New Zealand Law Society - Law firm deducted fees held for "particular purpose"

Law firm deducted fees held for "particular purpose"

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[Names used in this article are fictitious]

It was unsatisfactory conduct for a lawyer to deduct fees from client money being held for another “particular purpose”, the Legal Complaints Review Officer (LCRO) has found.

In LCRO 139/2017, the LCRO considered an application for a review of a lawyers standards committee decision to take no further action on a complaint about the partner of a law firm, Doyce, and a legal executive, Jarndyce, employed by the firm, firm A.

Jarndyce, under supervision, acted for the complainant, Mrs Rudge, on the sale of her residential property to a company (T Ltd).

The Agreement for Sale and Purchase provided that T Ltd pay a $10,000 deposit to the vendor’s lawyer’s trust account upon the settlement going unconditional, and that amount was paid.

Firm A’s Agreement for Legal Services, which Mrs Rudge had signed, contained an authority for firm A to deduct fees from money held in its trust account on her behalf.

Mrs Rudge then sought Doyce’s advice on withdrawing from the sale to T Ltd, and soon after changed lawyers (to firm B).

Firm B asked Jarndyce to cancel the sale agreement and withdrew Mrs Rudge’s authority for firm A to deduct fees from the $10,000 deposit.

Jarndyce then provided firm B with invoices for three matters and a statement. The statement showed a balance of $5,607 was held by firm A on Mrs Rudge’s behalf.

When it considered Ms Rudge’s complaint, the standards committee said that the cancellation of the sale agreement by firm B “meant that the funds were not held for any specific purpose” and that firm A was “entitled to deduct their fees pursuant to their signed agreements with Mrs [Rudge]”.

Review findings

The LCRO, however, found that firm A did hold the money for a “particular purpose”.

“The consequence of Mrs [Rudge] and [T Ltd] agreeing to cancel the sale agreement, coupled with Mrs [Rudge]’s direction to pay the full deposit to [T Ltd] meant that the money was held by [firm A] in their trust account on Mrs [Rudge]’s behalf for the particular purpose of being paid back to [T Ltd] and not for general purposes,” the LCRO said.

Following the decision in Heslop v Cousins [2007] 3 NZLR 679, Jarndyce and Doyce “were required by s 110 (1)(b) [of the Lawyers and Conveyancers Act 2006] to carry out Mrs [Rudge]’s directions to return that money to [T Ltd].

“As in Heslop, where the funds were held by the lawyer concerned for a particular purpose, it was no longer open to [Jarndyce] and [Doyce] to deduct the firm’s fees from the deposit funds, or to assert a lien over those funds” even where firm A’s terms of engagement authorised the deduction of fees from funds held on trust.

While it was open to the LCRO to make findings against both Jarndyce and Doyce for deducting fees contrary to Mrs Rudge’s direction, he did not regarding Jarndyce, because she would have – as an employed legal executive – been working under the supervision and direction of Doyce or another partner of the firm.

“I do so however in respect of [Doyce], who I have found on the particular facts of this matter deducted the firm’s fees contrary to Mrs [Rudge]’s instructions first, not to do so, and secondly to repay the full deposit to [T Ltd] when the firm held security for costs payable by Mrs [Rudge] to the firm.”

Issue of principle

Mrs Rudge also complained about the fees firm A charged.

Although the LCRO found the fee components of firm A’s three fee invoices were fair and reasonable, he did not make a finding relating to “office expenses”.

In her complaint, Mrs Rudge questioned whether firm A was entitled to charge office expenses that were not actual costs she incurred.

Doyce said in his submission that “office expenses” included an “insurance contribution”, “Land Information New Zealand and other software licence fees”, and “Bureaux”, and were “reasonable and in line with accepted practice”.

“This aspect of Mrs [Rudge]’s complaint does raise an issue of principle, namely, whether it is permissible to charge such ‘office expenses’ to clients in this manner,” the LCRO said.

Because the parties did not have the opportunity to address the matter before the committee “the proper course is for me to return this issue to the committee to consider the appropriateness or otherwise of some or all the office expenses charged”.

As well as finding unsatisfactory conduct by Doyce, the LCRO ordered him to repay Mrs Rudge $10,000 and to pay $1,200 costs.

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