HY Trust v AK [2019] NZLCRO 6 (21 January 2019)

	Home \| Databases \| WorldLII \| Search \| Feedback New Zealand Legal Complaints Review Officer

	LCRO 213/2015
CONCERNING	an application for review pursuant to section 193 of the Lawyers and Conveyancers Act 2006
AND
CONCERNING	a determination of the [Area] Standards Committee
BETWEEN	HY TRUST Applicant
AND	AK and GJ _Respondent

The names and identifying details of the parties in this decision have been changed.

[1] The HY Trust (the Trust) has applied for a review of a decision by the [Area] Standards Committee (the Committee) to take no further action in respect of its complaint concerning conduct on the part of Mr AK and Mr GJ (the lawyers).

[2] The lawyers acted for [Company A]. [Company A] was successor in title to Mr MN with whom the Trust had negotiated the terms of a covenant. Mr CL, the Trust’s local representative, had a number of meetings with Mr MN between 1995 and 1997 regarding the proposed covenant, in which their discussions moved from ascertaining whether Mr MN had an interest in allowing the Trust to register an open space covenant over the land, through to registration of the covenant.

[3] The terms of the covenant were subject to a number of revisions. The arrangements took time to conclude, involved several people at the Trust and were

complicated by a number of factors, including changes to Mr MN’s personal circumstances. Mr MN eventually sold the land after the Trust had registered the covenant, and passed away in 2002 or 2003. The land was sold, bought and ultimately transferred to [Company A].

[4] [Company A] had plans for some of the land, including subdivision, erecting one or more dwellings, and preserving much of the land for conservation. The Trust did not consent to the subdivision [Company A] proposed, saying it was contrary to the purpose of the covenant.

[5] The Trust applied for a declaration to the High Court seeking to resolve the acknowledged uncertainty in the covenant by seeking a declaration as to its meaning. The Trust sought “rectification ... on the basis of mistake”.1 [Company A] was named as defendant to the Trust’s High Court proceeding.

[6] The Trust applied for summary judgment. [Company A] opposed that application. In his oral decision of [date], Associate Judge Doogue said the covenant was indefeasible and declined [Company A]’s counterclaims.2

[7] [Company A] applied to the Court of Appeal for leave to appeal Associate Judge Doogue’s decision and seek summary judgment on its counterclaim. The Court of Appeal adjourned [Company A]’s application pending delivery of the High Court decision, observing that it was “regrettable in hindsight that attempts were made on both sides to have the case determined summarily” because it appeared to be “common ground that the covenant does not reflect what was agreed between the [Trust] and [Mr MN]. That precluded summary determination in the circumstances...”.3

[8] Twelve days before the High Court trial was scheduled to commence, [Company A] filed an application to the High Court seeking to amend its counterclaim based on facts already pleaded, to enable [Company A] to avoid the consequences of indefeasibility. The amendments [Company A] proposed included seeking rectification, rather than removal, of the caveat, and the opportunity to allege that the covenant was

_{“fraudulently or wrongfully obtained or is fraudulently or
wrongfully retained on the title”}

and should be removed.4 The lawyers argued, on the basis that

s 81

of the Land

Transfer Act 1952 includes both the words “fraudulently and wrongfully”:5

The only real difference is whether there is a legal basis on the same facts for saying that it amounts to fraudulently, rather than merely wrongfully.

[9] The Trust opposed [Company A]’s application for leave. Venning J determined the application on [date] and ordered [Company A] to pay the Trust’s costs on the application.6 In his oral judgment, Venning J said:

[11] The plaintiff is a charitable Trust with a national profile. The general principle in relation to a pleading of fraud, even Land Transfer Act fraud, is that it should only be pleaded where there is clear evidence of fraud. Counsel has a responsibility in that regard.

[12] In the present case it is difficult to ascertain exactly what the fraud may be said to be. It appears from the existing pleadings... that it is accepted the former proprietor initialled the third schedule in question. The complaint is that that third schedule was wrongfully lodged with the covenant for registration.

[13] As [counsel for the Trust] pointed out it is difficult to see in those circumstances how there could properly be an argument of fraud by the plaintiff against either the original covenantee or the Land Registrar.

