MS MC v MR VB
| Jurisdiction | New Zealand |
| Judgment Date | 18 June 2012 |
| Neutral Citation | [2012] NZLCRO 47 |
| Date | 18 June 2012 |
| Docket Number | LCRO 175/2011 |
| Court | Legal Complaints Review Officer |
Concerning an application for review pursuant to section 193 of the lawyers and conveyancers act 2006
Concerning a determination of wellington standards committee
[2012] NZLCRO 47
LCRO 175/2011
Application for review of Standards Committee decision not to proceed with a complaint against a practitioner for transferring funds without proper authorisation from the client — practitioner paid $193,500 to third party which included merchant banker fee — client said practitioner was authorised to make payment of only $184,500 — whether the conduct complained of was sufficient to warrant disciplinary proceedings — whether any compensatory order could be made on ground that the practitioner did not have the appropriate authority to make the payment he made.
The names and indentifying details of the parties in this decision have been changed.
DECISION
In 2006 AEC purchased a property in Wellington with the intention of developing it into residential units. Ms MC was a shareholder and director of the company.
The company engaged AEE to arrange the necessary finance and a document described as a “Mandate Agreement” was entered into. AEE performed its obligations under that Agreement and a fee of $77,483.00 became payable.
AEE agreed to require payment only of $8,000.00 at that stage with the balance to be paid from the construction funding in due course.
The principal of AEE was Mr MD and it was he who Ms MC dealt with throughout this matter.
The project did not proceed as planned and by 2008 various creditors were seeking payment. AEE had by that time arranged funding through Kiwibank and it was agreed that a drawdown of $705,000.00 would be made which, together with funds from each of Ms MC and the other shareholder/director in the company, would enable these payments to be made.
Ms MC had instructed Mr VB of AED to act on behalf of the company for this project. Although Mr VB knew Mr MD and had had previous dealings with him, Ms MC had engaged Mr MD independently of Mr VB.
As a condition of its loan, Kiwibank required all drawdowns to be approved by the company's consultant, AEF as being within the budget approved by Kiwibank. It was also intended that the company accountant, Mr VA, should audit the payments made, but there is dispute over what stage the audit was to take place.
The drawdown was paid by Kiwibank on 18 April 2008 and all payments were made by AED on 21 and 22 April 2008. Included in the payments was a payment of
$193,500.00 to AEE.
Following the drawdown and completion of the payments, AED reported to AEC and provided a full statement of all payments.
The project was completed but AEC subsequently went into liquidation.
In December 2010, Ms MC lodged a complaint with the Complaints Service of the New Zealand Law Society. Her initial complaint was that AED acted on the instructions of Mr MD only and did not have authority from AEC to make the payment to AEE.
As the investigation proceeded, Ms MC also raised two other complaints. The first of these was that Ms MC had relied on advice from Mr VB as to the appropriate fee to be paid by AEC to those persons who entered into the underwriting agreements with AEC. The second further complaint raised by her was as to the quantum of the fees charged by AED.
Having considered all of the material provided in connection with this matter, the Standards Committee determined pursuant to section 152(2)(c) of the Lawyers and Conveyancers Act 2006 that further action was inappropriate or unnecessary. It recorded its reasons for this determination in the following way:
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1. The Committee was of the view that the affidavit of Mr [MD], director and shareholder of [AEE], answered the questions it had raised.
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a) Mandate
There is evidence, which confirms that there was a mandate agreement created on 2 April 2008, and there is a copy of the unsigned mandate, the original having apparently been inadvertently lost/destroyed.
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b) Authority
Mr [MD]'s evidence is that the mandate governed the relationship between [AEE] and [AEC]. He believes that he held at all times the necessary authority from [AEC] to authorise [AED] to make payment of the fees recorded in [AED]'s statement of 28 April 2008, subject only to fees payable to [AED] and [AEF]. On the day of settlement Mr [MD] met with Mr [WB] of [AED] and approved and authorised the disbursement of funds.
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2. Ms [MC]'s dispute is with [AEE] not with Mr [VB] and it is open to Ms [MC] to take civil proceedings against the company.
