New Zealand Law Society - Failing to forward a former client’s files to their new lawyer – no conduct finding but award of costs against the lawyer

Failing to forward a former client’s files to their new lawyer – no conduct finding but award of costs against the lawyer

Auckland Standards Committee 4 (the Committee) found a lawyer (Mr C), who is a director of an incorporated law firm (Mr C’s firm), failed to comply with rule 4.4.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (RCCC) on uplifting client documents when he refused to forward his former client’s files to their new lawyers. However, the Committee exercised its discretion and did not make a finding against Mr C because his refusal appeared to be a genuine misunderstanding of how the rules operate. The Committee nevertheless considered that the proceedings were justified and ordered Mr C to pay costs of $750 to the New Zealand Law Society Te Kāhui Ture o Aotearoa.

Clients Mr W and Ms C had instructed Mr C as joint clients to assist them with the purchase of a residential property. Mr W and Ms C were in a relationship at the time. Around the time of the purchase, while both Mr W and Ms C were still jointly represented by Mr C’s firm, Ms C gave Mr C instructions to register the property as tenants in common. The share division was to be Mr W holding a 7/50 share and Ms C holding a 43/50 share.

Mr C advised them to “to seek independent legal advice due to a potential conflict of interest”, and advised that with respect to the conveyancing matter, “[Mr C’s firm] would only be able to act for both parties under the following circumstances: (a) The parties enter into a contracting out agreement identifying their respective interests in the [property]; and (b) The parties expressly consent to [Mr C’s firm] acting for both of them.” Mr W and Ms C agreed to enter into a contracting out agreement and consented to Mr C’s firm acting for both parties with respect to the conveyancing matter. With regards to the contracting out agreement, Mr C’s firm continued to act for Mr W while Ms C instructed another lawyer, and the contracting out agreement was subsequently fully executed by both.

Mr W and Ms C then separated. Mr W approached new lawyers at a different firm for legal advice around the contracting out agreement and filed an application in the Family Court to set aside the agreement.

The Committee notes that this is a common situation that family lawyers face when representing previous longstanding clients jointly, who later separate. It appears to the Committee that Mr C took the right steps when faced with a situation where the parties’ interests began differing and when he could no longer act for them both.

Mr W complained that that his new lawyers sent multiple emails and letters to uplift his files held by Mr C’s firm, but that Mr C’s firm failed to respond to the requests in a timely manner. Mr W made a complaint against Mr W for this alleged failure.

In determining liability, the Committee considered whether Mr C, in refusing to forward Mr W’s files to his new lawyers, breached rule 4.4.1 of the RCCC, which states:

Subject to any statutory provisions to the contrary, upon changing lawyers a client has the right either in person or through the new lawyer to uplift all documents, records, funds, or property held on the client’s behalf. The former lawyer must act upon any written request to uplift documents without undue delay subject only to any lien that the former lawyer may claim.

Based on the information provided to the Committee, Mr C’s firm and the new firm had corresponded as follows:

  1. 27 August 2021 – The new firm sent an email to Mr C’s firm informing them that they were instructed by Mr W and attached a signed authority to that effect. They requested a “full copy of our client’s relationship property agreement with leger and time record”.
  2. 30 August 2021 – Mr C’s firm responded to the new firm stating that they will obtain instructions from Ms C and revert.

  3. 31 August 2021 – The new firm sent an email to Mr C’s firm “seeking a copy of [the] files concerning Mr W’s contracting out agreement” which did not involve Ms C as a joint client and as such, did not require her consent.

  4. 8 September 2021 – The new firm sent a follow up email.

  5. 8 September 2021 – Mr C’s firm responded with a copy of the contracting out agreement. Further emails were subsequently exchanged regarding the other outstanding documents requested by the new firm (full file relating to the contracting out agreement). Mr C’s firm was having difficulties accessing their physical files due to the Covid-19 lockdown in place. It also advised that they were still concerned about “a conflict of interests without the other party’s consent of providing more than you have got”. The new firm reiterated their views that Ms C’s consent was not required with regards to the contracting out agreement.

  6. 15 September 2021 – The new firm sent a letter to Mr C’s firm again stating their position and requesting the files urgently.

  7. 27 September 2021 – Mr C’s firm responded to the new firm informing them that Ms C expressly instructed not to send the files to the new firm and suggested they liaise with Ms C’s new counsel.

  8. 27 September 2021 – The new firm responded seeking clarification around the position of Mr C’s firm.

