New Zealand Law Society - Sole practitioner fined $3,000 after failing to hold unpaid disbursement in trust account and not paying funds as directed
A Standards Committee (the Committee) determined that a lawyer, Ms P, engaged in unsatisfactory conduct after she failed to provide letters of engagement, received funds directly instead of depositing them into a trust account, applied a client payment to the wrong matter and did not distribute funds as directed. The Committee found that, in doing so, Ms P had breached s 110(1)(a) of the Lawyers and Conveyancers Act 2006 (the Act) and rules 3, 3.4, 3.5 and 4.2 of the Lawyers and Conveyancers (Lawyers: Conduct and Client Care) Rules 2008 (the RCCC). Ms P was directed to pay a fine of $3,000 and costs. On review, the Legal Complaints Review Officer (the LCRO) reversed the finding that Ms P had breached her duty to complete the retainer under rule 4.2 of the RCCC. In all other respects, the Committee’s decision was upheld.
Ms P had a long-standing working relationship with a firm, who would instruct her to issue proceedings on behalf of their clients. Ms P advised that she provided the firm with a global letter of engagement each year, rather than preparing individual letters each time a new proceeding was initiated.
Ms P was instructed by the firm to act on behalf of a trust and its trustees. Ms P prepared the relevant documents and shared these with the firm along with an invoice, which included a filing fee. Around the same time, Ms P issued the firm with a second invoice for a matter concerning another client, Mr A. This invoice inadvertently had the same number as the invoice for the trustees. The firm made a payment intended to cover the trustee matter and included the trustee case reference number with their payment instructions. Despite this, Ms P attributed the funds to Mr A’s matter. Ms P then filed Mr A’s proceedings in court. The trustee matter was not lodged with the court, as Ms P believed she had not received payment and claimed that the firm was in debt to her for other matters.
The firm complained that Ms P did not file the trustee matter proceedings even though she had been retained and paid to do so. The firm also complained that a letter of engagement was not provided to them or to their clients directly.
The Committee first determined who Ms P owed her obligations to. Ms P’s belief was that the firm was her client since she had not sent any letters of engagement to the trustees and she received her instructions from the firm. She also sought payments from the firm and rarely communicated with the trustees.
The Committee considered that the trustees were Ms P’s clients in this matter, noting that the firm was acting as an agent with authority to provide instructions and that the court documents had been prepared in the trustees’ names. Ms P therefore owed her duties to the trustees as clients.
Section 110 of the Act provides that an unpaid disbursement must be held in trust until paid to the relevant third party. The Committee noted that the trustee invoice included a filing fee which should have been paid into a trust account and held there until paid as directed by the trustees. On the payment instructions, there was confirmation of Ms P’s and the firm’s reference numbers for the trustee matter. The Committee considered that this amounted to a direction from the trustees to pay the filing fee to the court. Ms P failed to act on those directions by not filing the trustee proceedings with the court. The Committee determined that Ms P was in breach of s 110(1) of the Act and had engaged in unsatisfactory conduct.
Ms P submitted that she had committed a “simple administrative error” by issuing two invoices with the same number and that this did not amount to acting incompetently. The Comittee found that Ms P had failed to consider the obligations owed to the trustees. It was not satisfactory to issue two invoices with the same number and wrongly apply a payment to another client’s proceedings. In failing to file the trustee proceedings after being alerted to the mistake, the Committee considered that Ms P had “compounded her errors by refusing to take responsibility for them.” The Committee concluded that Ms P had failed to act in accordance with her duties under rule 3 of the RCCC and that this was unsatisfactory conduct.
The Committee turned its attention to whether Ms P’s conduct could also be considered a failure to complete her retainer. Ms P argued that her agreement with the firm was that she would only file proceedings once she had been paid, and she believed she had not been paid in the trustee matter. The Committee noted that Ms P was retained to the trustee matter and that she had actually been paid to do so. It determined that she failed to complete the regulated services required under her retainer, in breach of rule 4.2 of the RCCC.
On review to the LCRO, this breach was reversed due to a degree of overlap in the Committee’s findings. The LCRO considered that the complaint that Ms P had failed to complete the services required was suitably addressed by the finding that she failed to act competently under rule 3 of the RCCC.
Ms P could only provide evidence of two letters of engagement provided to the firm, one in 2014 and another in 2016. Ms P believed she was entitled to rely on these letters as the information remained accurate, pursuant to rule 3.6 of the RCCC.
The Committee commented that:
“terms of engagement are vital in assisting a client to understand the basis on which fees will be charged, the professional indemnity arrangements that a lawyer has in place, and the procedure for handling complaints, among other matters. In some instances, proper terms of engagement and client care information can also assist practitioners to avoid complaints in the first instance by encouraging transparency and dialogue with clients.”
The Committee stated that terms of engagement are a “key feature of the consumer-protection focus of the legislation governing lawyers’ professional conduct and must be respected.”
Having found that the trustees were Ms P’s clients, the Committee considered that she failed to provide the information required under rules 3.4 and 3.5 of the RCCC. In addition, the Committee noted that Ms P’s hourly rate increased after she supplied the “global” letter of engagement in 2014, with no evidence of a subsequent letter to update the terms. In this regard, she was not entitled to rely on rule 3.6 of the RCCC, as the letter of engagement did not remain accurate. This was unsatisfactory conduct.
The Committee noted its overarching concern about Ms P’s poor attention to detail and record keeping. Ms P did not hold a trust account and her responses to the complaint raised a broader issue about failures to hold money received for unpaid disbursements. Ms P was reminded of her obligations under the Act and the RCCC, specifically rule 11.
The Committee ordered Ms P to pay a fine of $3,000 and costs of $750. While the LCRO did reverse one finding of unsatisfactory conduct, they were not pursuaded that this warranted a reduction in the fine imposed by the Committee. They confirmed that the fine imposed “appropriately reflected the gravity of the conduct breaches and presents a fair and reasonable discliplinary response to what is now three unsatisfactory conduct findings.”