New Zealand Law Society - Lawyers Complaints Service: Censure and fine for 'serious failing'

Lawyers Complaints Service: Censure and fine for 'serious failing'

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David John Cox has been censured and fined $7,500 by the New Zealand Lawyers and Conveyancers Disciplinary Tribunal after he admitted a charge of unsatisfactory conduct.

In [2015] NZLCDT 32, the Tribunal noted that Mr Cox and the counsel for the lawyers standards committee that laid the charges had reached a resolution where, on the basis of Mr Cox admitting unsatisfactory conduct, he would be censured and fined.

The facts

Mr Cox acted for a Mr A and for a number of companies controlled by, or associated with, Mr A. Mr Cox was also the solicitor during most of that time for Mr A’s mother, Mrs A.

A hotel company was under Mr A’s control. Mr Cox became the sole director of the company after Mr A became bankrupt. The company entered into an agreement to sell its management rights of the hotel.

Mrs A held a third mortgage over a property and a third ranking general security agreement (GSA) over the company’s assets, including the hotel management rights. It became necessary to obtain a release from the GSA Mrs A held so that the sale of the management rights could proceed.

Mrs A has been diagnosed with Alzheimer’s disease and deemed not to have legal capacity. It became necessary to apply to the Family Court for the appointment of a property manager and welfare guardian.

A solicitor, Mr B, was appointed a temporary property manager for Mrs A. He was authorised to sign a release of Mrs A’s GSA.

In a letter to Mr B, Mr Cox confirmed that the bank required payment of the full proceeds of the sale, amounting to $500,000, as a prerequisite of its release of the GSA. On that basis, Mr B signed a deed of partial release of and discharge of Mrs A’s security interest and sent it to Mr Cox the day he signed it.

Two days later, Mr Cox received a draft settlement statement and a draft repayment statement from the solicitors acting on the sale of the hotel management rights. The draft repayment statement showed that the solicitors proposed making deductions from the sale proceeds so the net amount paid to the bank was $353,094.09.

Included in the deductions was $39,120.92 for fees, and this amount was received by the firm Mr Cox was a partner of.

Mr Cox instructed the solicitors to make the deductions immediately before the settlement of the sale of the management rights. He did not inform Mr B of the change or that he had authorised the deductions.

“The allegation is that the practitioner had a clear duty to inform the other parties, including [Mr B], that the situation had changed in that the amount to be paid in reduction of debt was greatly less than he had earlier said it would be,” the Tribunal noted.

The censure

The Tribunal recorded the censure of Mr Cox as follows (with names redacted):

“Mr Cox,

“You have admitted unsatisfactory conduct primarily with reference to your interaction with a fellow practitioner, [Mr B]. You emphasised to him on more than one occasion that the full proceeds of the sale of the management rights of [the hotel] would be paid to [the bank] in reduction of its debt. You failed to advise that there would be a significant reduction in the amount eventually paid in circumstances where you had an obligation to do so. It was the Tribunal’s concern that you had intentionally done so. It did, however, conclude that on balance it was an oversight rather than an intentional failure. That failure of yours did compromise [Mr B]’s ability to authorise the partial release of Mrs [A]’s GSA. Your legal practice benefitted to the extent of $39,120.92. This was a serious failing on your part for which you are properly censured.”

As well as imposing the censure and fine, the Tribunal ordered Mr Cox to pay the Law Society its costs of $19,791.96 and $2,984 Tribunal costs.

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