[14] However, to the extent that the actions of the plaintiff in arranging for such lodgement are relevant, s 81 covers it to the extent that it refers to “fraudulently or wrongfully” obtained or retained. At most it might be said the registration had been wrongfully obtained. If the defendant carries the day on that that will be sufficient for its purposes. An allegation of fraud adds nothing to the potential relief. The defendant does not need the leave sought to add the serious allegation of fraud for the purpose of determining the real issue between the parties, nor will declining that aspect of the application deny the defendant relief that it otherwise might be entitled to.

[15] Further if, as Mr GJ submits, it is now sought to allege the fraud on the basis of the existing evidence, then it is a matter that should have been raised at a much earlier time.

[16] For those reasons and given the very late application for leave, the application for leave in relation to alleging fraud under s 81, Land Transfer Act is declined.

[9] Initially, the Trust applied for summary judgment. It sought a declaration that it was entitled to enforce specific provisions contained in the covenant against [Company A]. Alternatively, it sought rectification. This application was resisted

by [Company A], and it in turn sought various orders, also by way of summary judgment.

[10] The respective summary judgment applications proceeded to hearing before Associate Judge Doogue in [date] and [date]. He declined to adopt an interpretation of the covenant that treated the definition of the words “protected area” as redundant. Further, he declined the Trust's claim for rectification. He also held that registration of the covenant was an interest in land that was covered by s 62 of the Land Transfer Act, and that, therefore, it had the protection of indefeasibility. He considered that, as a result, the Court could not grant the relief sought by [Company A] in its counterclaim.

[11] [Company A] did not initially seek to appeal this decision. However, the Trust then signalled that it would raise an issue estoppel against [Company A] given the findings as to indefeasibility. [Company A] wished to protect itself against this possibility. It belatedly sought leave to appeal out of time to the Court of Appeal. There was a brief hearing before that Court on 7 April 2014, and in a minute issued on 9 April 2014, the Court recorded that the sensible course was to adjourn the application before it until such time as this Court had heard the matter. In the event, I was advised by Mr RP, appearing on behalf of the Trust, that the Trust was no longer alleging issue estoppel against [Company A].

[12] At the commencement of the hearing, Mr GJ appearing for [Company A], sought leave to file a reply to the Trust's statement of defence to [Company A]'s counterclaim dated 13 May 2014. In the reply, he wished to assert that the process by which the covenant was obtained and entered on the title amounted to fraud for the purposes of s 62 of the Land Transfer Act, and that the covenant therefore did not have the protection of indefeasibility.

[13] This application, insofar as it sought to raise fraud, was resisted by Mr RP

(a) The issue of indefeasibility was raised at a very early stage. It was dealt with by Associate Judge Doogue in his reserved decision. It was pleaded as an affirmative defence by the Trust in June 2013 and again in its statement of defence to [Company A]'s amended counterclaim dated

(b) In November 2014, shortly before the trial commenced, [Company A] sought leave to file an amended counterclaim. One of the amendments sought to be made was to include an allegation of fraud. The application, insofar as it related to fraud, was rejected by Venning J in an oral judgment delivered on 17 November 2014. [Company A] was, in effect, asking me to revisit that ruling. Its remedy, if it felt aggrieved by Venning J's ruling, was to file an appeal against the same. It had not done so.

(c) Fraud under the Land Transfer Act requires actual fraud, that is, dishonesty of some sort, not merely equitable or constructive fraud. It was difficult to ascertain the fraud alleged. It is common ground that the replacement third schedule was initialled by Mr MN.

In my judgment, it was too late to raise an allegation of fraud. Even if such an allegation could responsibly have been made, it should have been raised at a very much earlier time.

[15] I therefore allowed the defendant to file their reply to the plaintiff's defence to the counterclaim, but directed that [12(b)] and [39(a)] of that pleading — alleging fraud — be deleted.

[11] His Honour referred to the evidence and resolved evidential inconsistencies on the basis of mistaken recollection, without criticising the integrity of any of the witnesses, and by balancing the probabilities.8 Before setting out to interpret it, his Honour identified an:9

obvious difficulty with the covenant. The second paragraph in cl 2 in the second schedule applies only to the protected area. The protected area cannot be identified. There is no illustrative aerial photograph attached depicting it.

