Mr OM v Mr PR


[2012] NZLCRO 70

LCRO 118/2011

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


Concerning a determination of the Otago Standards Committee


Mr OM as the Applicant

Mr FA as Counsel for the Applicant

Mr PR as the Respondent

Mr HK as Counsel for the Respondent

The Otago Standards Committee

The New Zealand Law Society

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

Review of Standards Committee decision refusing to uphold a complaint of breach of fiduciary duty and/or trust — paymentmade from solicitor's trust account without written agreement of the applicant, contrary to what was specified in handwriting in an agreement between the applicant and the firm's client — complaint made against law firm but firm was not incorporated — whether a complaint could be made against an unincorporated firm — whether law firm's knowledge of the hand written amendment relating to payment of trust money should have been considered.

The issues on review were: whether YZA's knowledge of the written amendment should have been considered; and whether YZA was aware of the hand written amendment.

Held: It was clear from the agreement that both parties had agreed that the money was to be deposited into the YZA's trust account, and to remain there until they had reached agreement about the overdue accounts that were owed by the applicant to BAI. In this case, when paying the money out to BAI, it appeared that YZA relied solely on the confirmation of its own client that the terms of the agreement had been met.

The firm was clearly not a party to the agreement and in the absence of any undertaking given by the firm in respect of the fund; it was difficult to see on what basis there had been a breach of fiduciary duty. However, if PR (or any other person authorising payment) was aware of the express terms on which the monies held by the firm could be released, this would impose a trust obligation to hold the money on those terms.

Section 12 Lawyers and Conveyancers Act (Trust Account) Regulations 2008 (Receipt and payment of trust money) required that each entry of the receipt of trust money had to state the amount, date, purpose and source of the receipt, and the client for whom the trust money was to be held. YZA's trust account records showed money having been received from the applicant as “payment on account” and held in trust for BAI on an interest bearing account. There was no reference to the money being held for any other purpose.

The circumstances surrounding the actual depositing of the applicant's payment with YZA were unclear, but the responsibility for accurate recording of receipts lay with YZA. Whether there was a receipting error by YZA or whether there was inadequate communication surrounding payment was a question that could not be resolved.

Who should bear the responsibility in a disciplinary context, posed some difficulty in this case. The applicant had made it clear that he had not lodged a complaint against the PR and did not consider him to be responsible, as he sought that the whole law firm should be answerable for what he considered to be the wrongful payment.

The applicant still had legal remedies available insofar as any dispute concerning what he owed BAI could still be resolved through the Disputes Tribunal. The applicant had suffered no monetary loss so there was no basis for a compensatory payment. A written apology would be forwarded to the applicant by YZA. It was therefore appropriate to exercise the LCRO's discretion to take no further action in the matter.

It was important to note that when trust money was received by a law firm, and where a complaint arose in relation to the way that had been receipted and dispersed, a Standards Committee should pay particular attention to this aspect of the complaint, given that it lay at the heart of the confidence and trust that members of the public could have in a law firm.

Standards Committee decision confirmed.


The background to Mr OM's complaint concerned a dispute that he had with BAI. The complaint was made against the law firm of YZA which acted for BAI, but since that firm is not incorporated, the Standards Committee took the complaint to be against Mr PR (the Practitioner) whose business card was attached to information that Mr OM had sent with his complaint.


The complaint was not upheld by the Standards Committee. This review application was made by Mr OM who is referred to as the Applicant.


The background is that BAI claimed the Applicant owed it money, and when the Applicant wanted certain repairs done to machinery on his farm, BAI agreed to undertake the repair work providing that an amount of money representing its claim was paid into the trust account of YZA. The Applicant agreed.


It appears that Mr QD, a director of BAI, drafted an Agreement between his company and the Applicant. It was dated 19 August 2009 and it contained two specific clauses that are material to the complaint, and this review.


Clause 1 provided that the amount of $11,930.00 would be paid by the Applicant into YZA trust account and held by that firm pending a resolution between the Applicant and BAI over disputed accounts, also providing for any monetary adjustments to be made. Materially, clause 1 provided that the “ money needs to be agreed by both parties”.


Clause 2 recorded that BAI would start (the repair) work as soon as possible. Clause 3 was a little unclear, but appeared to record the Applicant's agreement to pay for the proposed repair work without disputing BAI's account.


The evidence indicates that the Practitioner had perused this agreement at some time and advised that a portion of Clause 3 should be deleted, which Mr QD did before he brought the agreement to the Applicant for signing.


The Applicant took the agreement to his own lawyer, Mr FA, who in his own handwriting inserted at the end of Clause 1, the following: “[n]o payment shall be made from [YZA] Trust account without the written agreement of both parties.”


The Applicant then took the Agreement and a cheque for $11,930.00 to YZA and obtained a receipt. There was no evidence that the Practitioner saw the Agreement in its final form.


BAI undertook the repair work and at some stage afterwards Mr QD contacted YZA law firm to say that the money in the firms trust account could now be released. Payment was then made to BAI.


Several months later the Applicant discovered that the payment had been made to BAI from the YZA trust account. He had not given his written authority that the money could be released, and disputed that he had agreed to the payout, and also disagreed that he and Mr QD had discussed the disputed invoices. In the Applicant's view the law firm should not have released the money to BAI without his written consent in accordance with the Agreement.


Eventually the Applicant made a complaint to the New Zealand Law Society, alleging breach of trust and/or breach of fiduciary obligation to hold the money in trust for both him (the Applicant) as well as BAI.


The Standards Committee did not uphold the complaint because it was not persuaded that the Practitioner was aware of the hand written amendment to Clause 1 of the agreement. The added difficulty was that Mr PR, through serious ill health, was no longer practicing as a lawyer, and was unable to respond to the complaint himself or participate in the enquiry.


It appears that the Standards Committee focused its consideration on the alleged breach of fiduciary duty and/or trust, when it concluded that in the absence of evidence that Mr PR knew of the amendment, there was no basis for a finding that there had been a breach of any duty when the firm paid out what appeared to be the client's funds. The...

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