New Zealand Law Society - Lawyer fined and ordered to make practice available for inspection after failing to keep client funds in trust account
A Standards Committee (Committee) determined that a lawyer, Mr T, engaged in unsatisfactory conduct after he failed to comply with the obligation to hold client money paid without an invoice in a trust account. The Committee held that Mr T was in breach of s 110 of the Lawyers and Conveyancers Act 2006 (the Act) and rule 9.3 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (RCCC). Mr T was ordered to pay a fine of $5000, costs of $500 and to make his practice available for inspection.
A member of an instructing firm, Mr Q, was approached by two clients to represent them. Following Mr Q’s recommendation, the clients instructed a barrister, Mr T to represent them in court proceedings. The clients later complained about the quantum of fees. When considering the complaint, the Committee noted a lack of clarity in how Mr T’s costs had been paid as it appeared that he was receiving payments directly into his account.
Mr T provided details about the processes and systems he had in place for taking on client matters, billing his costs and receiving fee payments. He explained that he required a retainer from clients of $5,000, which is “generally” paid to his instructing firm’s account. He bills his client “care of” the instructing firm who, in turn, pays him.
In this case, Mr T explained that he reached a verbal agreement with Mr Q, where payment from the clients would be given directly to Mr T. Mr T received $5,000 into his practice account, which was receipted on his ledger card for his instructing firm.
An invoice was not raised for this payment. Instead, the payment was credited against the final invoice issued to the clients at the conclusion of the matter.
The Committee noted that fees paid in advance are subject to the requirements of rule 9.3 of the RCCC, which provides that lawyers must comply with regulations 9 and 10 of the Lawyers and Conveyancers (Trust Account) Regulations 2008 (the TAR). In accordance with regulation 10 of the TAR, all money paid without an invoice must be retained in a trust account until it is disbursed to the client or applied in payment of fees.
Without an invoice, the Committee was unclear on whether the $5,000 payment was to cover disbursements or fees in advance (or both). With reference to s 110 of the Act and rule 9.3 of the RCCC, the Committee noted that any funds paid by the clients without an invoice being raised should have been held in trust by the instructing firm.
The Committee was concerned by the comment Mr T made about “generally” holding retainers paid by clients in his instructing firm’s trust accounts. His responses to the inquiry reflected a wider misunderstanding of his obligations regarding the handling of client money and indicated to the Committee that he may not be complying with them.
The Committee determined that Mr T had engaged in unsatisfactory conduct through his failure to meet his obligations under s 110 of the Act and rule 9.3 of the RCCC.
Mr T was ordered to pay a fine of $5,000 and costs of $500. The Committee considered that he would benefit from guidance on how client money should be handled and ordered that he make his practice available for inspection. The purpose of this being to identify and make any changes to his practice regarding the systems he has in place.
The Committee considered there to be a public interest in the summary of this decision to reinforce in the minds of practitioners their ongoing obligations to comply with s 110 of the Act and rule 9.3 of the RCCC.