Bw v [City] Standards Committee [X] (Own Motion Investigation)

• Jurisdiction: New Zealand
• Judgment Date: 08 April 2015
• Date: 08 April 2015
• Docket Number: LCRO 1/2015
• Court: Legal Complaints Review Officer

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

and

Concerning a determination of the [City] Standards Committee [X] that the matter be considered by the Disciplinary Tribunal

BETWEEN

BW

Applicant

and

[City] Standards Committee [X] (Own Motion Investigation)

Respondent

LCRO 1/2015

Application by practitioner for a review of a determination by Standards Committee to refer a matter to the New Zealand Lawyers and Conveyancers Disciplinary Tribunal- practitioner was one of three directors of an incorporated firm — an audit of the trust account showed that there had been unauthorised trust account transactions over several years — Standards Committee said the transactions involved dishonest payments and diversion of fees to entities with which practitioner had an association, together with unauthorised borrowing from clients — practitioner admitted this but said that the borrowings had been repaid and had been authorised by the clients — said that would consider repaying the diverted fees when he emerged from bankruptcy — practitioner said matter could be handled by Standards Committee which should include censure, a fine or “suspension for a time” — whether the matter should be dealt with by the Committee and not the Tribunal — whether the matter was sufficiently serious to refer it to the Tribunal.

DECISION

Introduction

1 Mr BW has applied for a review of a determination by the [City] Standards Committee [X] pursuant to s 152(a) 1 of the Lawyers and Conveyancers Act 2006 (the Act) that the “matter and any and all issues involved in the matter be considered by the New Zealand Disciplinary Tribunal”. 2

Background

2 Mr BW was one of three directors of the incorporated firm [ABC Limited] (the firm). He was authorised to operate the firm's trust account. Concerns were identified with the firm's trust account, and a review was carried out by the New Zealand Law Society (NZLS) Inspectorate (the Inspectorate). The Inspector produced a Trust

Account Review Report 3 (the report) in which he identified what he described as “significant issues” 4 regarding payments made from the trust account to a company associated with Mr BW

Trust Account Review Report

3 The report says:

Payments to [EFG] Limited

Payments to [EFG] Limited (a company associated with Mr BW) appear to deprive his employer of income, i.e. no bill and no trust ledger balance left, whilst putting money into the BW family coffers and avoiding the Official Assignee. Mr BW was adjudicated bankrupt on 20 September 2012 and the company was incorporated fourteen days after on 4 October 2012. When I asked Mr BW during my review of some of the related files – who is [EFG] – he wasvague and not forthcoming. The files don't explain why the payments were made. It was only after a company search that Mr BW's association with the company was revealed. Further enquiry will be necessary to establish the full extent of payments to [EFG]. The quickest way may be for the firm to order bank traces on payments between the trust account and the company's account from the date of Mr BW's bankruptcy. The firm has already undertaken work in this regard and has discovered a lot more transactions of this nature. The results of this work will be available in due course.

The review identified seven such payments between 8 January 2014 and 19 March 2014 totalling $9,929.71.

Payments appear to have been made without documentary support. Similarly statements do not appear to have been issued to clients in a timely manner. Procedures/controls around these matters should be reviewed to ensure that requests for payment are properly supported, patterns of payments are identified and questioned and statements are issued to clients promptly upon completion of the matter.

4 The report says that the “review was limited in its scope and was risk-based. It was a short inspection that was mainly focused on month-end balancing procedures”, 5 and that the Inspector believed he had identified: 6

Significant non-compliance: we have concluded our review and we confirm that we have found significant areas of non-compliance with the Lawyers and Conveyancers Act 2006 or the relevant Regulations or Rules listed in section 6.2 of this report. These areas of non-compliance are detailed in section 3 of this report.

5 Trust account reconciliation and supporting documentation, with general trust accounts and specific client documents were identified as having been considered.

Referral to the Standards Committee

6 On 20 May 2014 the NZLS Inspector advised NZLS's Auckland Lawyers Complaints Service (LCS) that he had identified issues that “appear to involve dishonesty on the part of Mr BW, employee solicitor”, which the Inspector believed should be referred to a Standards Committee for consideration. He also said that the firm had identified a number of “like transactions” after making further enquiry, and that he understood Mr BW had “acknowledged the impropriety of these transactions”. The Inspectorate forwarded a copy of the report to the LCS on 20 May 2014.

