[2012] NZLCRO 47

LCRO 175/2011


Concerning an application for review pursuant to section 193 of the lawyers and conveyancers act 2006

Concerning a determination of wellington standards committee


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 issues were: whether the conduct complained of against the practitioner was sufficient to warrant disciplinary proceedings; whether compensation could be ordered.

Held: The Solicitors' Trust Account Rules 1996 (“STAR”) in conjunction with the guidelines issued by the New Zealand Law Society Board clearly stated that the only situations where the express authority of the client was not required to make payments were: where the payment was to the client; or where the transfer was to the client's interest bearing deposit account; or where the authority was inherent in other documents (such as a will or agreement for purchase of a property). It was pertinent to note however that these were documents which would have been signed by the client. It also had to be noted that a law firm had to be able to produce a copy of the signed document on which it relied to satisfy the exemption.

Under the mandate agreement, the fee for the services was recorded as $184,500. There was no evidence that the complainant had authorised payment of the sum of $193,500 to AEE and therefore, the practitioner did breach the STAR in making the payment to AEE. The breach was not in that payment was made but that the specific amount of $193,500 was not authorised.

The finding however, did not automatically result in an adverse finding against the practitioner. The conduct in question took place in early 2008 and the Lawyers and Conveyancers Act 2006 came into force on 1 August 2008. Therefore, the relevant provisions of Law Practitioners Act 1982 (“LPA”) applied. The threshold for disciplinary intervention under LPA was relatively high. The conduct complained of was not such that proceedings of a disciplinary nature could be commenced against the practitioner. The evidence produced by the practitioner made it clear that the complainant could not deny being aware that all the outstanding fees were to be paid and that would have included the fees due to AEE. It could not said that the complainant had little understanding or control over those payments as she was one of the two directors and shareholders of the company involved in the development project.

However, the fact remained that the practitioner did not have the appropriate form of authority as required by the STAR to make the payment. The outcome of this review might very well have been different if the provisions of the Lawyers and Conveyancers Act 2006 had been applicable. Even if that were the case, there would have been no compensatory order as sought by the complainant. The disciplinary process was not directed primarily at providing compensation to complainants, and did not provide the appropriate means and/or processes to establish what, if any, overpayment had been made. The company retained the ability to sue AEE for that in the courts.

The determination of the Standards Committee to take no further action with regard to the complaint concerning the payment to AEE was confirmed.

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



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.

The complaint and the Standard Committee's decision

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:

    The Committee was of the view that the affidavit of Mr [MD], director and shareholder of [AEE], answered the questions it had raised. 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. 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. 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.

The application for review

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.

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