Tc and Td v Nv
 NZLCRO 1
Legal Complaints Review Officer
Concerning an application for review pursuant to section 193 of the Lawyers and Conveyancers Act 2006
Concerning a determination of the Otago Standards Committee
Application for review of a Standards Committee determination that practitioner's conduct in relation to one complaint constituted unsatisfactory conduct — practitioner received letter from tenant of complainant's property owning company that noted tenant's financial difficulties and led to waiving of a rent increase (on rental review) — landlord entered into agreement to sell the property but letter was not disclosed to purchaser by practitioner — following settlement, practitioner deducted fees for work done over the past six years (Committee determined this was unsatisfactory conduct) — purchaser's share of ground rental payable was not apportioned and recovered on settlement — whether deducting fees for past work from settlement proceeds was unsatisfactory conduct — if so, whether a penalty should have been imposed — whether Committee erred in deciding to take no further action in respect of complaints regarding the failure to apportion ground rental and failure to disclose the tenant's letter to purchaser.
The issues were: whether deduction of historical fees was unsatisfactory conduct; and whether the Committee erred in determining not to impose any penalty for the unsatisfactory conduct, or in taking no further action in respect of complaints regarding the failure to apportion ground rental and failure to disclose the tenant's letter to the purchaser's solicitor.
Held: The deduction of fees was not permitted. In , the LCRO held that if a lawyer wished to deduct fees from funds held for a client for general purposes he or she had to obtain the direction of the client to do so. However this decision came after this matter arose. In terms of the unsatisfactory behaviour found by the Committee, the imposition of a penalty would have been inappropriate as V had complied with the then widely accepted interpretation of r8 Solicitors’ Trust Account Regulations 1998 (restriction on debiting trust accounts with fees), which applied at the time. This was that, providing an invoice was rendered in accordance with r8, fees could be deducted from funds held for general purposes (since altered by and r9 Lawyers and Conveyancers Act (Trust Account) Regulations 2008 (restriction on debiting trust accounts with fees) which required direction of the client before any fees could be deducted from funds held for a client).
It was difficult to accept that a failure by a conveyancing lawyer to correctly prepare a settlement statement did not constitute unsatisfactory conduct under s12(a) Lawyers and Conveyancers Act 2006 (“LCA”) (unsatisfactory conduct defined in relation to lawyers and incorporated law firms). Errors in calculations were understandable, but a failure to identify what should be included in a settlement statement was not. Preparation of a settlement statement was a fundamental requirement in any conveyancing transaction and a client was entitled to expect that function would be competently and diligently completed. In the circumstances of failing to apportion ground rent, V's conduct did constitute unsatisfactory conduct.
In terms of penalty, the resultant anxiety and stress caused to the applicants needed to be acknowledged with minimal compensation ( and ). Without dismissing the anguish, distress and disruption to the applicants’ lives, the proceedings were issued in the Tribunal, and as a consequence the maximum liability faced was limited to $15,000. This was not the same as facing proceedings issued out of the Court where the cost and potential orders would have been far greater. It was appropriate that V be ordered to pay: (a) $500 to the applicants pursuant to s156(1)(d) LCA (power of Committee to make orders) by way of compensation; (b) $175 plus GST to CBW pursuant to s156(1)(e) in reduction of the firm's fees (to reflect the portion of the fee for preparation of the settlement statement); and (c) $300 to CBW in reimbursement of fees incurred in bringing the counter-claim in the Tribunal proceedings.
None of the conduct of any of the lawyers handling the file at the time of the sale to CBX constituted unsatisfactory conduct. The relevant letter from the tenant was not a formal notice in respect of anything and most conveyancing lawyers would not consider it fell into the category of a “Notice”, in terms of the vendor's warranty, that had to be disclosed to the purchaser. There was also the fact that it was not V who did not forward the letter, as he was away at the time due diligence was under way.
Determination of Committee confirmed in respect of all matters other than the complaint in respect of the failure to apportion ground rental.
TC and TD have applied for a review of the Standards Committee determination in which the Committee determined that NV's conduct constituted unsatisfactory conduct in respect of one of their complaints, but determined to impose no penalty in respect thereof, and took no further action in respect of the remainder of their complaints.
It is unfortunate that NV was not more pragmatic in accepting TC's settlement offer at the outset and/or engaging with TC prior to the complaint being made. Instead, much time has been expended throughout the process of the complaint and this review and the relationship between NV and his former clients has now been terminated.
NV had acted for TC and TD since 1992.
In March 2008 he was instructed by them to institute a rent review of a commercial building owned by TC and TD's property owning company, CBW.
In the course of that process, the tenant of the building sent NV a letter in which it was stated that his business had been on a very steady decline in the previous few months and that the printing industry in which the tenant was engaged was not in a good position overall. The tenant further advised that he had been unable to pay his bills, had made staff redundant and was facing further redundancies, and both owners and staff had been obliged to accept reduced wages. In summary, the tenant advised that any rent increase would “be the last nail in the coffin” for his business.
As a result, TC and TD waived the rent review on the basis that the rent would be reviewed the following year.
In August 2008, CBW entered into an agreement to sell the property to CBX. NV was away at the time the agreement was entered into and during the due diligence period. Various matters were raised by the purchaser's solicitor in the course of conducting due diligence, and in response to a query from them, the solicitor handling the matter for TC and TD provided a copy of the letter from NV to the tenant in which the rent review was waived. He did not however provide the purchaser's solicitor with a copy of the letter from the tenant referred to above.
The agreement was declared unconditional and settlement proceeded on 29 August 2008. NV had returned by that time and resumed control of the file. He was responsible for signing and sending the settlement statement sent to the purchaser's solicitor although it was prepared by a member of his staff.
Following settlement, NV accounted to TC and TD. In his statement he included accounts for work which had been done over six years previously totalling
$2,812.50 and deducted those fees from the balance paid to TC and TD.
TC and TD were disappointed and angry with NV and TC wrote to him to object to these fees being deducted. There followed some correspondence between NV and TC during which time TC reviewed his files to try and ascertain whether the work which had been billed had been included in previous accounts. He was unable to verify exactly whether he had been billed for those matters but offered to pay $1,000 plus GST in settlement of the account.
NV responded; -
I am surprised that you do not have access to your accounting records from 2002 as you are required to retain these. You should be well aware that there was work done and not charged for. The invoice for the work involved represents excellent value. I have offered to show you the file so that you can see the time records involved and review the matters undertaken. I am not prepared to accept $1,000.00 plus GST in full settlement. I would accept $2,000.00 plus GST.
Following some further correspondence NV wrote again to TC on 24 February: -
Thank you for your email dated 16 January 2009 and letter dated 17 February 2009. The correspondence between us seems to have reached a stalemate. We now propose that:
• We write off the outstanding bill of costs
• That you accept that you have no claims against us either personally through your company or your family trust
• That you will be entitled to pursue a claim against [CBX] for the apportionment of ground rent amounting to $1,537.50 through the Disputes Tribunal if you wish
• That you arrange to uplift your files
NV had earlier refunded the fees deducted following TC's objections.
In addition to TC's complaint about deduction of fees, he had also realised that the purchaser's share of ground rental payable by the registered proprietor of the property...
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