Standards Committee Process

7 The LCS emailed the report to members of the Standards Committee, 7 with an agenda note dated 6 June 2014, and a request that the Committee give urgent consideration to commencing an own-motion investigation, based on the findings in the report, and further information contained in spreadsheets provided by one of Mr BW's former co-directors in the firm, Mr KL.

8 Mr KL said the spreadsheets he had created represented data from the firm's trust account that showed a pattern of behaviour by Mr BW in connection with unauthorised trust account transactions over several years. He alleged Mr BW had mismanaged client and firm funds totalling over $300,000.

Own Motion Inquiry – s 130(c)

9 The Committee considered the report and spreadsheets, and decided to commence an own-motion inquiry pursuant to s 130(c) of the Act. 8

10 The LCS notified Mr BW of the Committee's own-motion investigation by email on 12 June 2014.

11 Mr KL provided further information on 27 June 2014, again in the form of spreadsheets which he says represent data from the firm's trust account, documenting transactions by Mr BW on various client files during the years ended 2009 to 2014.

12 LCS sent that further information on to Mr BW on 9 July 2014, with an indication that matters of concern to the Committee in the own-motion investigation included:

• • Dishonest payments from the [ABC] trust account to entities which you have/had an association (as detailed in the schedules provided by [ABC] and the NZLS Inspectorate report);

• • Diverting fees payable to [ABC] to entities with which you have/had an association (as detailed in the schedules provided by [ABC]); and

• • Unauthorised borrowing from clients (as detailed in the schedules provided by [ABC]).

13 Mr BW was invited to cooperate in the investigation, and to correspond with the Committee in writing.

14 Mr BW wrote to the Committee on 22 July 2014, noting the matters of concern raised and saying:

I admit the dishonest payments, the diversion of fees and the unauthorised borrowings, but I do clarify those borrowings in Paragraphs 4 and 5 below

The borrowings from [various individuals, trusts and companies]… have been repaid…

Though not strictly done by the rules, this borrowing was “authorised” with the clients and I have been paying interest monthly for some years. I continued to act for [client] in 2012/13.

All other items in the spreadsheet of 27 June 2014 are diverted fees, not loans…

In respect of any borrowings in the two spreadsheets, such clients have been repaid without loss…

The bulk of others would be diverted fees where the aggrieved party is [ABC]/NP/KL.

I have indicated to NP and KL that once I am out of bankruptcy I will consider paying them back for some or all of the diverted fees.

Those small amounts highlighted as loans in Mr KL's spreadsheet of 19 June 2014 would indicate that the clients would not be paying a fee in the clearance of the loans, as stated by Mr KL in his spreadsheet. Such amounts would therefore be potential diverted fees…

15 Mr BW then summarised his personal and professional history, and referred to continuing improprieties in his professional conduct since late 2008/early 2009. He said he did not seek to excuse what he describes as his misconduct, but sought to explain the background, including his personal circumstances and health issues. He refers to declined indemnity insurance claims, judgments against him, threatened and actual bankruptcy with a declaration being made on 20 December 2012. He expressed the view that responsibility for claims made against him should have been borne by all three partners, not just him, although he also says that once out of bankruptcy he hopes to repay some or all of the diverted fees back to his co-directors, and finally that:

As regards the unauthorised borrowings, [t]hat should not have occurred given my years of practice and also given my years as trust account supervisor. Nevertheless all such borrowings (Paragraphs 4 and 5 above) have been repaid to those clients, without loss.

16 The Committee considered the matter on 19 August 2014, and issued a notice of hearing dated 28 August 2014, sending copies to Mr BW and Mr KL offering both the opportunity to make submissions to the Committee. The notice of hearing referred to the three areas of concernidentified to Mr BW on 9 July 2014, with the second point modified to reflect what the Committee described as the misappropriation of fees payable to thefirm by diversion to entities related to him. The notice of hearing referred to the possibility that the Committee may determine the matter by a referral to the Tribunal, or make orders under s 156 of the...