[Names used in this summary are fictitious]
A lawyer who paid KiwiSaver funds directly to her clients, despite giving an undertaking that they would be used as part of a property purchase, was guilty of unsatisfactory conduct, a lawyers standards committee has found.
The lawyer, Havisham, acted for Mr Spenlow and his partner, Ms Steerforth, on the purchase of a property.
A loan to purchase a property was approved conditionally based upon the KiwiSaver withdrawal.
Havisham gave an undertaking to a KiwiSaver scheme manager that “any funds received by me pursuant to the Application (the Funds) will be paid to or as instructed by the vendor as part of the purchase price”.
Subsequently, the bank waived the condition for the KiwiSaver funds requirement, and the lending was increased to allow the purchase to proceed. The purpose of that arrangement was to ensure that the settlement proceeded even if the KiwiSaver funds were not received in time for settlement.
Settlement was funded by a loan drawdown plus funds received from Mr Spenlow. The KiwiSaver funds remained untouched in a separate KiwiSaver withdrawal ledger in the law firm’s trust account.
Five days after settlement, money was paid to Mr Spenlow and Ms Steerforth from the KiwiSaver withdrawal ledger (less a sum deducted for fees and a small amount transferred to a separate ledger for another matter).
Havisham argued for a “global approach” and pointed the committee to an email from the mortgage broker, advising that the clients would apply the balance to the principal of the loan on settlement. She also relied on the personal declarations that Mr Spenlow and Ms Steerforth had given the bank that “the amount withdrawn will be applied solely towards paying the purchase price of the property as settlement”. However, there was no evidence that the funds had, in fact, been used to reduce the mortgage advance.
The committee considered the wording of the undertaking given to the KiwiSaver scheme manager was “clear and unambiguous – the funds withdrawn had to be applied to or as instructed by the vendor as part of the purchase price”.
“The purpose of the undertaking is to ensure that the KiwiSaver provider complied with the terms of its scheme,” the committee said.
“The KiwiSaver provider must be entitled to rely upon a lawyer’s undertaking to ensure that the requirements of the scheme are met. Otherwise it would undermine trust in the legal profession.
“[Havisham] did not comply with the clear wording of the undertaking.”
The fact that the funds were kept in a separate ledger “made it clear that they had not been applied towards the purchase price at settlement”.
As well as making a determination of unsatisfactory conduct, the committee fined Havisham $2,000 and ordered her to pay $1,000 costs.
Havisham sought a review of the determination by the Legal Complaints Review Officer (LCRO). In LCRO 42/2018, the LCRO upheld the committee’s determinations and ordered Havisham to pay $1,200 costs. In doing so, the LCRO stressed that there was no option for the degree of flexibility with the KiwiSaver funds that resulted in the funds being paid into the client’s account. Havisham was required to scrupulously adhere to the terms of the undertaking.