A lawyers standards committee finding that a lawyer, B, was guilty of unsatisfactory conduct after the committee found he had made a threat for an improper purpose has been reversed by the Legal Complaints Review Officer.

A fine of $1,000 and costs of $750 therefore no longer stand, the LCRO said in RC v ZN LCRO 74/2012.

B acted for a company which was owed money by two companies of which the complainant, Ms C, was a director. The debts were acknowledged and it was agreed they would be paid by instalments.

Before the debts were repaid in full, one of the debtor companies changed its name and it then requested to be struck off the register of companies on the grounds that it had ceased to carry on business in New Zealand.

In support of the request, Ms C made the required declaration that the company: “… has ceased to carry on business, and has discharged in full its liabilities to all known creditors, and has distributed its surplus assets in accordance with its constitution and the Companies Act [1993]”.

Having learned of this, B wrote to Ms C reminding her that the debt to his client had not been repaid in full. He concluded his letter with the following paragraphs:

“It may be that funds to pay the debt owed by [Company A] to [Company B] were put aside when you made the declaration of solvency quoted above, but that payment was inadvertently overlooked.

“The purpose of this letter is to remind you of the debt owed to [Company B] and to invite payment in accordance with your declaration that [Company A] has discharged its liabilities in full.

“If payment is not received within 14 days, we will be forced to the conclusion that [Company A] was/is unable to discharge its liabilities in full, and that your declaration of solvency may have breached s 377 Companies Act 1993 – and we will refer the matter to the authorities for further investigation.”

Three questions

The LCRO considered the scope of rule 2.7 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008. This rule states that: “A lawyer must not threaten, expressly or by implication, to make any accusation against a person or to disclose something about any person for any improper purpose”.

There were three main questions the LCRO needed to consider, it said:

• Did B threaten Ms C?
• Was there an accusation?
• Was the “threat” made for an “improper purpose”?

If the company was, in fact, able to meet its debts, the LCRO said, then B’s stated intention to advise the authorities could not be considered to have been a threat.

“Only Ms [C] knew whether she had made a truthful declaration or not and I accept therefore that [B] did not know whether his stated intention constituted a ‘threat’ as defined, or not.”

Nor did the LCRO consider that “any communication by [B] to the Companies Office would or could be in the form of an accusation. It would be more in the nature of a statement of fact, that notwithstanding the declaration that the company was able to pay its debts, there were undisputed debts owing to [B]’s client”.

Proper purpose

As submitted for B, “lawyers will often make a statement that unless payment of a debt is made, proceedings will be issued. That is a mere statement of intention and cannot be considered in any way to be a ‘threat’ for an ‘improper purpose’. The proper purpose of any lawyer instructed to recover a debt is to do just that, ie recover a debt.”

The LCRO referred to his previous decision (UF v OU 90/2011) in which he considered that the proper test was to consider whether or not there was an ulterior motive in “threatening” to take a particular course of action.

The LCRO also stated that: “A requirement that Ms [C] arrange for payment of an undisputed debt by the company of which she was a director, can hardly be considered to be an ‘improper purpose’. It was perfectly proper for [B] to make that demand.”

It is “quite clear”, the LCRO said, that B did not intend his letter to be perceived as a “threat” and indeed it may have been an “empty” threat if funds were in fact in place to clear the debt due to B’s client. What is also clear, is that the finding of unsatisfactory conduct has proceeded on a reasonably narrow interpretation of the rule.

“At most, I consider that [B] did not exercise good judgement in writing as he did to Ms [C] but I can discern no real threat in the content of the letter as there was a possibility that the declaration was indeed true,” the LCRO said.

“If [B] had taken the step of writing immediately to the Companies Office this could have been seen as somewhat peremptory and malicious if it turned out that Ms [C] had made provision for payment of the debt outstanding.”

As the decision “will be of interest to any lawyer acting to recover a debt due to the lawyer’s client,” the LCRO ordered that the anonymised facts of the decision and the outcome be published in LawTalk.