WQ and QZ v [Company A]
| Jurisdiction | New Zealand |
| Judgment Date | 29 March 2022 |
| Neutral Citation | [2022] NZLCRO 24 |
| Docket Number | Ref: LCRO 194/2020 |
| Court | Legal Complaints Review Officer |
CONCERNING an application for review pursuant to section 193 of the Lawyers and Conveyancers Act 2006
AND
CONCERNING a determination of the [Area] Standards Committee [X]
[2022] NZLCRO 24
Ref: LCRO 194/2020
LEGAL COMPLAINTS REVIEW OFFICER
ĀPIHA AROTAKE AMUAMU Ā-TURE
Law Practitioners — application for review of an Area Standards Committee decision which made a finding of unsatisfactory conduct for failing to inform the client of the firm's intention to include a percentage charge in the fee for acting on the purchase — fair and reasonable fee factors — provision of information relating to fees — Lawyers and Conveyancers Act 2006 — Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008
In accordance with s 213 of the Lawyers and Conveyancers Act 2006 copies of this decision are to be provided to:
Mr WQ, Ms QZ as the Applicant
[Company A] as the Respondent
[Area] Standards Committee [X]
New Zealand Law Society
At the relevant time, Mr WQ, and Ms QZ, both lawyers, were sole director, and senior associate respectively of [Law Firm A], an incorporated law firm (the firm), which acted for [Company A] (the company), on the purchase of a dairy farm property and livestock. Mr VR and Mrs VR were the shareholders of the company. 1
Mr VR's complaint was about the firm's fee for acting on the purchase. In particular, about the inclusion in the fee of a percentage charge based on the purchase price paid by the company for the farm property.
The [Area] Standards Committee [X] (the Committee), which heard the complaint, made a finding of unsatisfactory against Mr WQ, and Ms QZ for failing to disclose to
Mr VR in the firm's letter of engagement the firm's intention to include that percentage charge in the fee for acting on the purchase. The Committee ordered Mr WQ and Ms QZ to reduce the fee by the amount of the percentage charge and refund that money to the company.
As detailed in my later analysis, during the first half of 2019 Mr VR discussed and reached an agreement with his father, and his stepmother, who as trustees of a trust (the vendor) owned a dairy farm property, on terms for the purchase of the farm by the company.
To assist with funding the purchase price of just under $3.026 million plus GST the company was to obtain a bank loan to be secured by first mortgage against the farm property, and the vendor would lend the company $1 million to be recorded in a deed of acknowledgement of debt and secured by a second mortgage and a general security agreement over the company.
The purchase agreement provided for two leases of adjacent land owned by the vendor for grazing and associated cropping, and a separate purchase agreement for livestock.
On 1 July 2019, having received from Mr VR a draft of the purchase agreement prepared by the vendor's lawyer, Ms QZ opened a file for the purchase.
The following day the vendor's lawyer sent to Ms QZ first, the “final versions” of the purchase agreement, and the two leases, and later the deed of acknowledgement of debt.
Ms QZ sent to Mr VR on 3 July the firm's letter of engagement accompanied by client care and service information, and the firm's standard terms of engagement.
On 8 July the vendor's lawyer sent to Ms QZ (a) as requested by Mr VR, the vendor trustees' memorandum of wishes which concerned repayment of the vendor loan of $1 million, and (b) the livestock agreement. Ms QZ met with Mr and Mrs VR that afternoon to discuss those documents, and the leases, and the following day provided her comments to the vendor's lawyer.
By 15 July both parties had signed purchase documents. The following day, at the bank's request, the vendor's lawyer agreed to extend the settlement date to 26 July.
On 17 July, with the bank finance condition satisfied, the bank made arrangements for the deposit to be paid, and on 19 July forwarded the bank loan documents to Ms QZ.
On 23 July Ms QZ sent her solicitors certificate, and related documents concerning the bank loan to the bank.
Late evening on 24 July the vendor's lawyer sent his settlement statements to Ms QZ's assistant, and the following day delivered the originals together with his settlement requirements. Settlement by e-dealing took place on 26 July.
Meanwhile, on 24 July the firm had issued its fee invoice, signed by Ms QZ for its fee of $12,603.05 plus GST and disbursements. This was sent to the company (by email) on 25 July to Mr VR together with the firm's trust statement. The fee included a charge of $6,051.05 plus GST representing 0.2 per cent of the farm property purchase price.
