Mr Wb and Mr Wa v [North Island] Standards Committee
 NZLCRO 25
Concerning an application for review pursuant to section 193 of the Lawyers and Conveyancers Act 2006
Concerning a determination of [North Island] Standards Committee
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
The names and identifying details of the parties in this decision have been changed.
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.
The issue was whether there had been a breach of s110 LCA.
Held: The LCA and Lawyers and Conveyancers Act (Trust Account) Regulations 2008 (“the Trust Account Regulations”) were designed to ensure protection of client funds. There was a principle that the lawyer receiving the money should be the same lawyer who held the money.
A reference to the ledgers provided in the course of the own motion investigation show that the client was recorded as “[VXZ] re [name of client]”. Regulation 12(6)(b) Trust Account Regulations provided that a practitioner could make transfers or payments from a client's trust money only if the client's ledger account had sufficient funds and they were available for that purpose; and the practice obtained the client's instruction or authority for the transfer or payment.
Consequently, no payment out of the account could be made without the authority of VXZ. Although separate ledger accounts were created for each person within that client account, that did not alter the fact that the client was recorded as VXZ. The client was not the individual. If they were, they would have been recorded in the same way as WAA's own clients who were referred to VXZ.
WB had responded to the Standards Committee that it had WAA hold the money exclusively for the Company VXZ and that money was paid as VXZ directed. If WAA considered that the funds had been held for the individual clients, a separate client account should have been opened for each client and the funds credited to that account. That had not happened, and therefore WB and WA had breached s110(1)(b) LCA. Despite the applicant's views of the status of funds held and to whose order they were held, that was not reflected in the trust account arrangement and in reality the funds were within the control of VXZ and in trust account terms, WAA were obliged to adhere to any instructions issued by that firm.
The award of costs was appropriate. The imposition of a censure was somewhat harsh. However, WB and WAA had not co — operated, nor had they accepted that the arrangement did not comply with the LCA and the Trust Account Regulations. They had also displayed an intention to continue with the arrangement notwithstanding the inspector's report. Compliance with the LCA and the Trust Account Regulations to ensure protection of client funds were matters which all levels of the disciplinary process strictly enforced. Those objectives could not be achieved if questionable arrangements were in place to deal with client funds. The arrangement was questionable in the sense that it could be described as a device to allow VXZ to avoid the obligation to operate a trust account itself, and the checks and balances that went with it. Seen in this light, the arrangement entered into between VXZ and WAA would not enhance public confidence in the provision of legal services and brought uncertainty as to the status of client funds within WAA trust account which did not add to the protection of consumers of legal services.
The censure was appropriate in the circumstances. Pursuant to s211(1)(a) LCA (powers exercisable on review — confirm, modify, or reverse any decision of a Standards Committee) the determination of the Standards Committee was confirmed.
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).
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.
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.
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.
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.
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].
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...
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