Mr Wb and Mr Wa v [North Island] Standards Committee

• Jurisdiction: New Zealand
• Judgment Date: 05 June 2013
• Neutral Citation: [2013] NZLCRO 25
• Date: 05 June 2013
• Docket Number: LCRO 127/2012
• 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 [North Island] Standards Committee

BETWEEN

MR WB and MR WA

Applicants

and

[North Island] Standards Committee

Respondent

[2013] NZLCRO 25

LCRO 127/2012

Application for review of a Standards Committee determination by that the applicants had breached s110(1)(b) Lawyers and Conveyancers Act 2006 (“LCA”) (obligation to pay money received into trust account at bank — must hold the money, or ensure that the money is held, or paid to that person) and had engaged in unsatisfactory conduct — applicants were barristers and solicitors and had allowed a solicitor's company to use their solicitor's trust account — trust account showed the client in respect of whom the funds were held, to be the company — respondent found that the surrogate trust account had resulted in a confusion of identity about the person on whose behalf the money had been received — applicants were censured, fined and ordered to pay costs — whether the arrangement whereby the company had used the firm's trust account had resulted in a breach of s110 LCA.

Counsel:

Mr WA as the Applicant

Mr WB as the Applicant

Mr VZ as the Representative to the Applicants

The [North Island] Standards Committee as the Respondent

Mr AS as the Representative to the Respondent

The Standards Committee

The New Zealand Law Society

DECISION

Introduction

1 This is an application for review of a determination by the Standards Committee in which it found that Messrs WB and WA had breached the provisions of s 110(1)(b) of the Lawyers and Conveyancers Act 2006 (the Act).

2 In the same way as my decision in LCRO 126/2012, this decision is of some importance in that it concerns an arrangement between WAA and VXZ, whereby VXZ operated without a trust account and directed funds which had been paid to clients pursuant to Employment Relations Act proceedings into the trust account of WAA.

Background

3 Following an inspection by the New Zealand Law Society Inspectorate of WAA trust account, the Standards Committee commenced an own motion investigation pursuant to s 130(c) of the Act.

4 Mrs AT, a New Zealand Law Society (NZLS) audit inspector, was appointed pursuant to s 144 of the Act to conduct an investigation, and reported to the Committee on 15 February 2011. In her report, Mrs AT advised:

two hundred and fifty three sub ledgers have been opened in the name of [VXZ] within the trust account maintained by [WAA].

…

I have spoken with Ms [VX] who explained that she would not be able to state “hand on heart” that she had obtained a letter of engagement from each and every client although it was her normal policy to do so.

5 VXZ standard terms of engagement included the following paragraph:

[VXZ] does not operate a solicitor's trust account but has an arrangement with [WAA] Barristers and Solicitors to use their trust account. By authorising [Ms VX] and/or [VXZ] to act on your behalf, you are also authorising any monies to be collected or held on your behalf, to be deposited into the [WAA] Barristers and Solicitors trust account to be dealt with in accordance with your instructions, and the rules and legislation that govern solicitors trust accounts.

6 Mrs AT's report continued: 1

I understand that Ms [VX] deals only with employment relationship matters and she stated that authorities to lodge the monies within the [WAA] trust account were contained in her client's settlement statements. However I have found that other monies had been transferred from a bank account in the name of [VXZ] to cover disbursements and fees payable to [WAA].

[Mr WB] of [WAA] explained that the bank account in the name of [VXZ] was operated jointly by Ms [VX] and the partners of [WAA] and the fees were not to be taken from settlement funds clients were requested to pay monies to cover their legal costs into this account.

…

From my enquiry into the administration of the account by [WAA], I have found that Ms [VX] rendered each client an individual bill of costs and these were handed to the trust account administrator at [WAA] to enable disbursements to be debited to the ledger together with 50% of the costs payable to [WAA].

If compensation monies had been received on behalf of the clients, it was the normal practice to debit disbursements and 50% of the fees to the [WAA] float account and to pay the remaining share of the fees to the [VXZ] business account by direct credit.

However, if the fees were to be paid from monies received into the joint business account a pro — forma bill to cover the [WAA] costs was posted to the trust ledger and Ms [VX] was responsible for drawing her share of the fees from that account. It was not [WAA's] policy to render a bill of costs to [VXZ].

7 By way of further explanation it is helpful to refer to the following extracts from a letter dated 28 October 2010 sent by Mr VZ, counsel engaged by Ms VX, to the Standards Committee:

• 1. [VXZ] is a company of which [Ms VX] is the Director.