[12] Wylie J declined to grant a declaration in the terms proposed by the Trust, saying the proposed terms were “nebulous” and did “no more than state the obvious. It would remain unclear whether the obligations ... form part of the covenant”.10

[13] Before considering [Company A]’s counterclaims and the Trust’s alternative claim for rectification, Wylie J discussed “indefeasibility of title” and s 62 of the Land Transfer Act, in which fraud is specified as an exception to the paramountcy of the estate of the registered owner.11 His Honour made reference to the well-established Privy Council authority in Frazer v Walker that applies to land registered under the Torrens system, and confirmed the fraud exception to indefeasibility.12

[14] Wylie J rejected the arguments advanced by Mr GJ for [Company A], namely the proposition that the [XX Act] overrode the Land Transfer Act, and concluded that “once notified, open space covenants have the protection of ‘indefeasibility of title’”.13

His Honour was not persuaded by Mr GJ’s submission that a significant piece of correspondence from the Trust to Mr MN was “misleading”.14 His Honour concluded that the “equity of rectification” was available to the Trust against [Company A] as assignee because:15

... the covenant is registered against the title to the land and [Company A] was aware of it when it acquired its registered interest. The evidence established not only that [Company A] knew of the covenant and the restrictions contained in it, but also that something was amiss with the covenant. Indeed, that was obvious from the covenant itself. Further, [Company A] knew that the Trust was aware that there were problems with the covenant, and that the Trust had agreed with a previous owner to vary the covenant. It also knew that the Trust had declined to accede to a variation proposed by its parent company ...

[Company A] clearly had actual knowledge of the covenant and of the problems with it before it took title to the land in May 2012. It has endeavoured to take advantage of the problems with the covenant ... [by advertising] the land for sale ... [describing the property in] the advertisement as being ripe for development as a “green/eco friendly” subdivision. The advertisement also records:

There is currently a [HY Trust] open space covenant listed against the title of this property. However, that will be removed prior to settlement.

In my judgment, registration of [Company A]’s interest in the land as registered proprietor does not preclude the claim to rectification made by the Trust, because [Company A] was on notice of the Trust’s potential equity – that is the Trust might be able to seek rectification. ... [Company A] cannot seek to hide behind the skirts of indefeasibility ...

[15] On the basis that there was no prejudice to [Company A] from him doing so, and accepting the Trust and Mr MN had made a mistake, Wylie J rectified the covenant before addressing [Company A]’s counterclaims.

[16] [Company A]’s counterclaims included the contention that the Court could remove the covenant from the titles;16 the Trust’s procurement of Mr MN’s initials on the replacement third schedule was unconscionable;17 the manner in which the covenant was notified on the title was wrongful because the covenant had been altered after execution and after being signed correct;18 and (with [Company A] relying on an earlier unaltered version of the covenant rather than the one the Trust had registered) the Trust had misled the Registrar-General of land.19

[17] Wylie J disposed of all but one of [Company A]’s counterclaims on the basis that they were not open to it because the covenant enjoyed the benefit of indefeasibility.20 His Honour said that “[e]ven if the covenant was flawed in one or other of the ways alleged, in the absence of fraud, s 62 confers indefeasibility” and that:21

Indefeasibility yields to fraud. As I have noted above at [12]–[15], fraud has not been pleaded in this case. In any event, it would not have been available on the facts.

[18] [Company A]’s remaining counterclaim was that the covenant was “wrongfully notified”. Wylie J referred to s 81 of the Land Transfer Act, which is headed “Surrender

of instrument obtained through fraud, etc”, and to the “Trust’s unsatisfactory practice in this case” of adding “photographs or the like” to executed covenants, describing it as potentially a “recipe for disaster”.22 Nonetheless, Mr MN had signed the third schedule that the Trust had added to the covenant and Mr CL had explained the alterations and processes to him. His Honour was not persuaded that the relevant regulation was engaged such that the Registrar should have refused to register the covenant because, rather than being erased, altered or corrected, the covenant as a whole had been varied by the insertion of the replacement third schedule.23 Acknowledging that the Trust’s practice was “unfortunate and bad”, Wylie J declined the relief sought by [Company A].24 Costs lay where they fell.25

[20] The outcomes sought by the Trust were to “prevent allegations of fraud in future” and to recover and protect the Trust’s reputation as much as possible.

made an application to the High Court alleging fraud against the [HY Trust] under section 81 of the Land Transfer Act 1952 without reasonable grounds, clarity or good cause. They made the allegation just seven working days before the hearing which considering the seriousness was unprofessional. The allegation was harmful to the [HY Trust] and the staff involved.

