Lawyers have an “obligation to examine the facts carefully before including an allegation of fraud in any civil pleadings,” a lawyer standards committee has said.

The committee was considering a complaint against two lawyers, who acted for company A, which had bought a block of land.

The land that company A bought was the larger of two blocks which had been a farm owned by an elderly man. When the man retired from farming, he allowed the land to regenerate.

He then decided to enter into an open space covenant with a trust. A covenant was registered over the land but was defective in some respects. The original covenant was over what was assumed to be one title.

A replacement covenant was prepared to cover the larger block. This allowed only one dwelling and ancillary buildings to be built on the larger title. It was later found that the drafting of the covenant was still defective.

After company A bought the larger block, it commenced proceedings to seek a declaration as to the meaning of the covenant or, in the alternative, sought to challenge the covenant.

The trust originally sought summary judgment granting declarations relating to the covenant. Company A opposed making declarations and sought an order for the covenant to be cancelled and be removed from the title.

Both summary applications were heard and declined.

Attempt to include fraud claim

The matter was appealed. Days before the High Court hearing, company A applied to amend its counterclaim to include a claim for fraud.

Declining leave to file an amendment to include a claim of fraud, the High Court noted that it was “difficult to see … how there could properly be an argument of fraud by the plaintiff against either the original covenantee or the Land Registrar.”

“The courts have, in this case, acted as a determinant or a filter. Leave was sought and declined. Accordingly, in the committee’s view, in a formal sense no allegation of fraud or other reprehensible conduct was in fact made in the substantive proceedings,” the standards committee said.

“The committee considered that the seriousness of the allegation, if it was to have been made, would mean that the lawyers would be required to have reasonably credible evidence to support them, before the allegation was made.

“They would need to have credible evidence to show that good cause and reasonable grounds existed for the allegations,” the committee said.

“Because leave was not granted permitting the allegation of fraud to be argued it is not possible to establish exactly what evidence the lawyers proposed to rely on to support such an allegation.”

As a result, the committee determined to take no further action on the complaint. This was upheld on review by the Legal Complaints Review Officer.

Fined for prosecuting former client

All names used are fictitious.

A barrister who acted in a private prosecution against a former client has been fined $3,500.

The Legal Services Agency (LSA) appointed the barrister, Berowne, to act for Mr C who was facing serious criminal offences.

Berowne had spent more than 59 hours on Mr C’s file when the Crown Solicitor identified that Berowne had a conflict of interest. He subsequently withdrew as counsel.

At trial, the Crown withdrew one charge, and Mr C was acquitted on another charge.

Some six years later, a private prosecution was commenced against Mr C. Berowne was instructed to act for the prosecution.

Mr C’s lawyer approached Berowne and raised the issue that Berowne had previously acted for Mr C on the same matter.

Berowne said that he could not recall having acted for Mr C and asked for proof. He then asked his assistant to search through his practice’s records without success. He subsequently offered to withdraw as counsel if Mr C’s lawyer could show there was a principled basis for him to do so.

At the sentencing hearing, an agent appeared on behalf of Berowne. Mr C’s lawyer presented to the agent LSA invoices showing that Berowne had previously acted for Mr C. On receipt of these, Berowne obtained leave to withdraw and withdrew as counsel.

Mr C then complained to the Lawyers Complaints Service.

A lawyers standards committee found that Berowne had breached rules 8.7 and 8.7.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008.

The committee found these breaches “amounted to unsatisfactory conduct at the high end”.

The committee censured Berowne, imposed a $10,000 fine, two costs orders of $1,000 each, and ordered the publication of Berowne’s name. It also ordered Berowne to pay Mr C $1,000 in compensation.

LCRO review

On review, the Legal Complaints Review Officer (LCRO) reduced the fine to $3,500 and reversed both the censure and name publication orders. However, it confirmed the compensation order and the two costs orders of $1,000 each.

In doing so, the LCRO stressed that his decision had been reached with the benefit of having more information than the committee did.

“The committee was extremely concerned about [Berowne]’s view that there was no conflict of interest or prejudice in him acting in the private prosecution because Mr [C] was pleading guilty to the charge and then being sentenced,” the LCRO said.

“A censure for a breach of that nature would generally be justified.”

The LCRO accepted that Berowne did not recall having acted for Mr C “by a narrow margin” and that he understood that if he had previously acted for Mr C, he could not act against him in the later prosecution. However, the LCRO found that Berowne had breached rule 8.7.1 due to his unsatisfactory response to being notified that he had previously acted for Mr C. The LCRO said “it was incumbent upon [Berowne] to adopt a scrupulously thorough approach to his position. At stake was confidential information belonging to Mr [C] which [Berowne] had undoubtedly learned about [earlier] and was potentially in a position to use against him”.

