JurisdictionNew Zealand
CourtLegal Complaints Review Officer
Judgment Date18 February 2011
Neutral Citation[2011] NZLCRO 16
Docket NumberLCRO 113 /2010
Date18 February 2011

[2011] NZLCRO 16

LCRO 113 /2010

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


CONCERNING a determination of the Auckland Standards Committee 3


of [Overseas]


of Auckland


AX as the Applicant

ZA as the Respondent

The Auckland Standards Committee 3

The New Zealand Law Society

Application for review of Auckland Standards Committee (“Committee”) decision — applicant AX resided overseas and established partnership with YZ in NZ exporting motor vehicles to NZ – respondent acted for YZ, who had previously introduced AX to the respondent – YZ sold partnership assets and failed to account for sale proceeds – AX alleged the respondent knew YZ was defrauding people by using respondent to legitimise the operation and respondent was representing AX's interests and so acting on behalf of both partners – whether Committee erred in resolving to take no further action pursuant to s138(2) Lawyers and Conveyancers Act 2006 (decision to take no further action on complaint).

At issue was whether the Committee had erred in resolving to take no further action pursuant to s138 Lawyers and Conveyancers Act 2006 (“LCA”) (decision to take no action on complaint).

Held: Rule 1.08 Rules of Professional Conduct for Barristers and Solicitors (“RPCBS”) only made it mandatory to breach client confidentiality where there was a risk of physical injury. There was no mandatory duty to breach the duty of confidentiality where fraud was involved, since the potential crime would not result in physical injury to any person. It was not the function of the Committee or the Legal Complaints Review Officer to determine whether or not a fraud had been perpetrated – any role that the practitioner played would be investigated in a criminal proceeding with potential professional standards consequences to follow.

Given the practitioner had no duty of care towards AX, it was relevant that AX had as much opportunity as the practitioner to investigate the background of his potential business partner – AX himself indicated the information concerning YZ was publicly available. There were only limited circumstances where a lawyer was obliged to disclose information about a client to a third party. The most common of these was under the Financial Transactions Reporting Act 1996, but the practitioner had no involvement with cash transactions on behalf of the partnership or running of the business.

A practitioner did not have obligation to investigate where the bona fides of a client were in doubt; r3.05 RPCBS created an entitlement only. It would be taking a step too far to suggest that where a practitioner had reasonable grounds to doubt the bona fides of a client, that he had an obligation to investigate further for the protection of a third party in all cases. Each case had to be taken on its own merits. Civil proceedings against YZ, such as had been instituted, were the appropriate avenue to take.

Committee decision confirmed.


In 2005 the Applicant, who resides in the [overseas], entered into a business relationship with YZ (YZ) who resides in New Zealand.


A partnership was established which involved the acquisition of motor vehicles in the [overseas] to be exported to New Zealand for re-sale.


A document which the Respondent subsequently referred to as a “partnership agreement” was entered into by the parties on 23 March 2005. This document was not prepared by the Respondent.


On 8 June 2005, the Respondent wrote to the Applicant recording in the first instance that he acted for YZ, and then recording “for good order?s sake, the present state of affairs of the partnership”. He then included a summary as to the various vehicles which had been purchased, their location, the payments which had been made, and the nature of the relationship with a dealer in the [overseas].


Prior to this, the Applicant had visited New Zealand in May 2005, when he had been introduced by YZ to the Respondent. The Applicant alleges that as a result of statements made at that meeting, he had formed the view that the Respondent was to provide oversight for the operation and represent the mutual interests of the two partners.


That view was reinforced by subsequent correspondence dated 31 May 2005 from YZ to the Applicant that “I?ve got [the Respondent], the solicitor whom you met here doing all the books and reconciling all the money and payments. He will be doing this on a weekly basis and he started yesterday. I feel it is better also for our working relationship plus the agreement between us because he puts his name to paper for the whole deal”.


However, that view was contradicted by the letter written by the Respondent on 8 June 2005, referred to in paragraph [4] above.


At all times the Applicant was represented by a law firm in the [overseas], which corresponded with the Respondent on a number of occasions. On each occasion it confirmed that it was acting for the Applicant.


On 6 June 2006 that firm wrote to the Respondent alleging that YZ had sold the assets of the partnership and failed to account for the sale proceeds.


On 28 August 2006 the law firm wrote again to the Respondent to terminate the agreement and demanding an accounting for the assets of the partnership.


Proceedings have been instituted in the [overseas] against YZ.

The complaint

A complaint was lodged by the Applicant with the Complaints Service of the New Zealand Law Society on 30 October 2009, alleging that the Respondent knew that YZ was defrauding people by using him (the Respondent) to legitimise the operation.


He also alleged that the Respondent was representing his (the Applicant?s) interests and thereby acting on behalf of both partners.


He alleges that he was misled by what he considered were assurances from the Respondent that the partnership was running as planned and that as a result he had lost his investment by reason of the fraud perpetrated by YZ. He calculates that loss as being at least $[overseas]135,172.89.


The outcome sought from the Standards Committee was that “the firm needs to be accountable for the fraud they helped [YZ] perpetrate” losses incurred largely because the Respondent failed to represent the Applicant?s interests as well as YZ?s.

The Standards Committee decision

The Standards Committee considered all of the material available to it and provided its decision on 26 May 2010.


It noted that the Applicant?s fundamental issue was against the Respondent?s client and that the Applicant could exercise or could have exercised civil remedies. It further noted that the Respondent had not at any stage represented the Applicant and there was no evidence that the Respondent had any knowledge of any fraudulent conduct on the part of his client. In correspondence (for example the letter dated 8 June 2005) the Respondent made it clear that he was acting on instructions from YZ.


Accordingly, the Committee resolved to take no further action in the matter pursuant to section 138(2) of the Lawyers and Conveyancers Act 2006 (the Act).

The application for review

The Applicant has sought a review of that decision.


In the letter accompanying the application, the Applicant acknowledges that the Respondent was not acting for him.


However, he emphasises his view that the Respondent knew that YZ was defrauding people and that he therefore had a duty to alert the Applicant to this and protect him from the activities of his client.


The outcome sought is to “stop [the Respondent] from hiding behind the law, and recover some of his money.” He again lays the blame for his losses on the Respondent.


In conducting this review, I have had recourse to the full Standards Committee file and the correspondence with this office from both parties.


Both parties have consented to the review being determined without a hearing pursuant to section 206(2) of the Act, and the review has therefore been conducted on the basis of the information, records, reports and documents available to me.

The Respondent's client

In the application for review, the Applicant states that “the LCS points out that a lawyer / client relationship did not exist between myself and [the Respondent], despite what at that time was represented verbally and inferred by [the Respondent] and his client. This I can accept.”


Consequently, for the purposes of this review, it is accepted that there was no solicitor / client relationship between the parties, and none of the fiduciary duties that are owed by a lawyer to his client existed as between the Respondent and the Applicant. The Respondent?s duties were owed to his client, YZ.


One of the prime duties of a lawyer to his client, is the duty of...

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