The Committee did not refer to either the complaint with regard to the underwriting fees or costs.
Ms MC has applied for a review of that determination. She considers that the Committee was unduly influenced by the evidence provided to the investigation by Mr MD and in particular an unsigned copy of a new Mandate Agreement which he alleges was signed in 2008 and which authorises payment to AEE.
Ms MC disputes that the 2008 Mandate was signed and asserts that it was not produced by Mr MD until she commenced her inquiries in 2010. She also points to the fact that this Mandate Agreement does not authorise payment to AEE for $193,500.00 but refers to a lesser sum of $184,500.00. In short she declares that no valid fee agreement documents, agreements of any kind, or a tax invoice were held by AED when they paid the sum of $193,500 to AEE nor did they have authority from AEC to do so. She asserts that the payment was made to Mr MD on his own authority.
A review hearing took place in Wellington on 2 May 2012. Ms MC was accompanied by a support person. Mr VB attended and was represented by Ms WC and accompanied by Mr WB, the solicitor who affected the drawdown and made the payment in dispute.
Mr WD on behalf of Mr VB had previously made the point in his submissions to the Complaints Service that it was Mr WB who was responsible for the disbursement of the drawdown funds and that the worst Mr VB could be accused of was inadequate supervision. At the review hearing however, Mr VB did not seek to avoid responsibility for the matter on this basis and I have proceeded with this review accordingly.
The major aspect of Ms MC's complaint relates to the payment made to AEE. It is important to note that in a letter to this Office dated 2 December 2011, Mr WD on behalf of Mr VB, acknowledged that Mr VB did not have a written authority from AEC authorising the various payments set out in the statement dated 28 April 2008. Mr WD also acknowledges that the firm did not have a written record of any oral instruction given by the company authorising the payments.
He goes on to state that “we acknowledge that this is a technical breach of rule 5(7)(b) of the Solicitors' Trust Account Rules but say that we have produced to the Standards Committee more than sufficient evidence establishing that authority was indeed given to make the disbursements and that Ms MC fully appreciated exactly how the money was allocated and paid”.
At the time that the payments were made, the relevant Rule was the Solicitors' Trust Account Rules 1996. Rule 5(7) of the Rules provides as follows:
“A solicitor may make transfers or payments from a client's trust money only if –
(b) the solicitor obtains the client's instruction or authority for the transfer or payment, and retains that instruction or authority (if in writing) or a written record of it”
In conjunction with the Trust Account Rules, the New Zealand Law Society Board issued a set of Guidelines; compliance with which generally ensured compliance with the Rules. Paragraph 6.1 of the Guidelines referred to the requirements of Rule 5(7) and paragraph 6.2 sets out the only situations where the express authority of the client was not required. These were:
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where the payment was to the client; or
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where the transfer was to the client's interest bearing deposit account; or
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where the authority was inherent in other documents (such as a will or agreement for purchase of a property).
It is the third situation on which Ms WC relies to excuse Mr VB from strict compliance with the Rule.
Paragraph 6.2 of the Guidelines identify that the only circumstance where an express client authority was not required to authorise payment to third parties. The first and second exemptions referred to payments to the client directly or to place funds on deposit for the benefit of the client. The third exemption refers to an inherent authority in other documents such as a will or an Agreement for Sale and Purchase. It is pertinent to note that these are documents which would have been signed by the client. It must also be noted that the law firm must be able to produce a copy of the signed document on which it relies to satisfy the exemption.
The only document which could fall into this category is the Mandate Agreement which Mr MD asserts was produced and signed in 2008. He provided forensic evidence that the document was created on 2 April 2008 and states that he believes this would have been signed by the parties. However, he cannot produce the original and suspects that it may have been inadvertently lost or destroyed when AEE moved offices in early 2010.
This document identifies the responsibilities of AEE as being to:
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collate data in a format that was acceptable to Kiwibank and other parties;
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manage the project to its current position while liaising with professional connections and the construction company;
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arranging construction and residential facilities; arranging underwrite agreement.
The fee for the services is recorded as being $184,500.00. The Agreement provided that “until such time as you have paid AEE the commission, you...
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