New Zealand Law Society - Deducted fees without valid withholding clause

Deducted fees without valid withholding clause

Published on 12 June 2020

[All names used are fictitious.]

It was unsatisfactory conduct for a lawyer, acting as sole executor of an estate, to deduct their fees from funds held on trust in the absence of a valid charging clause in the will, a lawyers standards committee has found.

The children of the late Mr A complained to the Lawyers Complaints Service that the beneficiaries were overcharged for the work the law firm undertook in administration of Mr A’s estate.

The firm, of which Parolles was a director, undertook various litigation on behalf of Mr A’s estate. This included relationship property and Family Protection Act 1955 proceedings.

Mr A’s estate was administered by a fellow director of Parolles’ firm and a Mr B, who were named in the will as executors. Mr B was subsequently removed as an executor, on Parolles’ application, some 30 months after Mr A died.

The standards committee which considered the complaint appointed a costs assessor, who identified that approximately $10,000 had been overcharged in the estate administration. Following the cost assessor’s report this has since been repaid to the estate.

The rule in Cradock v Piper

The standards committee noted that common law “has long held that trustees and executors cannot charge for their services” unless there is express provision allowing for that in the instrument of trust, or the trustee was a solicitor and the payment was recognised under the rule in Cradock v Piper (1850) 1 Mac & G 664.

The rule in Cradock v Piper is that a solicitor-trustee or their firm may charge fees for work related to court proceedings on behalf of the trustees provided that the solicitor-trustee’s work does not increase the usual expenses. The rule does not apply where a solicitor-trustee is the sole trustee.

The standards committee noted that Parolles took up the position of executor and later became the sole executor. The court proceedings referred to above were undertaken when Parolles was sole executor.

Parolles’ counsel submitted that a clause in Mr A’s will was effectively a “charging clause”, which gave the executors and trustees the power to “take an action upon the opinion of a barrister and/or solicitor practising in New Zealand or in any other jurisdiction whether in relation to the interpretation of this will, any statute, or as to the administration of my estate without being liable in respect of any act done by them in accordance with such opinion, and to make any application to the Court as trustees may think fit. All expenses of any opinion or application shall be paid out of my estate.”

The committee was of the clear view that the clause was not a charging clause.

On making a finding of unsatisfactory conduct by Parolles, the committee ordered Parolles to pay $2,500 costs to the New Zealand Law Society | Te Kāhui Ture o Aotearoa.

The committee also ordered Parolles, in the absence of an application to the High Court to authorise the deduction of fees by Parolles, to refund a significant proportion of the fees charged to the estate of Mr A.