  9. 12 October 2021 – The new firm sent another follow up email urgently requesting Mr W’s files, particularly in relation to the ownership structure.

The main reason Mr C’s firm refused to forward the files was their concern around breaching their confidentiality obligations with respect to documents held under Ms C’s name. Mr C’s counsel submitted:

“[I]t cannot be a breach of r 4.4.1 to refuse to uplift files in which [Mr C’s firm] had been jointly instructed by [Mr W] and [Ms C] and both parties do not consent. [Mr W] does not have sole proprietary interest on the conveyancing files. The terms of engagement were with [Mr W] and [Ms C] jointly. …

Pursuant to s 4(d) of the Lawyers and Conveyancers Act 2006 [Mr C] has a fundamental obligation to protect the interests of his clients. Rule 4.4.4 provides that subject to any right to a lien, “the interests of the client must be foremost in facilitating the transfer of the client’s documents and records”. Similarly, r 6 requires that a lawyer must (within the law and the rules) “protect and promote the interests of the client to the exclusion of the interests of third parties”. These rules appear to presume that the interests of the clients, in the context of joint instructions, will not diverge. It is apparent that the interests of [Ms C] and [Mr W] have now diverged. When a request was made to access the files, [Mr C] properly made inquiries with [Ms C]. She did not consent to the provision of the files. There is no majority wish that prevails. [Mr C] cannot meet his obligations to his clients in this context. [Mr C’s] hands are essentially tied.

Any claim that [Mr W] has an absolute right to jointly instructed files with an estranged spouse is, as the LCRO has commented in the past “an argument better resolved in respect of a claim to relationship property than in this jurisdiction”. It is submitted that this is the case here. There has been no breach of r 4.4.1.”

The Committee did not accept this submission. Firstly, the Committee noted that the files held by Mr C’s firm in relation to the relationship property agreement, apart from the signed agreement itself, were entirely Mr W’s property and his private documents that Ms C was not privy to. The Committee did not consider for there to be any valid reason why they could not have been forwarded to the new firm as soon as it had requested them.

Secondly, the Committee noted that in relation to the joint conveyancing files, the information contained within the files was known to both parties. One party cannot assert privilege against the other party over the joint file after the parties’ interests diverge, when there is nothing in the file that both parties do not already know. By the time Mr W and Ms C’s interests diverged and the parties separated, they were no longer jointly instructed. The Committee referred to the High Court case of Gemini Personnel Ltd v Morgan & Banks Ltd [2001] 1 NZLR 14, in which Laurenson J stated:

“[p]ersons who grant a joint retainer to solicitors retain no confidence against one another; if they subsequently fall out and sue one another neither can claim privilege against the other in respect of documents generated in respect of the joint retainer. Against the rest of the world, however, either can maintain a claim for privilege in respect of such documents. Because the privilege is joint it can be waived only jointly and not by one party alone. Where one of the parties who jointly instruct the solicitor consults the solicitor confidentially on matters in dispute between the persons who have created the joint retainer, he may claim privilege against the other for those communications. Whether or not there is a joint retainer, the same principle applies where persons have a joint interest in the subject-matter of the communication.”

The case was appealed, and the Court of Appeal stated:

“We accordingly conclude, largely in accord with Laurenson J, that privilege cannot be maintained in respect of communications and documents prepared following engagement of the solicitors directed to giving effect to the joint venture agreement where any advice from Simpson Grierson was being provided in relation to the interest of both Gemini and Morgan & Banks.”

The Committee held that upon being advised by the new firm that Mr W was pursuing relationship property proceedings in the Family Court, Mr C should have forwarded all of Mr W’s files to his new lawyers to ensure his legal position in the Family Court was not prejudiced. Having regard to the consumer focus of the Lawyers and Conveyancers Act 2006, it would be unreasonable and unfair for Mr W to be expected to pursue other avenues to access his own information.

The Committee also commented that If Mr C was uncertain regarding his obligations towards Ms C, he could have consulted a senior colleague for their guidance.

While the Committee concluded that Mr C failed to comply with his obligations under rule 4.4.1, it did not consider that he had any ill-intentions whatsoever and his conduct in not forwarding Mr W’s files appeared to be a genuine misunderstanding of how the rules operate. Accordingly, the Committee resolved to exercise its discretion and not make a finding against Mr C. The Committee nevertheless considered that the proceedings were justified and ordered Mr C to pay $750 to the Law Society in respect of the expenses of and incidental to the proceedings and the investigation of his conduct.

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