New Zealand Law Society - Lawyers Complaints Service: Professional responsibilities must be honoured

Lawyers Complaints Service: Professional responsibilities must be honoured

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When monies are stolen from a law firm’s trust account, the lawyers have an “unconditional professional responsibility” to reimburse the money to the person it is held in trust for, the National Standards Committee said.

It was “improper” for a law firm to require a signed confirmation of acceptance in full and final settlement and an acknowledgement that the person owed the funds had sought independent legal advice or had elected not to do so, the committee said.

The committee was considering a complaint from a Ms A about two partners in a law firm, firm B. The firm had acted for Ms A and her husband in the past, but Ms A instructed other lawyers after the marriage ended.

Firm B possessed funds belonging to the parties at the time relationship property issues were resolved. Ms A understood that all the funds were distributed at that time.

Then she learned through the news media that a former staff member of firm B had stolen clients’ funds from firm B’s trust account over a number of years.

Ms A asked the firm acting for her to write to firm B asking for copies of the trust account records. Shortly after, firm B notified her of a reimbursement payment to which she was entitled. That was her half-share of funds the firm admitted had been stolen from the trust account, plus interest.

Firm B asked Ms A to sign an agreement to accept $1,132.50 (before resident withholding tax and including GST) in “full and final settlement” of all claims against the firm or its insurers. It also asked Ms A to sign that she acknowledged that she had taken independent legal advice or had chosen not to take independent legal advice.

Unconditionally entitled

Ms A was dissatisfied about being required to sign the settlement terms when she considered that she was unconditionally entitled to the reimbursement payment.

Firm B’s response to the committee’s inquiry was provided by a law firm that had advised firm B. That firm stated that firm B made an offer to redress, and that it – as the advising firm – and firm B’s insurers had formulated the advice to firm B on the offer to settle.

“We think we can say with total confidence that [firm B’s insurer] and indeed all insurers would not pay claims without obtaining a discharge. That is simply the way insurance companies operate,” the law firm advising firm B said.

Firm B’s letter to Ms A “included unqualified admissions of theft from the trust account,” the National Standards Committee’s decision states.

“In light of those admissions, we consider that the lawyers had an unconditional professional responsibility to reimburse the money to the complainant …

Improper requirement

“It was improper for them to require a signed confirmation of acceptance in full and final settlement, and an acknowledgement that she had sought independent legal advice or had elected not to do so.”

To require clients or former clients who were victims of theft from a firm’s trust account to “make formal claims” is to ignore their status as persons entitled to the protection of s 110 of the Lawyers and Conveyances Act 2006.

It also ignores the protections recognised in “lawyers’ strict duties in the operation of trust accounts.

“Such a requirement would tend to undermine public confidence in the legal profession.

“Having admitted theft from the trust account, and having quantified the amount stolen, the lawyer could only require the complainant to provide a receipt acknowledging the principal and interest being reimbursed.

“Anything more than that, requiring a full and final settlement and a declaration concerning independent legal advice, was to treat the complainant as a civil claimant and was a failure by the lawyers to properly discharge their professional responsibilities to her as a victim of theft from their trust account,” the committee said.

The committee said it viewed the matter “seriously” and expressed its disapproval of the manner in which Ms A’s entitlement to reimbursement had been dealt with. The committee said it refrained from making an adverse finding in this case, however. The committee considered the case warranted a warning, and determined to take no further action on the complaint. That acknowledged that the lawyers were acting on advice, in good faith.

“It is apparent that the lawyers were influenced in this matter by the requirements of their underwriter.

“While they may have felt they had little option about that, as a matter of commercial reality or expediency, the underwriters of the legal profession cannot dictate the way in which lawyers must honour their professional responsibilities,” the committee said.

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