New Zealand Law Society - Inadequate advice about Calderbank offer

Inadequate advice about Calderbank offer

Published on 1 November 2019

[All names used in this article are fictitious]

A lawyer, Midlothian, has been censured, fined $15,000 and ordered to pay her client $25,000 compensation. Midlothian had not adequately advised her client on a Calderbank offer and had significantly overcharged him, a lawyers standards committee has found.

The compensation order is the maximum provided under the Lawyers and Conveyancers Act 2006 and the Lawyers and Conveyancers Act (Lawyers: Complaints Service and Standards Committee) Regulations 2008.

In 2003, the client, Mr Renfrewshire, was employed by a company. Mr Renfrewshire agreed to become a shareholder and director in that company. Mr Renfrewshire’s shares were purchased by his family trust.

In 2007, Mr Renfrewshire had an altercation with a staff member. He did not return to work the next day and tendered his resignation.

Through his solicitors, Mr Renfrewshire offered to sell his shares for $168,000. However, a meeting of the company’s board deemed Mr Renfrewshire’s resignation to constitute a transfer notice for his shares and Mr Renfrewshire was divested of his shares at $1 per share; a total of $24. This was in accordance with a shareholders’ agreement which had never been signed.

The agreement included a provision that if any shareholder left the employment of the company within five years, that shareholder would receive only $1 per share.

Following the divesting of his shares, Mr Renfrewshire consulted the law firm where Midlothian was employed. Midlothian was an experienced civil litigator. Midlothian took a statement from Mr Renfrewshire, which was the basis for factual pleading in a statement of claim; proceedings were issued in February 2010.

The statement of defence called into question Mr Renfrewshire’s version of events, because of factual discrepancies in the pleadings, and amended pleadings were filed.

The firm acting for the defendant sent a Calderbank letter to Midlothian’s firm offering $25,000 in full and final settlement of all claims by Mr Renfrewshire.

No evidence as to advice of risks

The committee found that there was “no evidence that Mr [Renfrewshire] was advised as to the risks of continuing with the litigation”. Instead, Midlothian accepted Mr Renfrewshire’s decision to reject the Calderbank offer, and there was no evidence that she gave Mr Renfrewshire “particularised advice on the Calderbank offer,” the committee said.

“The committee is firmly of the view that the advice given to Mr [Renfrewshire] in relation to the May 2010 Calderbank letter was inadequate.”

The committee also said that a written record of the advice given to Mr Renfrewshire and his response should have been kept, preferably signed by both Mr Renfrewshire and Midlothian.

In relation to costs, the committee found that the total costs invoiced by Midlothian amounted to more than $313,000. Midlothian’s failure to properly advise on the Calderbank offer had resulted in the claim continuing, the committee said.

Further, with reference to the value of Mr Renfrewshire’s claim, the committee said that even had there been no Calderbank offer, Midlothian’s costs were still significantly excessive, and that this constituted unsatisfactory conduct.

As well as the censure, fine and compensation order, the committee ordered Midlothian to apologise in writing to Mr Renfrewshire, to reduce her fees, and to pay $20,000 costs to the New Zealand Law Society.

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