[2012] NZLCRO 99

LCRO 241/2011

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


Concerning a determination of Auckland Standards Committee 2


SI as the Applicant

MO as the Respondent

The Auckland Standards Committee 2

The New Zealand Law Society

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).

The names and indentifying details of the parties in this decision have been changed.

Held: Overall, it could be said that MN fulfilled MO's instructions such as they were. As MO was the sole partner and MN the sole employee, necessity dictated that she had signing authority on the trust account and, given her years of experience and qualifications, it was not unreasonable for MO to delegate that to her.

Under the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (“CCC Rules”) a lawyer had to act competently and in a timely manner consistent with the terms of the retainer and the duty to take reasonable care. MO had taken instructions from SI. He had recorded the approximate amounts that SI was expecting to have to pay to the mortgagees and the caveators in two separate file notes. He submitted that those discussions took place within the context of him being satisfied that there would be sufficient funds to clear all encumbrances and that he considered his instructions were to pay whatever was required to clear these.

This was a somewhat cavalier approach to his clients' money. In effect, he had adopted a position that whatever amount SK said was due was to be paid without reference to SI. That could not be considered to be protecting his client's interests or maintaining the confidence of the public in the profession. Often figures provided were approximate as was the case in this instance. In these circumstances, the clients' authority was to make payment within the range of $7,500 to $10,000. A lawyer might exercise a discretion to pay the amount requested without reference back to the client depending on the nature of the institution to whom the money was to be paid, and the proximity of the amount required to the amount anticipated by the client. However, the ultimate responsibility for that decision rested with the lawyer and a client was entitled to expect that he or she will be consulted as to the payments to be made from their funds.

When providing the file to MN, MO had not drawn her attention to the figures he had noted in his discussions with SI. While minimal instructions were required to be provided to a legal executive with MN's experience, in this case however, the matter was unusual in that the caveator was a private individual who had advanced money to his former employer. While MO had not made the payment, his failure to make sure that MN had been properly instructed had caused the unauthorised payment. As the partner in control MO had to bear the ultimate responsibility. While SI's failure to review the statement was important in considering an appropriate penalty it could not be a reason to excuse a lawyer from complying with the obligations imposed by the LCA the Trust Account Rules, and the CCC's.

MO's conduct constituted unsatisfactory conduct in terms of s12(a) LCA (conduct that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer), s12(c) LCA (contravention of LCA or of any regulations or practice rules) by reason of breaches of the various provisions of the LCA, the CCC Rules, and the Trust Account Regulations.

A compensation order was not appropriate. A withdrawal of the caveat had been required to enable the sale to proceed. To not make payment and therefore not receive a withdrawal of caveat would have placed SI in default of the sale agreement. There was no conclusive evidence as to what the correct amount due to SK was, and the disciplinary process was not the proper forum to investigate and determine that issue. The disciplinary process was focussed on the practitioner's discipline rather than the wronged client's compensation. The penalties imposed needed to concentrate on the appropriate response to the conduct.

If the principles applying to negligence claims were to be applied in the present instance, the contributory conduct of SI in declining to review the figures with MN would have be taken into account. Primarily SK was the person from whom recovery should be sought. The penalties imposed need to concentrate on the appropriate response to the conduct in respect of which the finding had been made. A fine of $2,000 was the appropriate penalty to reinforce the principle that a client was entitled to expect that no payment would be made from funds held on their behalf without authority and that staff would be properly instructed when files were transferred from one author to another.

The determination of the Standards Committee was reversed. MO's conduct constituted unsatisfactory conduct in terms of s12 LCA. Pursuant to s156(1)(i) LCA (fines) MO was ordered to pay the sum of $2,000 to the New Zealand Law Society.


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.


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


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


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_/_).


5 March 2009


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.


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.


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.


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.


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”.


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.


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.


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.


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.


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...

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