both reports, but in his case, all four are at the level of “negligence … of such a degree or so frequent as to tend to bring the profession into disrepute”.

7 Mr Short had a significantly less involvement in the daily running of the nominee company (which will be discussed later) but accepted, as a partner and director of the nominee company, he must take responsibility for a lack of governance.

8 Mr Macdonald had almost nothing to do with the nominee company. But, given the non-compliance with the rules that continued after Maffey 1, he also accepted that he had fallen short in his obligations as a partner and director of the nominee company to ensure compliance. Accordingly, he pleaded guilty to two charges of “negligence … of such a degree or so frequent as to tend to bring the profession into disrepute”.

Background

9 The firm of Short & Partners had operated a nominee company for many years. Over the period in question we understand that it handled funds of up to $27 million, belonging to approximately 170 investors. Until 1999 Mr Short had been the partner responsible for management of the nominee company. From that time this role was taken by Mr Burcher who was also the supervising trust account partner (before the LCA) and the trust account supervisor (after the LCA).

10 The partnership had been, until very recently, a long-standing and happy one in which each partner professes to have trusted the other implicitly.

11 There were some disputes in the evidence between Mr Burcher and Mr Short, particularly as to the level of involvement of Mr Short in the affairs of the nominee company and his knowledge of investments relating to his client investors.

12 Somewhat unfortunately, a very lengthy and comprehensive affidavit sworn by Mr Short approximately one month before the hearing was not served on Mr Burcher nor his counsel (both of them were out of New Zealand at the time).

13 Despite a number of promises, at pre-trial conference stage, to file evidence and a formal notice of response to proposed amended charges, by the date of the hearing Mr Burcher had not done either. Thus the Tribunal asked for him to give oral evidence, in part to allow him an opportunity of responding to some of the matters deposed to by Mr Short. There were also letters annexed to Mr Short's affidavit from former staff members, which gave a somewhat different picture of the management style of Mr Burcher than his own references. Mr Burcher was given the opportunity of refuting these which he very firmly did in his oral evidence.

14 Since the hearing proceeded as a penalty hearing only and viva voce evidence was only heard from Mr Burcher, we are not fully able to make firm findings in relation to the disputed matters. With that caveat however, we do consider that Mr Short has somewhat minimised his involvement in the nominee company management and overstated any difficulties he might have experienced in carrying out his governance obligations in a proper manner. We say this because we accept the evidence, there being none to the contrary, of Mr Burcher that the full nominee company records of authorities, valuations and other supporting documents were kept in the reception area, fully accessible to all partners.

15 The inspection which led to Maffey 1 was initiated after a complaint from the daughter of a deceased client of the firm, who had had a significant investment of over $500,000 in the nominee company. The daughter, as one of the beneficiaries of the estate complained when, following the global financial crisis (“GFC”), a number of the investments which had been made by her late mother proved to be poor ones which fell into default.

16 We accept the submission made on behalf of Mr Short and Mr Burcher that some of the valuations received by the firm from reputable valuers were overly optimistic; one was even described by counsel as “fraudulent”.

17 The investments of the estate, in which the complainant is interested, have now all been realised, with a shortfall of $50,000. On the positive side, significant (penalty rate) interest has been recovered for the estate.

18 Since the GFC, Mr Burcher and Mr Short have been working very hard to recover their clients' investments. This has involved a great deal of unbilled time and stress. However, they did not pay sufficient attention to the identified deficiencies in their compliance with the rules set out in Maffey 1, received by them on 3 December 2012. As a result, 53 breaches of various rules occurred after that time. We note that Mr Katz QC submits the figure is only 41. We think that the discrepancy is perhaps explained by the fact that Mr Katz has calculated from the date when the partners had time to digest fully the report early in the new year of 2013.

19 In any event they were, and in particular Mr Macdonald and Mr Short, horrified to receive Maffey 2, in mid-2014. A decision was taken to wind down the nominee company and realise, on a staged and careful basis, all of the investments. Our impression is that lending had been decreasing over the previous year in any event and it is Mr Burcher's evidence that none of the investments of 2013 and early 2014 before the decision to wind up was made, have caused any problems and have all been repaid.

20 After the decision was made to wind down the nominee company, the firm made the very responsible decision to engage Mr Bob Eades, a very senior and respected Auckland practitioner, to oversee that winding down.

21 It is apparent that the wind down has, on occasion, involved the substitution of the partners' personal funds in order to release investments to clients.

Nature of the breaches

22 The charges and supporting particulars for all three practitioners run to 60 pages, thus we shall attempt to summarise them as follows. For the period between 1 January 2006 and 1 August 2008 the rules governing nominee companies were the Solicitors Nominee Company Rules 1996 (“SNC Rules”). For the period from 1 August 2008 the rules for nominee companies are the Lawyers and Conveyancers Act (Lawyers: Nominee Company) Rules 2008 (“LNC Rules”). The further applicable rules between 1 January 2006 and 1 August 2008 are the Rules of Professional Conduct for Barristers and Solicitors (“RPC”) and post 1 August 2008 the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (“LCCC Rules”) and the Lawyers and Conveyancers Act (Trust Account) Regulations 2008 (“TA Regs”).

23 Breaches are established in relation to all four sets of rules. These relate to: failures to provide information in the required form to investors regarding lawyers' fees; failure...