• 2. The company occupies office space in the premises of the law firm [WAA]. It also has use of the firm's reception, accounting, power and telephone facilities.

• 3. Instead of paying rent as a sub — tenant, the company pays for its use of the facilities by dividing its fee income equally between [WAA] and itself.

• 4. The legal practice of [VXZ] is that of representation of claims by present and former employees, employers and unions made under the Employment Relations Act 2000.

• 5. Ms [VX] has the option of carrying out such services as a Barrister and Solicitor (which she has chosen), a Barrister or as a non — lawyer advocate. Her view is that she prefers to practise as a lawyer, thus excluding the advocate option. She believes that as a Barrister and Solicitor she can function professionally in a more straightforward and efficient way than as a Barrister. Likewise from [WAA's] perspective that also is preferred.

• 6. Payments for claims made under the Employment Relations Act 2000 are required by the Act to be made either to the claimant directly by the payer or into a Solicitor's trust account. I attach a copy of s l50A with commentary and of ss 149(3) and 150(3) which are referred to in s 150A. Thus [VXZ] arranges for its clients to pay into the [WAA's] trust account. Also enclosed is a copy of a settlement form commonly in use for the purpose of the Act.

• 7. In the Inspectorate's report of 31 May 2010 to [WAA], reference was made to there having been 193 matters for which ledgers had been set up. This number needs to be put into perspective. It is made up of three categories: clients of [WAA] referred to [VXZ] who remain [WAA's] clients; clients of [VXZ] for whom compensation monies are received; and clients for whom no compensation is received and only fees are transacted. The middle group is the only one relevant for the present purpose and at a maximum would comprise a third of total matters.

8 The settlement form referred to by Mr VZ in paragraph 6 included the following direction by the client:

Within 7 days of both parties signing this record of settlement the employee shall receive:

• i. A certificate of service outlining his years of service, roles and duties; and

• ii. $ [AMOUNT] in accordance with section 123(1)(c)(1) of the Employment Relations Act 2000 to be made by direct credit into the [WAA] Barrister and Solicitors trust account [bank account number].

9 The above paragraphs from Mrs AT's report and Mr VZ's letter are sufficient to record the nature of the arrangement between VXZ and WAA.

The Standards Committee determination

10 Having considered all of the material before it, which included submissions from Mr VZ and advice from Mr AS, the Standards Committee recorded its determination in the following way: 2

• 13. Having inquired into the matter and conducted a hearing the Committee determined that there has been unsatisfactory conduct on the part of the practitioner pursuant to s 152(2)(b)(i) of the Act by way of breaches of s 110 of the Act. In providing a surrogate trust account to [VXZ], Mr [WB] and Mr [WA] were in breach of s 110(1)(b). They were obliged to hold the money exclusively for the person on whose behalf it had been received, to be paid to that person or as that person directed. The surrogate trust account resulted in a confusion of identity about “the person on whose behalf the money had been received”. Mr [WB] and Mr [WA] considered [WAA] was holding the money on Ms [VX]'s behalf but the evidence showed it was the money of the individual clients of [VXZ].

• 14. The Committee noted there was nothing to suggest dishonesty on the part of the practitioners however there had been serious breaches of the legal requirements for the operation of lawyers' trust accounts, which exist for the protection of clients and for the maintenance of public confidence in the legal profession.

11 It then made the following orders:

In relation to Mr [WA] the Committee makes the following orders:

• a. That Mr [WA] be censured pursuant to s 156(1)(b) of the Act;

• b. That Mr [WA] pay to the New Zealand Law Society by 3 June a fine of $1,000 pursuant to s 156(1)(i) of the Act;

• c. That Mr [WA] pay to the New Zealand Law Society by 3 June 2012 the sum of $1,000 in respect of the costs and expenses of and incidental to the inquiry and the hearing pursuant to s 156 (i)(n) of the Act;

• d. That the name of Mr [WA] not be published.

In relation to Mr [WB] the Committee makes the following orders:

• a. That Mr [WB] be censured pursuant to s l56(1)(b) of the Act;

• b. That Mr [WB] pay to the New Zealand Law Society by 3 June 2012 a fine of $1,000 pursuant to s 156 (1)(i) of the Act;

• c. That Mr [WB] pay to the New Zealand Law Society by 3 June 2012 the sum of $1,000 in...