Censure. Borrowing from clients
This is a summary of a decision made by a Lawyers Standards Committee under the transitional provisions of the Lawyers and Conveyancers Act 2006. This summary was published in LawTalk 738.
The Standards Committee upheld a charge that a lawyer had borrowed money from a client without ensuring that the client had received independent legal advice, a breach of the specific restriction against this in the Solicitors Trust Account Regulations 1998 (Reg 6), in force at the time.
The lawyer’s acceptance of the $20,000 loan, uncovered during a New Zealand Law Society inspection, was also a breach of the more general bar in the then Rules of Professional Conduct (Rule 1.03) against acting for a client when there is a conflict of interest between them.
The lawyer said he wasn’t familiar with the trust account regulation. He also said he hadn’t solicited the loan, which the client had offered to him as a friend. The lawyer had documented the loan carefully, with both parties signing a Deed of Acknowledgement of Debt, and he’d been open with the Law Society inspector.
The client had also signed an acknowledgement that he had been advised to get independent advice but that he had decided not to seek it. The client was distressed at the “trouble” the lawyer now found himself in as a result of the client’s offer of financial help.
The Standards Committee said a clear signal must be sent that strict compliance with the relevant rules and regulations was required. The lawyer should not have proceeded with the loan, despite the apparent waiver and acknowledgement signed by the client.
However, a majority of the Standards Committee also saw the offending in this case as being at the lower end of the scale. No harm had been done to anyone; and further, the case did not involve dishonesty and the lawyer’s integrity was not at issue. The lawyer had also made a very early guilty plea. By a majority, the Committee decided to censure the lawyer and order him to pay a fine of $500 and $2,000 towards the Law Society’s costs.
The restrictions that now apply in this area are contained in Reg 7 of the Lawyers and Conveyancers Act (Trust Account) Regulations 2008 and Rule 5.4 of the Rules of Conduct and Client Care.