IK v SN

 
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[2012] NZLCRO 11

LCRO 42/2011

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

AND

CONCERNING a determination of Auckland Standards Committee 2

Between
IK
Applicant
and
SN
Respondent

In accordance with s.213 of the Lawyers and Conveyancers Act 2006 copies of this decision are to be provided to:

IK as the Applicant

SN as the Respondent

Auckland Standards Committee 2

The New Zealand Law Society

Law Practitioners, Property — Application for review of a determination of a Standards Committee following a complaint that a lawyer failed to account for a share of proceeds of sale – respondent practitioner was instructed by mediator, who had ostensible authority from all three tenants in common of property owners, to act in the matter – proceeds from sale were held in a single trust account ledger in the names of the three registered proprietors – law practitioner declined to make payment as one of the owners specifically instructed him not to make any payment until all issues between the owners were resolved – whether registered proprietor of an undivided share in a property could require solicitor to pay out equivalent proportion of the proceeds of sale – whether solicitor could only disburse sale proceeds in accordance with the instructions approved by all the parties.

The issues were: whether the registered proprietor of an undivided share in a property was entitled to require the solicitor who acted on a sale to pay to him or her, the equivalent proportion of the proceeds of sale, or could the solicitor only disburse the sale proceeds in accordance with instructions approved by all parties; whether the fees charged by SN were excessive; and, whether there had been a failure to provide client information under r3.4 and r 3.5 Client Care Rules.

Held: The procedure adopted by SN in opening a single trust ledger in the joint names of the tenants in common, was correct and an acceptable practice according to the New Zealand Law Society Inspectorate. It accorded with standard practice in the profession. SN acted correctly in paying the funds into a single trust account ledger in all three names. SM had ostensible authority from all the three owners and SN acted in accordance with instructions from SM.

The provisions of s110 (1)(b) Lawyers and Conveyancers Act 2006 (“LCA”) (practitioner must hold the money exclusively for person on whose behalf is held and pay to that person as directed) and r12(6) Lawyers and Conveyancers Act (Trust Account) Regulations 2008 (transfers or payments only to be made if client's instructions or authority obtained) applied to any monies held in that account. Consequently, any payment out of the Trust Account had to be approved by all three registered proprietors.

IL had specifically instructed SN not to make any further payments out of the funds held by him following the transfer of the undisputed amounts to each registered proprietor. If SN had complied with the demands for payment he would have been in breach of s110(1)(b) and r12 of the Trust Account Regulations. This approach protected the beneficial interests of each of the parties, which was not necessarily the same as the share in the property held by each proprietor.

After considering the work carried out by SN and scrutinising the timesheets provided by him, it could not be said that the fees charged were unfair or unreasonable. The Committee's assessment was therefore correct.

The Standards Committee was wrong to suggest that there had been no breach of the rules on providing client care information because there had been some urgency involved. Rule 3.4 and r3.5 Client Care Rules required a lawyer to provide the client with relevant information as to client service in advance. Urgency of a situation could mean that the information could not be supplied in advance, or prior to undertaking significant work, but it did not mean that the rules need not be complied with at all. SN had provided the relevant information to SM, who was the person who provided instructions to him and who had ostensible authority from IK and IL and was an attorney for IM. There was therefore, no breach of the rules other than the fact that the information was not provided strictly in accordance with the terms of the rules. No adverse findings could be recorded against SN.

Decision of the Standards Committee confirmed with modification on client information.

DECISION

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

Background
1

Mr IK, his brother IL, and his sister IM inherited a farm property from their parents and were registered as proprietors of the property as tenants in common in equal shares.

2

The three siblings had agreed that the property was to be sold, but had not been able to effect a sale.

3

By May 2010, the mortgagee of the property was about to conduct a mortgagee sale due to the inability of the siblings to agree on the terms of a proposed extension of the mortgage.

4

Mr SM had known IK for a number of years. He also knew IL and IM and was aware of the impending sale. He was also IM's attorney.

5

Mr SM offered to mediate between the three siblings to enable them to reach agreement as to the terms on which the mortgage could be refinanced and the mortgagee sale averted. He also proposed a course of action which would see the property brought into a saleable condition.

6

Having discussed matters with the parties, he prepared a draft Agreement which he then delivered to Mr SN with instructions to convert the draft into a formal Deed. Mr SN had previously acted for Mr SM and in circumstances not dissimilar from the present situation.

7

Mr SN proceeded in accordance with Mr SM's instructions. The Deed recorded Mr SM's obligations in the following way:

To

  • a) Arrange a new loan agreement for a period of 12 months, sufficient to cover interest and:

    • i. Meet interest payments due for the next 12 months; and

    • ii. Provide a contingency fund of $50,000.00 for Mr SM to use for the purposes of carrying out the matters on which he was retained.

  • b) Communicate and negotiate with purchasers and agents towards a sale of the property within 12 months.

  • c) Arrange and appoint a solicitor to act on an independent basis for the Owners as a group in the achievement of the fundamental objective and all incidental matters to that.

  • d) Appoint an accountant to maintain and prepare accounts for all matters to do with the management of the property until such time as it is sold.

  • e) Oversee the cleaning and tidying of the house property, back shed, cattle yards and front areas of the farm to bring them to a point where they are in properly saleable condition.

  • f) Organise and approve an account for the sale of all cattle and subject to there being reasonable sums released from such sales for the proper management and husbandry of the cattle to ensure that all of the proceeds from the sales are retained in the trust account of the solicitor appointed by [him]

  • g) Attend to the painting and repair of the house and its environs.

8

Following preparation of the document Mr SM took it to IK. Mr IK has acknowledged that he read the document thoroughly and had no issues as to its content. He then attended at Mr SN's office to sign the document. He did not meet or discuss the terms of the Deed with Mr SN and his signature was witnessed by a member of Mr SN's staff.

9

At some stage, IL also attended Mr SN's office and executed the Deed which was dated 4 May 2010.

10

The intention was that Mr SM would then execute the document himself and as attorney for Ms IM, but this did not occur.

11

Subsequently however the parties did execute the various documents to enable the loan to be extended as provided for in the Deed and the mortgagee sale was averted.

12

The auction process which had been commenced by the mortgagee then continued on instructions from Mr SM and a sale agreement was entered into. This document was signed by AU and IL and by Mr SM as attorney for Ms IM. Similarly, the relevant documentation to implement the sale was also signed by the same parties.

13

Following settlement of the sale on 23 July 2010, a meeting was held at Mr SN's office attended by IL and Mr SM. During the course of that meeting Mr SM had discussions with AU either by telephone or directly. There is some disagreement by AU as to the extent of his contact with Mr SM during the course of that meeting, but that is of limited relevance.

14

At the meeting, various matters relating to the disbursement of the funds were apparently agreed. Following the meeting, Mr SN was instructed by Mr SM to prepare a Deed recording the agreed terms. He also prepared a spreadsheet showing the proposed distribution.

15

This Deed was not executed by any of the parties, and AU consulted SL of ACY for advice.

16

On 27 July 2010, SL made demand of Mr SN on behalf of AU, for one third of the proceeds of sale to be paid to AU. He noted that whilst “there may be problems existing...

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