[22] Mr UY accepts the covenant prepared by the Trust contained drafting errors and that the Trust and Mr MN had overlooked those errors at the time they signed the documents. He says [Company A] was aware of the deficiencies in the covenant when it took ownership of the land and had “full knowledge of the covenant purposes”. Nonetheless, [Company A] applied to the Trust for its approval to a subdivision and development of the land, which the Trust refused. “[O]ut of frustration and a desire to resolve the issue”, the Trust sought rectification by application to the High Court and [Company A] counterclaimed.

[23] Relying on the decisions of Venning and Wylie JJ, Mr UY contends that the lawyers contravened r 13.8 by demonstrating:

a lack of care and awareness of their obligations under the rules in making the accusation and damaged the reputation of the [HY Trust]. The lawyers ... did not undertake the minimum duty to assure themselves that there was a proper basis for fraud before making the application. The allegation was without substance when the RCCC rules require it be given the most serious consideration beyond the interests of the lawyers’ client.

[24] Mr UY says the lawyers contravened r 2.3 by not using the law for its proper purpose. He says:

The allegation of fraud was used [in] an attempt to defeat indefeasibility. Not because there was actual fraud. It was obvious from the summary hearing two years previously and the Court of Appeal decision that the case was always going to be about the indefeasibility of the covenant on the title of the land ... the lawyers ... used the right to allege fraud improperly.

[25] Mr UY considers the application to amend the counterclaim disregarded the Trust’s reputation and demonstrated a lack of awareness of r 13.8 on the lawyers’ part. He refers to a number of authorities that support the proposition that “it is for counsel to see that no man’s good name is wantonly attacked”.26 Mr UY says that allegations of fraud are harmful to the Trust’s good name, and the staff and officers of the Trust found the allegations “hurtful, uncalled-for and unsubstantiated”. He refers to the values that underpin the “Trust brand”, such as “independence, honesty, trustworthiness and integrity”, and says allegations of fraud threaten the public’s perception of the Trust and jeopardises the Trust’s funding and capacity to continue its work.

[26] In reply to the complaint, Mr GJ says he and Mr AK “lived with this matter for some time, and ... did not form the view precipitately to plead fraud”. Mr GJ says he received instructions from [Company A] after pleadings and affidavits had been filed and the summary judgment hearing had been set down. He set out the parties’ positions in the litigation based on the history of dealings between them. Mr GJ says that there was a sound legal argument that Open Space Covenants are not indefeasible, and that point was reserved for argument at trial.

[27] Mr GJ says he obtained third party discovery from the firm that had acted for Mr MN in the 1990s. When he examined those documents in preparation for trial, Mr GJ formed the view that “what the Trust had done amounted to land transfer fraud”.

[28] Mr GJ tested his view with two other lawyers. He consulted Ms Foster, a barrister who had authored texts that traversed the subject of land transfer fraud. He

considered her well qualified to provide an opinion on the subject. She agreed with Mr GJ that “the facts did amount to land transfer fraud, and [he] should plead it”. He also consulted Mr EZ, who he considers to be a well-respected senior litigator in land law, and who was a colleague in his chambers. Mr EZ agreed with Mr GJ’s view that “the Trust’s actions amount to land transfer fraud, and [he] should plead it”.

[29] On the strength of his own view, confirmed by two other lawyers who were not so closely involved as he was, Mr GJ filed the application for leave to amend [Company A]’s counterclaim to include fraud. Mr GJ says he thought he had clearly explained the facts he relied upon to Venning J and so was surprised to discover his Honour found it difficult to ascertain what the fraud may be said to be. Mr GJ’s view was that Venning J was mainly interested in the procedural aspects of the application. When he again attempted to obtain leave to argue fraud before Wylie J at the trial, the application was again rebuffed primarily because it had been raised too late. Mr GJ says that as a consequence, fraud was never actually pleaded or argued.

