Ms Vx and Vxz v [North Island] Standards Committee

• Jurisdiction: New Zealand
• Judgment Date: 05 June 2013
• Neutral Citation: [2013] NZLCRO 24
• Date: 05 June 2013
• Docket Number: LCRO 126/2012
• Court: Legal Complaints Review Officer

BETWEEN

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

Ms VX and VXZ

Applicant

and

[North Island] Standards Committee

Respondent

[2013] NZLCRO 24

LCRO 126/2012

Application for review of Standards Committee determination that the practitioner's incorporated law firm breached the provisions of s110(2) Lawyers and Conveyancers Act 2006 (incorporated firm that received money for, or on behalf of, any person to ensure that the money paid into a bank to a general or separate trust account of the firm; and hold the money exclusively for that person, to be paid to that person or as that person directed) — law firm specialised in employment claims — payments for claims under the Employment Relations Act 2000 required to be made either to the claimant directly or into a solicitor's trust account — practitioner made arrangement with another law firm to use that firm's trust account — client was recorded as practitioner law firm — whether practitioner or her firm was in receipt of client funds by being “in control” of the funds — whether imposition of fine, costs and censure was appropriate.

DECISION

Introduction

1 This is an application for review of a determination by the Standards Committee in which it found that VXZ, the law firm operated by Ms VX, had breached the provisions of s 110(2) of the Lawyers and Conveyancers Act 2006 (the Act) and issued a wrongful certificate under's 112(2) of the Act.

2 This decision is of some importance in that it concerns an arrangement between VXZ and the law firm WAA whereby VXZ operated without a trust account (and certified accordingly to the New Zealand Law Society) and directed funds paid to VXZ clients pursuant to Employment Relations Act proceedings into WAA's trust account.

Background

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

4 Mrs AT, an 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 & 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 depotised into the [WAA] Barristers & Solicitors Trust Account to be dealt with in accordance with your instructions, and the rules and legislation that govern Solicitor's 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 clients' 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 if 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 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] 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 150A with commentary and of ss149(3) and 150(3) which are referred to in s150A. 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 seven 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 & Solicitors Trust Account [bank account number].

9 The above paragraphs from Mrs AT's report and Mr VZ's letter 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

• 17. Having inquired into the matter and conducted a hearing the Committee determined that there had been unsatisfactory conduct on the part of Ms [VX] pursuant to s152(2)(b)(i) and on the part of [VXZ] pursuant to s152(2)(b)(ii) on the basis of:

  • a. Breach of s 110(2) of the Act; and

  • b. Issuing a wrongful certificate under's 112(2).

• 18. The Committee referred to s 17(2), by which a lawyer who is a director or shareholder of an incorporated firm is subject to all the professional obligations applicable to a lawyer practising on his or her own account.

11 It made the following Orders:

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

• b. That Ms [VX] and [VXZ] jointly and severally 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 Ms [VX] and [VXZ] jointly and severally pay to the New Zealand Law Society by 3 June 2012 the sum of $2,000 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 the practitioner not be published.

12 VXZ have applied for a review of that determination.

Review

13 This review proceeded by way of a hearing in Hamilton held on 26 March 2013. VXZ were represented by Mr VZ and the Standards Committee was represented by Mr AS, accompanied by Mrs AT. Messrs WA and WB also attended the hearing as the review was conducted in conjunction with the review of a determination by the Standards Committee concerning their conduct in relation to another matter.

14 An initial observation to be made is that it is somewhat disappointing that this matter has proceeded by way of an investigation followed by findings against the practitioners. I note that Mr WB sought to meet with the Complaints Service for the purpose of resolving the matter by conciliation, negotiation or mediation in terms of s 143 of the Act but it does not appear that any such meeting occurred.

15 I understood Mr AS to submit that once the Standards Committee became appraised of the matter by way of an own motion investigation, it was required to continue through to a...