SI v MO

JurisdictionNew Zealand
Judgment Date07 November 2012
Neutral Citation[2012] NZLCRO 99
Date07 November 2012
Docket NumberLCRO 241/2011
CourtLegal Complaints Review Officer

Concerning an application for review pursuant to section 193 of the Lawyers and Conveyancers Act 2006

and

Concerning a determination of Auckland Standards Committee 2

Between
SI
Applicant
and
MO
Respondent

[2012] NZLCRO 99

LCRO 241/2011

Application for review under s193 Lawyers and Conveyancers Act 2006 (“LCA”) of a Standards Committee determination which held the respondent had not engaged in unsatisfactory conduct pursuant to s12 LCA (unsatisfactory conduct defined) — respondent acted for applicant in conveyancing transaction — applicant had declined to review settlement statement when asked — respondent's legal executive had paid out money from applicant's trust account in order to dislodge a caveat without obtaining client's consent — whether respondent had breached s110(3) LCA (obligation to pay money received into trust account at bank), the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 and r12 Lawyers and Conveyancers Act (Trust Account) Regulations 2008 by transferring money from the trust account without consent — whether applicant was entitled to compensation under s156(1)(d) LCA (power of Standards Committee to make orders — compensation for loss).

SI as the Applicant

MO as the Respondent

The Auckland Standards Committee 2

The New Zealand Law Society

Introduction
1

This review involves a consideration of the obligations of a lawyer to obtain approval from a client to make payment from funds held for the client. It arose in the context of a conveyancing transaction involving the sale of a property and as such is relevant to all conveyancing lawyers.

Background
2

In May 2009 SI and SJ instructed MO to act on their behalf in respect of the sale of their residential property.

3

Registered against the title to the property was a caveat by SK as well as another caveat and two mortgages.

4

SK had previously been employed by a company which for the purposes of this review can be taken as being “owned” by SI and SJ. Earlier in the year the company had got into financial difficulties and SK had advanced various sums of money to the company. One particular advance of $7,500 was the subject of an informal acknowledgement of debt that read; —

To: SK

We SI and SJ acknowledge that we are indebted to you in the sum of

$7,500.00 and that such sum may be secured against our property at [Street Name] Place, [Location] (CT NA_/_).

SI SJ

5 March 2009

5

A caveat was lodged to secure these funds but did not of course refer to the specific amount protected by the caveat. It is understood that the caveat was expressed as having been lodged pursuant to an agreement to mortgage or an unregistered mortgage although I have not sighted the underlying documents.

6

In February 2009 the business was sold to SK and SI and SJ allege that the sale price had been reduced by the amount owed to SK other than the amount of $7,500 which remained outstanding.

7

MO had not acted for the SI and SJ in relation to the sale of the business and was not therefore privy to this background information. All he was aware of was that there was a caveat registered against the title to the property to be sold which needed to be withdrawn to enable the sale of the house to proceed.

8

The Agreement for the sale of the property was forwarded to MO by the agent on 26 May 2009. On 29 May 2009 MO made a file note which I accept was a record of a telephone conversation with SI, rather than a face to face meeting.

9

The file note referred to the sums owed to the mortgagees and the caveators. Beside a figure “(4)” (referring to the 4 th encumbrance on the title, being the caveat) was recorded the figure “$10,000”.

10

A second undated file note also included reference to the sum of $10,000 together with further notes with regard to an issue raised by the purchaser concerning the property.

11

It is accepted by the parties that these file notes referred to discussions between them as to the amount due to SK and that SI had advised MO that the amount due was $7,500 but could be up to $10,000.

12

Once the Agreement was declared unconditional MO sought repayment figures from the mortgagees and caveators and handed the file to MN, a legal executive, to complete the settlement.

13

Settlement was scheduled for 15 July 2009. On 14 July 2009 the solicitors for SK provided a detailed statement from their client and advised that the total amount of $82,912.29 shown in the statement was required to discharge the caveat.

