IK v SN
| Jurisdiction | New Zealand |
| Judgment Date | 21 February 2012 |
| Neutral Citation | [2012] NZLCRO 11 |
| Date | 21 February 2012 |
| Docket Number | LCRO 42/2011 |
| 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 Auckland Standards Committee 2
[2012] NZLCRO 11
LCRO 42/2011
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.
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
The names and indentifying details of the parties in this decision have been changed.
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.
The three siblings had agreed that the property was to be sold, but had not been able to effect a sale.
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.
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.
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.
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.
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.
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.
At some stage, IL also attended Mr SN's office and executed the Deed which was dated 4 May 2010.
The intention was that Mr SM would then execute the document himself and as attorney for Ms IM, but this did not occur.
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.
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.
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.
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.
This Deed was not executed by any of the parties, and AU consulted SL of ACY for advice.
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 between the three registered proprietors, they were nothing to do with the ownership of the property and the obligations shown on the titles”.
Mr SN declined to make payment as demanded and both he and SL communicated with the New Zealand Law Society to seek assistance. In addition, a substantial amount of correspondence passed between Mr SN, SL, and Mr AT who was instructed by IL.
IL specifically instructed Mr SN to continue to hold the balance of the sale proceeds pending agreement between himself and his two siblings. The funds retained by Mr SN represented a potential GST liability and an adjustment for the proceeds of sale of the stock received directly by AU.
The parties have been unable to resolve matters and IK lodged a complaint with the Complaints Service of the New Zealand Law Society.
The major issued complained of by Mr IK, was the failure by Mr SN to account to him for one third of the sale proceeds. He asserted that he did not believe that Mr SN had any authority to retain any funds from the sale and noted that the Deed dated 4 May 2010 had not been executed by all owners, therefore rendering it unenforceable.
Mr IK also noted that Mr SN had not provided him with the relevant client information as required by the Lawyers and Conveyancers Act (Lawyers Conduct and Client Care) Rules 2008.
He also asserted that Mr SN's bills of costs amounted to overcharging.
After conducting a hearing on the papers, the Standards Committee determined pursuant to section 152(2)(c) of the Lawyers and Conveyancers Act 2006 (the Act) to take no further action with regard to the complaints. It formed the view that Mr SN could not disburse any of the sale proceeds otherwise than in accordance with joint instructions from all three registered proprietors and was therefore unable to deal with the funds other than in the manner he had.
The Committee did not consider that Mr SN's charges were unfair or unreasonable and finally it determined that Mr SN had not breached Rules 3. 4 or 3.5 of the Conduct and Client Care Rules by reason of the exception provided in Rule 3.7.
A review hearing was held in Auckland on 1 December 2011 attended by Mr IK, Mr SM and Mr SN.
Mr SN has declined to pay Mr IK one third of the net proceeds of sale as demanded by him and by SL on his behalf. Instead, he has paid each of the registered proprietors a sum which represents the undisputed payment to each of the owners. He holds the balance of the funds in his trust account.
SL view is quite simply, that as a one third owner of the property as a tenant in common, his client is entitled to demand payment of one third of the proceeds of sale. He argues that the Deed dated 4 May 2010 is not binding as it has not...
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