[30] Mr GJ attached a copy of Wylie J’s decision on costs on the substantive proceeding, in which His Honour declined the Trust’s application for costs against [Company A]. Wylie J noted that the Trust’s application for rectification of the covenant was an indulgence sought from the Court, which is traditionally at the expense of the party that seeks it, and that the errors in the covenant were of the Trust’s making. His Honour noted the process and practice defects that the Trust made in drafting and registering the covenant. He also noted that although on summary judgment Doogue J had found that s 62 of the Land Transfer Act applied to make the covenant indefeasible, there was no previous authority on the point and [Company A] could not be criticised for seeking to argue it, or the question of whether rectification was available against [Company A] as a successor in title. Wylie J went so far as to say that if [Company A] had not argued those points he “would have appointed an amicus to assist, given the comparative dearth of recent authority”.27

[31] His Honour did not accept the Trust’s contention that consideration of [Company A]’s remaining counterclaims had prolonged the hearing to any significant extent once he had decided the indefeasibility issue, and he observed that [Company A] only became involved in the proceeding because of the Trust’s error in drafting the covenant.28 For those and other reasons, Wylie J declined to award costs

[32] Importantly, for the purposes of responding to the professional standards issues raised in the complaint, Mr GJ set out the facts upon which the fraud argument relied. Those included reference to Mr MN and Mr CL. Mr CL was believed to have had a relationship with the neighbouring landowner which was not disclosed to Mr MN but should have been. Mr GJ also had evidence that although the Trust was aware that Mr MN, an elderly man with serious financial problems, used a local lawyer, it made no effort to encourage Mr MN to seek legal advice in the course of the negotiations over the covenant. At its heart, Mr GJ’s case was that Mr CL took advantage of Mr MN in the furtherance of the Trust’s interests (and perhaps his own), but with scant regard to Mr MN’s rights and interests.

[33] Having secured Mr MN’s signature, Mr GJ says the Trust took shortcuts in having the defectively worded covenant registered. He says the Trust did not properly define areas affected by the covenant, altered boundaries on aerial photographs with twink and generally tried to get the covenant registered in a way that was not lawful, or fair to Mr MN. All these actions were performed in an attempt to keep costs to a minimum, while at the same time Mr CL took steps to actively mislead Mr MN to secure the covenant.

[34] Mr GJ considered that the evidence demonstrated the Trust was on notice of material deficiencies in the covenant and should have been aware of deficiencies in its own processes. In his view the Trust should never have proceeded to notification of the covenant on the title to Mr MN’s land in the circumstances, but it did. Further, the Trust did not apprise the Registrar of Land of the changes it had made to the documents associated with the covenant after Mr MN had signed and initialled them.

[35] All in all, Mr GJ considered there was good cause and reasonable grounds on which to base an allegation of land transfer fraud.

[36] Two colleagues who he considered well qualified to objectively judge agreed with him.

[37] Mr GJ also highlighted Wylie J’s criticisms of the Trust’s processes and practices, describing them as “generous to the Trust”. He notes that His Honour did not criticise him for raising the issue of fraud, despite having refused leave to plead it.

[38] Mr GJ says he owed [Company A] a duty to raise all defences properly available to it, and the fraud pleading was such a defence. He says there is no basis on which Mr UY could allege that he and Mr AK were unaware of r 13.8 of the Rules, and that in fact they were well aware of the rule. Mr GJ says there is no evidence of damage to the Trust’s reputation, and if there is, the Trust has only itself to blame.

(a) the fraud allegation “was considered reasonable in the context of the factual matrix”;

(b) the fraud allegation “was made after a full review of the full background as assembled over time as litigation progressed”;

(c) there is a distinction between equitable fraud and land transfer fraud, the latter being considerably narrower than the former;

(d) the authorities on which the complaint relies are examples of equitable fraud;

(g) counsel is responsible for raising the arguments, which is what the lawyers did and they should not be expected to apologise for that.

