SM v HW
| Jurisdiction | New Zealand |
| Judgment Date | 29 March 2019 |
| Neutral Citation | [2019] NZLCRO 39 |
| Date | 29 March 2019 |
| Docket Number | LCRO 197/2017 |
| 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 the [Area] Standards Committee [X]
[2019] NZLCRO 39
LCRO 197/2017
Law Practitioners — conflict — acting against a former client — confidential information — “getting to know you” principle — Lawyers and Conveyancers Act 2006 — Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008
Ms SM as the Applicant
Ms HW as the Respondent
Mr GZ as the Related Person
[Area] Standards Committee [X]
New Zealand Law Society
Ms SM has applied for a review of a decision by the [Area] Standards Committee [X] (the Committee) to take no further action in respect of her complaint concerning the conduct of Ms HW, at the relevant time, a director of TD, [Area] (the firm).
During 2012, Ms SM, her then husband, Mr JK, and Mr JK's parents formed a company (the company). Of the 300 shares issued, 100 shares were held by Mr JK and Ms SM jointly. The remaining 200 shares (the shares) were also held by Mr JK and Ms SM jointly, but as trustees for Mr JK's parents, as beneficiaries. 1
In November, December 2012, the company purchased a unit in [Address A] assisted by a bank loan secured over that property.
Ms SM and Mr JK also owned a property at [Address B] in which they lived. That property was also mortgaged to the same bank.
In March 2016, Ms SM and Mr JK separated. At that time, while Ms HW was a director in a previous law firm, another lawyer in that firm acted for Ms SM in respect of an application under the Domestic Violence Act 1995 for a protection order against Mr JK's father.
Ms HW commenced practise in the firm from 9 September 2016. She began acting for Mr JK from 12 December 2016 in respect of a possible mortgagee sale of [Address B] by the bank.
On 14 December 2016 Mr JK's parents signed a letter of instructions and directions, prepared by Ms HW, which required, in effect, Mr JK and Ms SM, as trustees, to transfer the shares to Mr JK's parents. Five days later on 19 December 2016 Mr JK's parents signed a vesting deed, also prepared by Ms HW, pursuant to which Mr JK's parents instructed Mr JK and Ms SM to transfer the shares to [Mr JK's parents].
In the meantime, Ms SM's lawyer informed Ms HW by email on 16 December 2016 that Ms SM wanted both properties sold. In doing so, Ms SM's lawyer provided Ms HW with a listing agreement for Mr JK to sign failing which Ms SM would apply to the Court for a sale order.
In response, the following day, 17 December 2016, Ms HW stated that Mr JK and his parents did not agree to the sale of the [Address A] property. Concerning [Address B], Mr JK's parents required repayment of their loan to Mr JK and Ms SM, and Mr JK's and Ms SM's joint credit card debt. Ms HW suggested that if Ms SM did not agree then the balance of sale proceeds be held in escrow until resolved under the Property (Relationships) Act 1976.
At 10.02 am on 22 December 2016, Ms SM's lawyer stated (in her accompanying 21 December 2016 letter) that Ms HW, by acting for Mr JK and his parents against Ms SM was conflicted, and requested Ms HW to reconsider. Ms SM's lawyer repeated that Ms SM wanted both properties sold, the sale proceeds held pending a Court order, and stated Ms SM did not agree to any funds being paid to Mr JK's parents.
In response by email at 10.32 am Ms HW stated that, when at her previous firm, she was not involved in Ms SM's domestic violence matter which had been resolved, and saw no conflict in her continuing to act for Mr JK and his parents “on fresh issues unconnected with [that] matter”.
Later that day the company's accountant registered a transfer of the shares to Mr JK's parents. Ms SM was informed of that transfer a month later on 23 January 2017.
On 25 January 2017 Ms HW, in response to Ms SM's lawyer's request for an explanation of the share transfer, provided Ms SM's lawyer with copies of the bare trust deed, Mr JK's parents' 14 December 2004 letter, and the 19 December 2016 vesting deed.
Ms SM lodged a complaint with the Lawyers Complaints Service on 28 February 2017. She sought punitive orders, reimbursement for the “extra money” she had spent on legal costs resulting from the transfer of shares, and compensation for stress suffered.
Ms SM claimed that Ms HW, whilst “acting” for Mr JK “in relation to [their] family dispute proceedings” and knowing about the proceedings issued by [Ms SM] in the Family Court, “instructed” the company's accountant “to make [illegal] changes” to the company's shareholding “without [Ms SM's] consent”.