14

An appointment with MO was scheduled for SI and SJ on the morning of 15 July but they did not attend. However, they came in later that day when MO was out of the office. In his absence MN attended on them in the reception area of the office and obtained the signatures required from them to the various documents.

15

MN had prepared a draft statement showing all of the amounts required to discharge the two mortgages and the two caveats and it is not disputed by SI that MN asked them if they would like to go through the figures. Neither is it disputed that the SI and SJ declined the opportunity to do so because they considered they knew what the repayment figures were.

16

Settlement proceeded and the sum of $82,912.29 was paid by MN to SK's solicitors to enable the caveat to be withdrawn. The payments were made by MN who had signing authority on the firm's trust account as MO was still out of the office.

17

The amount received by SI and SJ was therefore some $72,000 less than they were expecting and has not been recovered from SK.

18

In their complaint to the New Zealand Law Society Complaints Service, SI and SJ sought “settlement of the balance monies owing”.

The Standards Committee determination
19

In its determination the Standards Committee made the following observations:

[43] Two of the purposes of the LCA are to (a) maintain public confidence in the provisions of legal services; and (b) to protect the consumers of legal services.

[44] These purposes are achieved in part by providing ‘for a more responsive regulatory regime in relation to lawyers…, ‘and stating’ the fundamental obligations with which, in the public interest, all lawyers… must comply in providing regulated services.’

Fundamental obligations of lawyers

[45] The fundamental obligations of lawyers include being required to act in accordance with all fiduciary duties and duties of care owed by lawyers to their clients, and to protect the interests of clients, subject to lawyers' overriding duties as officers of the High Court, and to the duties under any enactment.

RCCC Rules

[48] The RCCC Rules expand on the fundamental obligations, “…set the minimum standards that lawyers must observe and are a reference point for discipline,” and ‘define the bounds within which a lawyer may practise’ within which ‘each lawyer needs to be guided by his or her own sense of professional responsibility.’

Compliance with the RCCC Rules by lawyers is mandatory.

Trust Account

[49] Section 110(3) of the LCA provides that a lawyer ‘who, in the course of his or her practice, receives money for, or on behalf of, any person — (b) must hold the money, or ensure that the money is held, exclusively for that person, to be paid to that person or as that person directs.’

The TA Regs. Regulate the administration of lawyers' trust accounts, and include regulations relating to handling client's funds.

Although not mandatory, the Trust Account Guidelines (“the TA Guidelines”), published by the Law Society, are designed to assist lawyers to comply with the requirements of the LCA and the TA Regs.

Discussion

Essence of the complaint and response

[50] The essence of [SI and SJ's] complaint is that contrary to their instructions to [MO] as to the approximate amount of money they expected to have to repay to [SK] to obtain a withdrawal of [SK's] caveat for settlement, [MO], without referral to them paid [SK's] solicitors a considerably larger sum of money from the sale proceeds.

20

The Standards Committee then canvassed the facts giving rise to the overpayment, or more correctly, the payment made without the authority of SI and SJ and identified five ways in which the “miscommunication” could have been averted.

21

It also recorded its view that there was nothing preventing the delegation by MO of his authority in relation to the trust account although it noted that such delegation should only be used in urgent cases and with appropriate checks and balances in place.

22

Its conclusions and findings were recorded in the following way: —

[82] Having had due regard to all the circumstances in this matter and for the reasons discussed above, the Committee finds that although there are some administrative shortcomings in the way [MO's] practice is run, these shortcomings are not of such a nature that they reach the threshold to be considered unsatisfactory conduct in relation to [MO's] conduct. It was clear that [MN] had tried to get [SI] to review the draft statement before settlement but he had refused to do so. The Committee was of the view that [SI's] refusal to review the draft statement had contributed in a significant way to the current situation in which he found himself.

[83] However, the Committee did not consider that [MO's] conduct, in these particular circumstances, fell short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably...

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