[40] Mr UY replied for the Trust in a letter to the NZLS on 29 May 2015. He contended the timing of the application for leave to allege fraud was not a major feature of the Court’s decision to refuse leave. He emphasised the lack of clear evidence to which Venning J referred and the difficulty he had in ascertaining exactly what the fraud may be said to be. Mr UY said the judgment of Venning J “speaks for itself to establish that steps were not taken to ensure reasonable grounds for fraud were established”, emphasising how difficult Venning J found it to see how there could properly be an argument for fraud and that [Company A] did not need to add fraud to determine the real issue. Mr UY relied on Wylie J’s comment that fraud “would not have been available on the facts”.30 He said the Court did criticise Mr GJ for raising fraud.

[41] Mr UY contended that Mr GJ went too far in alleging “unconscionable and dishonest” actions on the part of the Trust and said the fraud allegation was damaging to the Trust irrespective of how far it was allowed to progress. He noted that the Trust

was awarded costs on [Company A]’s failed application for leave even if it did not

[42] Mr UY, with reference to the Rules, stated that the Trust does not have to prove damage and wants to be assured that the Rules are applied to prevent “parties raising fraud as a tactical decision to avoid indefeasibility, without reasonable grounds to raise it”.

[43] Mr AK, in a letter to the NZLS on 30 July 2015, responded to a notice of hearing, dated 16 July 2015, issued by the Committee. He confirmed that he had been actively involved as Mr GJ’s instructing solicitor and was satisfied that the decision to allege fraud was a “considered decision in full knowledge of [Mr GJ’s] professional obligations to the client and to the court, and having canvassed [his] views and the views of experienced and knowledgeable colleagues”. Mr AK expressed concern at the potential for complaints and disciplinary processes to be used in a way that restricts the independence of lawyers to advise clients.

[44] Mr GJ also responded by letter on 29 July 2015 to the notice of hearing, advising that [Company A] had filed an appeal to the decision of Wylie J. Mr GJ noted that Mr UY had not disputed any of the facts he had set out in his earlier response.

[45] The Committee considered the materials, noted the Trust had provided no evidence of damage and was satisfied for the reasons set out in the decision that the lawyers’ conduct did not fall below a proper professional standard. The Trust’s complaint was determined pursuant to s 152(2)(c) of the Lawyers and Conveyancers Act 2006 (the Act), which provides Committees with a discretion to take no further action with regard to a complaint or any issue involved in a complaint.

[46] The Trust was not satisfied with that outcome and applied for a review of the

[47] The Trust’s submission in support of its application for review, dated 19

	(a)	the Committee’s decision that “seeking leave to plead fraud did not amount to an attack on the Trusts reputation” should be revisited;
	(b)	the decision that filing an application for leave to amend the counterclaim to allege fraud was not a breach of r 13.8 should be reviewed;
	(c)	committees and this Office are to make their own decisions and not rely on the Court as “determinant or filter” for professional conduct;
	(d)	a Committee lacking evidence of the basis on which fraud allegations are advanced should not protect lawyers from “needing to present reasonable grounds for alleging fraud”;
	(e)	the Committee did not consider rr 2.3 and 10 and should have; and
	(f)	the Committee was wrong to conclude that it was not necessary for it to make a finding that the lawyers had contravened r 13.8.1 when that was at the heart of the Trust’s complaint.
[48]	As	outcomes, the Trust seeks determinations that there has been

[49] In reply, Mr GJ notes that the Trust has not challenged the statements of fact on which he was prepared to advance the fraud allegation on behalf of [Company A]. He considers the facts provide a proper foundation to support allegations of fraud being made against the Trust. Mr GJ says the Trust does not dispute the allegations of fact but does not accept that they amount to fraud. He says:

An argument is not an allegation. It is an interpretation of the facts. The issue is whether there was a proper evidentiary foundation for the facts that were alleged. Clearly there was, because they were all proved.