Ms SM said Ms HW's action led to [Ms SM] having to apply to the Family Court to correct the company's share register, and in doing so had incurred “substantial unnecessary cost[s]”.
Ms SM stated she had “never met” Ms HW, but during 2016 was a client of Ms HW's previous firm where Ms HW was a director at that time. She says an associate of that firm acted for her “at the beginning of [her] separation” concerning “relationship property”.
She claimed that although “well aware of the … existing relationship property dispute”, Ms HW “still insisted [acting] for [Mr] So”.
I refer to Ms HW's response, and submissions to the Committee in my analysis.
The Committee delivered its decision on 19 September 2017 and determined, pursuant to s 138(2) of the Lawyers and Conveyancers Act 2006 (the Act), that no further action on the complaint was necessary or appropriate.
The Committee's conclusion was that Ms SM, and Mr JK “were required to act on the instructions” of Mr JK's parents, who had executed a deed of vesting, to transfer the shares to them. This is because the shares in the company were held by Ms SM and Mr JK, as trustees, for Mr JK's parents, as beneficiaries pursuant to a bare trust.
The Committee described the fact that Ms SM had not signed a share transfer as required by s 84 of the Companies Act 1993 as a “technical breach”. Because the Companies Office, after receiving Ms HW's explanation, decided not to take any action, the Committee did not consider Ms HW had breached any professional standards.
The Committee noted that Ms HW, in the absence of a reply to “a letter to Ms SM requesting that the shares be transferred [to] Mr JK's parents”, instructed the company's accountant to transfer the shares to Mr JK's parents.
In the Committee's view, the evidence did not support Ms SM's allegation that Ms HW had the shares transferred after she became aware of Ms SM's relationship property proceedings. The Committee said Ms HW was not notified about Ms SM's relationship property proceedings against Mr JK, for whom another firm acted, until after the shares had been transferred.
The Committee noted that (a) Ms HW acted for Mr JK's parents, and “did not appear to have accepted … instructions to act for Ms SM on relationship property matters”, and (b) Ms HW's firm had not acted for Mr JK on that matter.
The Committee said there was no evidence that another lawyer in the firm had acted for Ms SM concerning relationship property soon after [Ms SM] and Mr JK separated in March 2016.
For these reasons, the Committee did not consider that Ms HW had a conflict of duties, and therefore had not contravened r 6.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the rules).
Ms SM filed an application for review on 18 October 2017. She repeats her claim that Ms HW was aware of [Ms SM's] relationship property dispute with Mr JK before Ms HW instructed the company's accountant to transfer the shares to Mr JK's parents.
In support of her claim, Ms SM refers to Ms HW's 17 December 2016 email to Ms SM's lawyer in which Ms HW:
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(a) informed Ms SM's lawyer that [Ms HW] “now acts” for Mr JK, and his parents; and
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(b) replies to Ms SM's lawyer's 16 December 2016 email addressed to Mr JK's other lawyer. In that email, Ms SM's lawyer responded to Mr JK's “propos[al]” that both properties be sold and “the proceeds after payment of mortgage held pending an agreement as to division”.
Ms SM contends that these communications are evidence Ms HW knew, at that time, that Ms SM and Mr JK were in dispute concerning relationship property.
In her response, lodged with this Office on 7 November 2017, Ms HW says she informed Ms SM's lawyer in [Ms HW's] 17 December 2016 email that Mr JK, and his parents (a) opposed the sale of the [Address A] property, and (b) required that the [Address B] property be sold, and the sale proceeds applied as set out in [Ms HW's] email.
Ms HW explains that Ms SM's lawyer's 16 December 2016 email had stated that Ms SM “may in future” apply for an order for the sale of the properties, but did not provide details “about any existing or then current [F]amily [C]ourt proceedings between Mr JK and Ms SM”.
She says “it could not be said” from having received that email that she could “be imputed with knowledge” about such proceedings.
Ms HW denies she had “knowledge” or “received any notice” about relationship property proceedings “before the Family Court” at that time.
Ms HW says Ms SM's lawyer “disclosed nothing about any proceedings” in [Ms SM's lawyer's] 21 December 2016 letter, which was attached to Ms SM's lawyer's 22 December 2016 email to Ms HW. She says the first she knew about Ms SM's proceedings, and any challenge to the bare trust, was when Ms SM...
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