TW v NH
 NZLCRO 8
Concerning An application for review pursuantto section 193 of the Lawyers and Conveyancers Act 2006
Concerning a determination of the Otago Standards Committee
Application by practitioner for review of Standards Committee decision as to the amount of compensation and legal fees payable to the respondent — practitioner acted for estate of respondent's aunt — respondent's father had one third life interest in the estate and respondent was to be paid capital on death of father — practitioner advanced capital by unsecured loan to respondent's father — loan not repaid — agreed that interests of respective parties would be valued according to actuarial table and distributed — respondent forgave part of sum owed by father as it was not recoverable — respondent claimed this shortfall from practitioner — whether respondent entitled to claim amount by which he had compromised his claim — whether respondent was entitled to full compensation of legal costs incurred — whether date of valuation of entitlements was date of distribution rather than date of testatrix's death — how income accruing to estate was to be assessed.
The names and indentifying details of the parties in this decision have been changed.
The issues were: whether the respondent was entitled to claim the amount by which he had compromised his claim from the practitioner; whether the respondent was entitled to full compensation of legal costs incurred; whether the date of valuation of entitlements was the date of distribution rather than date of testatrix's death; whether the practitioner had failed to protect the capital of the estate from inflationary erosion; and, how income from the estate was to be treated.
Held: Under s156(d) Lawyers and Conveyancers Act 2006 (“LCA”), the Standards Committee could order compensation if any person suffered loss by reason of an act or omission on the part of a practitioner. The respondent had incurred loss by the conduct of the practitioner. The respondent's entitlement had been at risk due to the advance of the capital to NF. This was as a result of the practitioner's conduct in advancing capital to NF on an unsecured loan. Although NF had assets from which payment could be sought, it was open to the respondent to elect whether to pursue the shortfall from NF's assets or to seek to recover the shortfall from the practitioner as the wrongdoer.
It was “trite” that the proper date for the valuation of an interest under a will was the date of death. However, the distribution in this case was not a distribution under a will but rather a settlement of an issue which had arisen due to the wrongful payment of capital to the life interest holder by the practitioner. The proper date for the valuation of the interests was the date on which the settlement was reached and the life interest and remainder were converted to respective interests in the capital.
The trustee had to ensure that the capital of an estate was preserved, including protecting it against erosion from inflationary pressures. The practitioner had assumed the role of trustee by making decisions in respect of the investment of the funds of the estate, including advancing them to NF and holding them on fixed interest bearing deposits. However, the practitioner did not make allowance or provision to ensure that the capital of the fund was not diminished in real value due to inflation. The practitioner, in managing the funds of the estate, was obliged to act fairly as between NF and respondent as the life beneficiary and remainderman respectively.
Although the funds were held for a relatively short period of time, two years, the trust funds ought not to be held solely in fixed interest bearing investments where there was an obligation to reasonably and fairly protect the interest of a remainderman. Some allowance should be made for this failure. The capital not was preserved from the effects of inflation for the period the estate was under the stewardship of the practitioner. However, the respondent did not seek a review and it was not therefore necessary to make that adjustment.
It was clearly appropriate that the practitioner bear the reasonable costs which the respondent incurred in pursuing the matter. However, it was not proper that full costs were given as compensation because, as the Committee noted, some costs would necessarily have been incurred in arranging for the valuation of and payment out of the remainder. The Committee's order that the practitioner bear $4,500 of the costs and respondent bear the remaining $2,190 was reasonable in the circumstances.
The Committee's order as to penalty was an appropriate assessment of the loss that the respondent suffered by reason of the acts or omissions of the practitioner.
NH complained about the conduct of TW when he acted as solicitor for the estate of NG (NH's aunt). NG had died in December 2008, leaving a life interest in a third of her estate to NH's father, NF. The capital was to be paid to NH on the death of NF.
At the centre of this complaint is the fact that TW advanced, without authority, $250,000.00 of the capital to NF by way of an unsecured loan in October 2010.
When NH later learned about his entitlement he was unhappy with the fact that the advance had been made in a way which meant his interest was not secured. It transpired that NF used a large part of the advance and was not in a position to repay the loan to the estate. Ultimately it was agreed that the interests of the respective parties would be valued according to actuarial tables and distributed (to avoid the need to further administer the interest).
It appears that the value of the portion of the estate held to the account of NF (including the debt owed by NF to the estate in respect of the advance), when the settlement between NF and NH was reached, was $327,685.41. Of that sum TW noted that $6267.41 was income accrued since the date of death of the testatrix (being 1/3 of the income on the assets of the estate as a whole).
Before the Committee NH claimed:
a. $6,690.13 in legal fees incurred in seeking advice in respect of this matter;
b. $4,659.54 which was an amount that he forgave NF as he said it was unrecoverable;
c. An adjustment in respect of the date of the valuation of the entitlements to be the date of the distribution rather than the date of the death of the testatrix; and
d. An adjustment representing a refund of the fees deducted from the estate when TW acted inappropriately without reference to NH.
The Committee did not adopt NH's framework when it made its Orders. Rather it recalculated NH's entitlement and reached the conclusion that his proper entitlement was $215,287.05. That amounted to the value of his interest, discounted for the life expectancy of NF, and deducting a portion of the estate's properly payable legal costs. The amount in fact paid was $204,603.35. The Committee therefore considered that NH had been underpaid $10,683.70 and ordered that amount to be paid in compensation.
Thus in respect of the claims of NH the Committee:-
a. Ordered compensation of $4,500.00 in legal fees incurred in seeking advice in respect of this matter;
b. Accepted that NH was entitled to the full value of his interest in the estate but to include the $4,659.00 in the global assessment of value (and did not deal with it separately);
c. Considered that an adjustment in respect of the date of the valuation of the entitlements to be the date of the distribution rather than the date of the death of the testatrix was appropriate;
d. Considered that an adjustment representing a refund of the fees deducted from the estate when TW acted inappropriately without reference to NH was not appropriate.
The Standards Committee made a finding of unsatisfactory conduct on the part of TW when he advanced capital to NF without reference to NH. No review is sought in respect of this finding.
However, TW sought a review only of the Orders made (and in particular the Orders relating to compensation/legal fees).
The main arguments of TW on review were:
a. NH was not compelled to compromise his entitlement and could have pursued his father for the outstanding amount and therefore the sum of $4,659.00 should not be included in any settlement amount.
b. That the proper date of valuation of the interests of the parties was the date of death of the testatrix and not the date of the settlement between NF and NH.
c. That income received by the estate between the date of the death of the testatrix and the date of the settlement between NH and NF was properly payable to NF absolutely and the Committee should not have taken that into account in determining the entitlement of NH....
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