[50] Mr GJ also attached copies of documents, dated 25 February 2016, filed by [Company A] in the Court of Appeal in relation to the case on appeal from the decision of Wylie J. The pleadings maintain [Company A]’s contention that the Trust lacked good faith and acted towards Mr MN unconscionably. As counsel put it, the Trust “did

not have clean hands, and it had sat on them for 14 years”.31 It had misrepresented the reason for the final Third Schedule to Mr MN and had executed and notified the covenant through deliberate and unsatisfactory practices.32 Counsel for [Company A] argues that the covenant was invalid, notification of the covenant was void and the finding of indefeasibility was made in error.33

[51] [Company A]’s appeal was dismissed. [Company A] sought leave to appeal to the Supreme Court. In August 2017 leave was granted to appeal on three grounds, one of which was whether there was a wrongful entry on the register under s 81 of the Land Transfer Act. Mr GJ submits:

If the Supreme Court has decided that there are proper grounds to consider whether the covenant was “wrongly” entered under s81, then surely there were proper grounds for me to allege that it was “fraudulently or wrongfully obtained or retained” under s81.

[52] Mr AK confirmed in an email to this Office on 30 August 2017 that his position

[53] The parties have agreed to the review being dealt with on the papers pursuant to s 206(2) of the Act, which allows a Legal Complaints Review Officer (LCRO) to conduct the review on the basis of all information available if the LCRO considers that the review can be adequately determined in the absence of the parties, as I do.

[54] The nature and scope of a review have been discussed by the High Court, which said of the process of review under the Act:34

... the power of review conferred upon Review Officers is not appropriately equated with a general appeal. The obligations and powers of the Review Officer as described in the Act create a very particular statutory process.

The Review Officer has broad powers to conduct his or her own investigations including the power to exercise for that purpose all the powers of a Standards Committee or an investigator and seek and receive evidence. These powers extend to “any review” ...

... the power of review is much broader than an appeal. It gives the Review Officer discretion as to the approach to be taken on any particular review as to the extent of the investigations necessary to conduct that review, and therefore clearly contemplates the Review Officer reaching his or her own view on the

evidence before her. Nevertheless, as the Guidelines properly recognise, where the review is of the exercise of a discretion, it is appropriate for the Review Officer to exercise some particular caution before substituting his or her own judgment without good reason.

[55] More recently, the High Court has described a review by this Office in the following way:35

A review by the LCRO is neither a judicial review nor an appeal. Those seeking a review of a Committee determination are entitled to a review based on the LCRO’s own opinion rather than on deference to the view of the Committee. A review by the LCRO is informal, inquisitorial and robust. It involves the LCRO coming to his or her own view of the fairness of the substance and process of a Committee’s determination.

[56] It is relevant to note at the outset that s 4 of the Act says that every lawyer who provides regulated services must, in the course of practice, comply with four fundamental obligations, the first of which is to uphold the rule of law and to facilitate the administration of justice in New Zealand. The other three impose obligations on lawyers in relation to their clients, including being independent in providing regulated services to the client, acting in accordance with all the fiduciary duties and duties of care lawyers owe to their clients and protecting the interests of the client (subject to any overriding duties as an officer of the High Court and under any enactments).

[57] The Act imposes no such obligations on lawyers toward third parties. That is the nature of the relationship between the lawyers and the Trust. The Rules made under the Act are also limited in their application to third parties.

To the extent appropriate, these rules define the bounds within which a lawyer may practise. Within those bounds, each lawyer needs to be guided by his or her own sense of professional responsibility. The preservation of the integrity and reputation of the profession is the responsibility of every lawyer.

[59] It is important to remember that the Rules define the bounds in which a lawyer may practise only to the extent appropriate. What is appropriate can only be determined on the facts of each case.

[60] Rules 2 and 2.1 repeat that the overriding duty of a lawyer is as an officer of the court, and the obligations to uphold the rule of law and facilitate the administration of justice. Those Rules are followed by r 2.3, to which the Trust refers in its complaint.

Rule 10, to which the Trust also refers, is in the chapter that addresses professional dealings between lawyers and others. Rule 13.8 and sub-r 13.8.1, which are at the core of the Trust’s complaint, are in the chapter that covers the conduct of lawyers as officers of the court.

