MR KS v MR WF

 
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[2012] NZLCRO 31

LCRO 202/2011

Concerning an application for review pursuant to section193 of the Lawyers and Conveyancers Act 2006 and Concerning a determination of Auckland Standards Committee 4

Between
MR KS
Applicant
and
MR WF
Respondent

Application for review under s193 Lawyers and Conveyancers Act 2006 (“LCA”) (right of review) of Standards Committee determination which held the applicant had breached r3 (competence and client service), r5 (independence) and r10 (professional dealings) Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, s110 LCA (obligation to pay money received into trust account at bank) and reg12 Lawyers and Conveyancers Act (Trust Account) Regulations 2008 (receipt and payment of trust money) — applicant acted for separated couple on house sale — house owned by trust — paid out his client's shares against opposing solicitor's instructions to hold sale proceeds until Relationship Property Agreement signed — whether applicant had authority to release sale proceeds to his client — whether applicant had failed to report to WF's client.

The issues were: whether KS had had authority to release the sale proceeds to his clients; and, whether KS had failed to report to the wife.

Held: KS's argument was not a defensible position. The wife had not signed the Relationship Property Agreement as at 28 September. In addition, there was no agreement between the solicitors that the Relationship Property Agreement would be signed in parts. It was clear that as far as WF was concerned, the Relationship Property Agreement was to be signed as one document. KS had not observed the terms on which the sale agreement had been sent to him and he had failed to hold the funds for both parties.

The fact that KS had not provided any specific undertakings to hold the funds was not relevant. He did not have authority to release the funds to his client. Rule 10 Conduct and Client Rules stated that a lawyer must promote and maintain proper standards of professionalism in the lawyer's dealings. KS had breached that rule by failing to abide by the terms on which the sale agreement had been sent to him.

Section 110 LCA imposed an obligation on lawyers to hold money received on behalf of a person for that person exclusively, and to pay it to that person as directed. KS had acted for both parties in connection with the sale. As such he had assumed obligations to both of them. KS had also breached reg12(6) Trust Account Regulations, which required that payments could only be made from a client's trust money if the client had given written authority. While the Committee had referred to a breach of reg12 Trust Account Regulations, that seemed to be in relation to KS's failure to report pursuant to reg12(7) Trust Account Regulations. The Committee's determination was modified to include reference to that breach.

The trust issue was only relevant to the extent that any authority to release the funds would still have been required from both parties, whether as trustees or personally. In that regard KS had breached r3 Conduct and Client Care Rules (competence and client service), and r5 Conduct and Client Care Rules (lawyer must be independent and free from compromising influences of loyalties). Following settlement KS had failed to provide any form of report to the wife. If he had thought he had authority to release the funds, he had a duty to account to her for her share of the sale proceeds as well. KS had also not followed proper trust account procedures when he had credited the joint account of the parties, which his client had applied to his purchase. He should have established a separate trust account ledger for his client.

Solicitors must be able to rely on other practitioners to abide by the terms on which documents were provided. KS had showed a marked lack of professionalism. Pursuant to s211(1)(a) LCA (powers exercisable on review) the decision of the Committee was confirmed.

DECISION

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

Background
1

Mr WF acted for Mrs WE in relation to relationship property matters.

2

Mr KS acted for Mr WE.

3

As Mr WE was residing in the matrimonial home, Mr WF agreed that Mr KS should act for both parties on the sale of the property. The Agreement for Sale and Purchase of the property recorded the vendors as being Mr and Mrs WE “as trustees of the ADT Trust”.

4

Settlement of the sale of the property was scheduled for 28 September 2010. On that day, Ms WD, a solicitor in the firm of ADU where Mr WF was a partner, sent the necessary A & I to Mr KS by e-mail with the following message:–

“Mr [WF] has asked me to forward to you the attached document (Mrs [WE]'s A & I) for settlement today. This is forwarded to you strictly on the basis that the funds will not be dispersed until the necessary agreement has been signed. The original will be posted to you.”

5

The original A & I was sent by Ms WD to Mr KS on the same day under cover of the following letter:–

“Further to our email to you, please find attached our clients A & I for the sale for the [street name] property. As advised, this is forwarded to you strictly on the basis that funds will not be dispersed until such time the [ sic] agreement is reached as to the division and the necessary documents are signed.”

6

On 1 October, Mr WF sent the following letter to Mr KS:–

  • “[1] Your email 30 September refers [ sic]. We confirm our client has signed the Relationship Property Agreement and required Trust documentation to complete settlement of our respective client's affairs.

  • [2] As we had yet to receive from you the original Relationship Property Agreement signed by your client, we have had out client sign the unsigned version. We believe it is prudent that original signatures are on both documents. Please arrange for your client to resign the Relationship Property Agreement when it is forwarded to you.”

7

He also proposed that the costs of unwinding the Trust and the dissolution of marriage be shared between their respective clients.

8

It took some time for agreement on this issue to be reached and following agreement, Mr WF made demand of Mr KS for his client's share of the sale proceeds. It was then that he was advised by his client that Mr WE had applied his share of the proceeds of sale towards the purchase of a property in [North Island] on the same day as the sale of the matrimonial home had settled — i.e on 28 September 2010.

The complaint and the Standards Committee determination
9

On learning that Mr KS had released his client's share of the sale proceeds on 28 September, Mr WF complained to the Complaints Service of the New Zealand Law Society.

10

His complaints were that Mr KS had ignored instructions from Mr WF as to the basis on which the sale proceeds were to be held and had failed to report to Mrs WE as to the distribution of the sale proceeds.

11

The Standards Committee determined that Mr KS was in breach of Rules 3, 5 and 10 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, section 110 of the Lawyers and Conveyancers Act 2006 and Regulation 12 of the Lawyers and Conveyancers Act (Trust Account) Regulations 2008 and was therefore guilty of unsatisfactory conduct. The Committee imposed a fine of $2,000.00 on Mr KS in respect of these breaches and ordered him to pay costs of $500.00 to the New Zealand Law Society.

The Application for Review
12

Mr KS has applied for a review of that determination. The basis on which he had applied for the determination to be reviewed was as follows (reproduced as written):–

  • “1) The Standards Committee has concluded that an ambiguous note accompanying the return of an A & I form provided on the day of settlement was to be preferred to a clause in a Relationship Property Agreement & Winding Up of [ADT] Trust document which I drafted and which each party had signed separate copies of stating… “The Parties agree to distribute the proceeds of the sale of the [street name] property… in the manner provided in Schedule A “which schedule was adhered to in the final distribution. This does not meet a balance of probabilities standard and I cannot see how this could be allowed to overrule a signed statement of the intent of the parties.

  • 2) No consideration was given to the prospect that the complainant's lawyer simply made a mistake in that he thought he was dealing with the [street name] as a property owned by the Trust and did not realise or certainly did not investigate that the [street name] property was the only property that had been put into the trust thereby rendering nugatory his effort a month after settlement to have completed a formal surrender of a Deed of Life Estate Lease for a property sold in 2004.

  • 3) There had to be at least 50/50 chance that my client would be moving out of [street name] and using the proceeds to buy another property even if nothing was spelt out to that effect and so to expect that he could do so without the distribution of his share of the proceeds for that purpose is untenable. My client tells me that he had discussed with [ sic] his purchase of a property in [North Island] with Mrs [WE].

  • 4) In light of the above my actions or inactions did not breach either Sections 3, 5 and 110 of the Lawyers and...

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