He said that “[Berowne] was obliged to do more than the steps he took …. Even more so when his paper and electronic records for the relevant time no longer existed.”

Retention of files

In his submissions to the LCRO, Berowne said that he had no files relating to Mr C. He said his administrative practice had been to destroy all client paper files six years after they had been closed.

“In a brief article in LawTalk, the New Zealand Law Society recommended that lawyers might consider a 10-year period as a good starting point for retaining client files,” the LCRO said.

“The Law Society’s suggestion that 10 years is a good starting point is sound and it is a practice worthy of adoption.”

As to electronic records, Berowne said that between the Police prosecution and the private prosecution he had suffered at least two collapses of his electronic files with consequent data losses, including client files. Currently his electronic files are separately backed up.

“In some circumstances, the failure by a lawyer to have proper electronic back-up arrangements in place may lead to a conduct finding if, for example, important data is irretrievably lost.

“It could be said that the failure to back up electronic client data is conduct which falls below the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer,” the LCRO said.

As well as imposing the $3,500 fine, the LCRO ordered Berowne to pay $1,200 costs.

Lawyer failed to seek acknowledgement of emailed notice

A lawyer who failed to properly declare a property agreement unconditional by not seeking an acknowledgment that an email had been received, has been censured and fined $3,000 by a lawyers standards committee.

The lawyer, Cornwall, acted for Mr and Mrs A, who entered into an agreement to buy a residential property they intended to live in. The agreement contained a condition that the sale was conditional on the sale of Mr and Mrs A’s existing home.

The agreement also contained a “Vendor’s Escape Clause”, where the vendor could give the purchaser notice requiring the purchaser to advise within three working days that the agreement was unconditional, or the agreement would immediately terminate.

Two days after receiving notice under the Vendor’s Escape Clause, Mr and Mrs A sold their property.

The next day Cornwall, through a legal executive, sent an email to the vendor’s lawyer advising that “our purchaser client has instructed us to inform you that all conditions of this contract have been satisfied. This contract is therefore unconditional.”

Just after 5pm that day, the vendor’s lawyer telephoned the legal executive to advise that the confirmation email was not accepted as his firm had not acknowledged the email orally or in writing. The property was sold to someone else.

The standard form ADLS/REINZ agreement contained specific provisions on service of notices. It provided that they could be made by email “when acknowledged by the party or by the lawyer orally or by return email or otherwise in writing”.

Mr A lodged a complaint with the Lawyers Complaints Service.

Unsatisfactory conduct found

The standards committee found there had been unsatisfactory conduct of a “serious nature” by Cornwall, listing four grounds.

• Cornwall had failed to act competently and in a timely manner in not taking the practical precaution of obtaining acknowledgement of the emailed notice of confirmation from the seller’s law firm.
• Cornwall failed to act competently in apparently not considering any interpretation of clause 1.3(4)(d) of the standard form ADLS/REINZ agreement other than the interpretation advanced by the seller’s lawyer and apparently not undertaking any research for case authority on the point.
• Having formed the view the contract “ran on” Cornwall failed to act competently to protect and promote the interests of her clients, failing to advise them of the steps open to them to preserve their position, particularly the possibility of lodging a caveat.
• In the context of believing she had made a mistake and given the urgency of her clients’ need to take steps to preserve their position, Cornwall failed to terminate the retainer of her own accord and give her clients reasonable assistance to find another lawyer.

“It is customary practice among conveyancing practitioners always to ensure, in any situation where time is of the essence, that a notice served solely by email is accompanied by a request for acknowledgement of receipt and followed up with a telephone call if such acknowledgement is not promptly received,” the committee said.

As well as the censure and $3,000 fine, the committee ordered Cornwall to pay Mr and Mrs A $18,337 compensation and to pay $1,500 costs.

LCRO review

On review, the Legal Complaints Review Officer (LCRO) in LCRO 229/2017 and 21/2018 upheld the unsatisfactory conduct finding, albeit for different reasons.

The LCRO confirmed the censure, fine and costs. However, it reduced the compensation to $2,000.

“There is no information available which would establish compensation at the level awarded by the committee,” the LCRO said. “I therefore commence by reaching a view that a claim for compensation that cannot be quantified should not exceed $2,000.”

The LCRO considered the amount of $2,000 to be appropriate in the circumstances.