TW v NH
| Jurisdiction | New Zealand |
| Judgment Date | 21 February 2013 |
| Neutral Citation | [2013] NZLCRO 8 |
| Date | 21 February 2013 |
| Docket Number | LCRO 226/2011 |
| Court | Legal Complaints Review Officer |
Concerning An application for review pursuantto section 193 of the Lawyers and Conveyancers Act 2006
and
Concerning a determination of the Otago Standards Committee
[2013] NZLCRO 8
LCRO 226/2011
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.
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:
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a. $6,690.13 in legal fees incurred in seeking advice in respect of this matter;
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b. $4,659.54 which was an amount that he forgave NF as he said it was unrecoverable;
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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
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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:-
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a. Ordered compensation of $4,500.00 in legal fees incurred in seeking advice in respect of this matter;
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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);
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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;
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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:
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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.
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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.
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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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d. That the Committee wrongly concluded that TW had suggested that compensation of $4,500.00 in respect of legal fees was appropriate when in fact this was an amount suggested as compensation for all matters.
In response to the submissions of TW, NH stated that he decided to settle the issue of his entitlements under the Will with his father (NF) for less than his entitlement under the Will, due to the fact that his father was not in a position to return the balance of the funds and he sought a pragmatic solution to the problem by relinquishing a portion of his entitlement against his father to secure settlement.
He also stated that the date of the distribution is the proper date for valuation, noting that for a significant period of time NF had the benefit (interest free) of the capital of a portion of the estate.
The power to make an Order of compensation is found in s 156(d) of the Lawyers and Conveyancers Act 2006. That section provides that the Standards Committee may order compensation where it appears “…that any person has suffered loss by reason of any act or omission of a practitioner”.
It appears to be accepted that some loss has been suffered by NH by the conduct of TW. The issue is the exact quantum of that loss. In particular, what loss was caused by TW (i.e. was suffered ‘by reason of’ an act or omission of TW) and what losses, costs and expenses would have been incurred anyway.
The suggestion that NH ought not to be compensated for the loss of that part of his interest that he relinquished in order to achieve settlement is not sustainable. The position in which NH found himself (i.e. that his entitlement was at risk due to the advance of the capital to the life interest holder) was due to the conduct of TW. He was entitled to take reasonable steps to mitigate that fact. Directly relevant is that the capital had been advanced on an unsecured loan to NF and that NF was unable to repay it. Although he may have had assets from which payment could be sought, it was open to NH to elect whether to pursue the shortfall from the assets of NF (or presumably from his estate on NF's death when the entitlement crystallised), or to seek to secure as much of his entitlement as immediately possible to recover, and to seek to recover the shortfall from TW as the wrongdoer.
In this regard the Committee was correct to include the amount of compensation for the diminished value of the interest, the $4,659.00 less that NH received.
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