Having queried the fee on 25 July, and reviewed a fee breakdown received from Mr WQ on 27 July, Mr VR told Mr WQ that day he “wasn't aware of the 0.2% charge on farm sales purchases”. Following further email communications exchanged about Mr VR's concerns with the fee, on 22 August another lawyer instructed by Mr VR informed Mr WQ that Mr WQ's offer to reduce the fee was not accepted.
Mr VR lodged a complaint with the Lawyers Complaints Service on 4 September 2019.
He claimed by not disclosing the firm's “0.2%” of the purchase price method of fee calculation in the firm's letter of engagement Mr WQ and Ms QZ had (a) “by omission” misled him, and (b) without authorisation deducted that charge as part of the firm's fee.
He said had the firm disclosed this method of fee determination to him at the outset he “would have immediately sought other quotes” for the firm's legal work, and would not have agreed to contribute so much towards the vendor's legal fees.
Mr VR said realising, upon receipt of the firm's 24 July 2019 invoice, that the firm's fee was considerably more than the firm's hours recorded multiplied by the authors' hourly charge out rate of $390 plus GST, he queried the fee and requested a fee breakdown from Mr WQ.
He explained once he knew the fee included a charge of 0.2 per cent of the purchase price he raised his concerns with Ms QZ on her return from leave. He said Ms QZ acknowledged she had not informed him that the percentage charge would be included in the fee and proposed a refund of that charge.
He said Mr WQ subsequently, on 13 August 2019, offered to reduce the fee by $1,500, and to complete [Mr and Mrs VR's] wills and powers of attorney at no cost. He said another lawyer acting on his behalf subsequently asked Mr WQ to refund part of the fee but Mr WQ declined and would not negotiate further.
I refer to Mr WQ's, and Ms QZ's response in my later analysis.
In essence, their position was that (a) the firm's method of including a percentage charge on the overall fee was an “internal method” of the setting of fee, “widely used” in the locality for similar transactions, which took account of the fee factors in r 9.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules); and (b) although it would have been “preferable to discuss” that “method” with Mr VR at the outset, the firm now did so with clients.
In its decision delivered on 4 September 2020 the Committee determined, pursuant to s 152(2)(b)(i) of the Lawyers and Conveyancers Act 2006 (the Act), that by failing to provide the firm's basis of charging fees before commencing to act for Mr VR on the purchase Mr WQ and Ms QZ had contravened r 3.4(a) of the Rules.
The Committee ordered Mr WQ and Ms QZ to reduce the fee charged by $6,051.05 plus GST, the amount of the percentage charge, and refund that money to Mr VR.
Having referred to those fee factors in r 9.1 which it considered applicable, the Committee decided the firm's fee was “fair and reasonable for the work completed” albeit “at the higher end of the range”.
The Committee noted that the firm's letter of engagement (a) stated Ms QZ, then a senior associate with the firm, would be responsible for the legal work which would be billed at the hourly charge out rate of $390 plus GST, plus disbursements, and (b) summarised “the reasonable fee factors in r 9.1” to be taken into account when determining the fee.
In the Committee's view Mr WQ's, and Ms QZ's time recorded of 16.8 hours “was consistent with the time … expected” on the matter and was “reasonable”. This was despite Mr WQ's position, disputed by Mr VR, that the absence of a real estate agent “increased legal costs”. 2
In the Committee's view Mr WQ's, and Ms QZ's experience in property law meant they were “well placed to advise” Mr VR on the purchase.
The Committee accepted Mr WQ's and Ms QZ's submission that the settlement date, “just 14 days after they were instructed”, necessitated “some urgent attendances” in respect of which an “uplift” was warranted.
Noting the “considerable risks” for lawyers acting on such farming transactions, the Committee referred to (a) “the [large] sums of money involved”, (b) “the settlement process not always [being] straightforward”, and (c) the fact that Mr VR's purchase was a family transaction in respect of which his father's memorandum of wishes was a consideration.
The Committee considered Mr VR's purchase was a “moderately complex transaction”.
The Committee stated it was satisfied the firm's fee “would normally be charged for such work” in respect of which “it was not uncommon” for lawyers “to charge a premium on similar transactions”, and was, therefore “consistent with market rates”.
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