A complaint against former lawyer, Edward Johnston, was made by a trustee and a former trustee of the DC Trust and arose from an investment Mr Johnston arranged for the Trust.
Mr Johnston was struck off the roll on 26 July 2013 in relation to an unrelated matter.
The DC Trust was established to hold funds for the benefit of the young sons of Mr C who was deceased.
Mr Johnston was a sole practitioner and his trustee company, Ed Johnston & Co Trustees Ltd (EJCT Ltd), replaced a retiring trustee of the DC Trust in 2004.
Mr Johnston arranged for the Trust to make an investment in a mortgage granted by the W Trust in a property at West Harbour. The DC Trust advanced $45,000 to the W Trust which was secured by an agreement to grant a second mortgage, a caveat and the personal guarantees from the W Trust trustees.
The W Trust defaulted on its loan from the first mortgagee and the first mortgagee took enforcement proceedings. The trustees were adjudicated bankrupt shortly after. A mortgagee sale resulted in a shortfall in respect of the first mortgage. The loan to the DC Trust was not repaid.
The complainants alleged that Mr Johnston had not adequately investigated the credit worthiness of the W Trust and had not provided adequate disclosure of all matters relevant to the Trust.
The complainants also alleged that Mr Johnston was conflicted. He had acted for the W Trust and its trustees as instructing solicitor in a litigation matter. They were indebted to Mr Johnston’s firm for unpaid invoices, including a $34,000 invoice owing to a barrister, Mr P. It appeared that the funds from the DC Trust loan had been applied to payment of those invoices. The complainants said that the application of the loan funds to payment of Mr P’s fees benefitted Mr Johnston because if the barrister’s fees remained unpaid Mr Johnston would have been responsible for their payment by virtue of rule 12.2 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (RCCC).
Mr Johnston admitted that he had not kept the DC trustees as closely informed as he should have. However, he denied any breach of s 7 of the Lawyers and Conveyancers Act 2006 (LCA). He noted that, on the occasion of each lending, an authority had been signed both by him and one of the complainants as trustees of the Trust. He noted that all other advances from the Trust had been repaid. He said that at the time of the advance he had checked the details of the first mortgage and the W Trust’s trustees’ individual income (among other enquiries). He was unaware of the W Trust’s financial position at the time of the advance being anything other than sound.
Mr Johnston also denied that, if the barrister’s fees had remained unpaid, he would have been personally liable to pay them. The barrister, Mr P, also confirmed he had an arrangement with Mr Johnston that he would have sought payment directly from the W Trust trustees rather than Mr Johnston if the W Trust did not pay his fees.
There was no evidence to show Mr Johnston had made either client aware of the potential conflict or had obtained their prior informed consent in relation to the loan transaction between the trusts.
A lawyers standards committee carefully considered issues arising from the complaint in respect of an alleged lack of independence, conflict, incompetence, failure to disclose and whether Mr Johnston’s conduct was misleading or deceptive. It noted that the issues were interrelated and considered them together.
In respect of conduct occurring before 1 August 2008, the committee found that there was insufficient evidence that Mr Johnston’s conduct reached the required threshold and therefore declined jurisdiction to consider that particular conduct.
In relation to conduct falling under the LCA regime, the committee found that both in his capacity as lawyer for the Trust and as director of the Trust’s trustee, EJCT, Mr Johnston’s conduct fell short of the competence and diligence required. Mr Johnston’s provision of services as a director of the trustee company was considered to be a provision of regulated services. This was in line with the view of the Legal Complaints Review Officer. Accordingly, the committee determined that his conduct amounted to unsatisfactory conduct.
The committee also determined that Mr Johnston clearly had conflicting interests and duties in a number of respects so as to breach rules 5.4 and 6.1 of the RCCC and therefore his conduct was unsatisfactory.
Mr Johnston was censured. However, no financial penalties were ordered because of Mr Johnston’s current bankruptcy.
The committee noted that Mr Johnston was now struck off. The committee said that, had this not been the case, then it would likely have referred the matter to the Lawyers and Conveyancers Disciplinary Tribunal.
The committee noted the history of the matter and that Mr Johnston had already been struck off.
It considered that the seriousness of the breaches in this case, which formed part of the wider context of Mr Johnston’s overall conduct as a member of the profession, meant that it was in the public interest to publish the determination, including his identity.
The committee particularly noted the public’s right to know about a lawyer who breached professional standards and the value of public accountability, deterrence and education.