New Zealand Law Society - Lawyers Complaints Service: Payments must be made as client instructs

Lawyers Complaints Service: Payments must be made as client instructs

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C was a lawyer whose client instructed him to pay a commission to a third party (an agent) from the proceeds of sale of the client’s property.

Instead of paying the money directly, C made a journal transfer. The agent happened to be a client of C’s firm. C deducted unrelated sums which had been owing to the firm for some time by the agent’s company, and forwarded the remainder to the agent.

A lawyers standards committee found this to be a breach of the Lawyers and Conveyancers Act 2006 (LCA) and ordered C to repay the money plus interest, fined him $2,000 and ordered him to pay $2,000 damages. This decision was upheld on review by the Legal Complaints Review Officer (LCRO).

C’s client had received assistance from his agent in the sale of a property and the proceeds of the sale were being held in C’s firm’s trust account.

The client had agreed with his agent that he would pay the agent a commission of $30,000 for his assistance. The sum remaining in the trust account, after completion, was slightly less than the full amount, $27,500. The client instructed C to pay the agent the entire remaining sum.

C then journalled the money to a ledger for one of the agent’s companies. C’s firm had billed the company some time ago, and the unpaid account also had interest and collection fees outstanding. As part of the retainer agreement, the agent was personally liable to C’s firm for any sums owed by his associated company. C deducted the amount owed to the firm by the agent’s company, and forwarded the agent the remainder, about $16,000.

The agent contacted C’s client to ask why he had not been paid in full. The client paid him the outstanding balance. The client then complained about C’s actions.

The standards committee found that C’s actions were a clear breach of s110 of the LCA. That section requires, among other things, that a lawyer must pay a person’s money that he holds as that person directs.

The client had directed C to pay the sum to the agent, not to transfer it to the client’s ledger within the firm’s trust account.

C argued that s113 of the LCA provided him with justification for his actions. That section provides that “nothing in s110 … takes away or affects any just claim that a practitioner … who holds money to which s110(1) or (2) applies may have against that money”.

The standards committee rejected this view, saying the section does not entitle a solicitor to deduct sums in relation to an unrelated matter for another client of the firm.

The committee determined that the conduct amounted to unsatisfactory conduct by breaching LCA s110 and also Rule 10 of the Rules of Conduct and Client Care requiring members to maintain and uphold proper standards of professionalism.

The committee censured C and ordered him to apologise.

C sought a review of this decision by the Legal Complaints Review Officer (LCRO). The LCRO not only agreed with the standards committee, she said she considered C’s action to be a most serious breach of his obligations. The LCRO sought further submissions from C as to whether his actions were misconduct, to be referred to the New Zealand Lawyers and Conveyancers Disciplinary Tribunal.

The LCRO said that only the clearest instructions to pay the sum to the agent’s trust ledger, rather than to the agent directly, would have sufficed to justify C’s actions.

There was no doubt, the LCRO said, that the client intended the funds to be paid directly to the control of the agent. C could have sought clarification for his actions before he took them, but had not.

The LCRO noted that C’s action in making the trust ledger transfer was “entirely self serving”, to obtain payment for the firm for an unrelated matter. The LCRO emphasised that the instruction was to pay the agent personally, yet the trust ledger transfer was not even to the agent’s personal ledger, but to that of his associated company.

In Sullivan v Complaints Committee of the CDLS, CIV-2008-409-2590, the Court of Appeal held that a similar situation, of taking fees by a lawyer for a client company, in which the client entitled to the money had an interest, was misconduct.

After being invited to make further submissions, C then gave assurances that it was an honest mistake based upon a misreading of the relevant legislation. He said he now accepted that he had been wrong, and agreed unreservedly with the LCRO’s decision. He withdrew his opposition to the orders of the standards committee. The LCRO accepted that this meant that he was unlikely to act in such a manner again.

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