[61] All of these Rules have been carefully considered in conducting this review. Given the outcome sought by the Trust, it is relevant to note early on that the Rules prohibit the use of legal processes to cause reputational damage and a lawyer can be ordered to pay compensation pursuant to s 156(1)(d) of the Act. However, it is also relevant to note that the complaint and disciplinary processes under the Act are not well suited to determining claims for reputational damage, particularly where a complainant has provided no evidence of damage and has not quantified loss, if any. Controversial claims for reputational loss and damage are better suited for determination in the civil courts.

[62] The Trust complains that the lawyers contravened rr 2.3, 10, 13.8 and sub-r 13.8.1 of the Rules.

[63] Each element of the complaint is contingent on the premise that there was no evidential basis for an allegation of fraud to be made. The lawyers draw a distinction between equitable fraud and Land Transfer Act fraud. As fraud is not defined in the Land Transfer Act, there is no short answer to whether conduct on the part of those involved with the Trust constituted Land Transfer Act fraud. Although it precedes the passing of the Land Transfer Act by some years, Assets Co Ltd v Mere Roihi [1905] AC

176, (1905) NZPCC 275 is described by the learned authors in Adams’ Land Transfer as the “locus classicus” for determining what behaviour constitutes fraud for the statutory purposes of the Land Transfer Act.36 The Court in that case made reference to the appearance of:37

... actual fraud, ie dishonesty of some sort, not what is called constructive or equitable fraud — an unfortunate expression and one very apt to mislead, but often used, for want of a better term, to denote transactions and consequences in equity similar to those which flow from fraud.

[64] The authors also refer to Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1926] AC 101 (PC), (1925) NZPCC 267 among other authorities which hold that fraud requires actual fraud, personal dishonesty or moral turpitude.38 Fraud is

36 Struan Scott and others Adams’ Land Transfer (looseleaf ed, Lexis Nexis) at [I.3.2.1].

“consciously dishonest conduct” rather than “behaviour founded upon a mistaken, but honest, belief”.39 The authors state that the “focus of judicial inquiry is on whether there has been dishonesty”, “views differ on whether a particular act constitutes dishonesty” and “each case must depend upon its own set of circumstances”.40

First, there is the situation where a person becomes registered with the intent of deliberately destroying or affecting an existing interest. The second situation is when the party becoming registered suspects that there is an existing interest which their registration (and associated receipt of an indefeasible title) will destroy.

[66] The commentary goes on to discuss deliberate acts, which are said to be “the clearest example of fraud”, and refers to Waimiha Sawmilling Co Ltd in which it is said “if the designed object of a transfer be to cheat a man of a known existing right, that is fraudulent”.41 The commentary is lengthy, the law in this area contested. However, given the commentary above and the facts Mr GJ laid out in his reply to the complaint, it could not sensibly be argued that there was an insufficient evidential basis on which to plead fraud.

[67] The fact that Mr GJ was unable to persuade the Court to allow him to run the fraud argument does not mean it was doomed to failure, or that it would have succeeded. The outcome would have been a product of the Court’s assessment of all the evidence and its application of the relevant law. The fact that Mr GJ was unable to persuade the Court to allow him to advance the allegation of fraud does not mean there was not good cause to advance the argument. It is apparent that Mr GJ took appropriate steps to ensure that there were reasonable grounds on which to make the allegation and he sensibly went further by checking his view with suitably experienced and independently-minded colleagues.

[68] What is missing from Mr GJ’s conduct is any sense that his approach to advancing alleged fraud was unprofessional or ill-considered. Pleading fraud involves the exercise of professional judgement. There is no basis on which to say Mr GJ or Mr AK were not mindful of the bounds within which they practised. The evidence available on review indicates that each of them was guided by his own sense of

41 Above n 36, at [I.3.2.2]; Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1926] AC 101 (PC), (1925) NZPCC 267 at 106–107.

[69] It is difficult to see what more the lawyers could have done. If they had not advanced the application for leave to amend [Company A]’s counterclaim, they could well have found themselves facing a complaint from [Company A]. If there was real doubt about the proper course of action, the lawyers should properly have favoured their client’s interests over the Trust’s.

A lawyer must use legal processes only for proper purposes. A lawyer must not use, or knowingly assist in using, the law or legal processes for the purpose of causing unnecessary embarrassment, distress, or inconvenience to another person’s reputation, interests, or occupation.

[71] Examples of breaches of the rule are cited in the footnote to r 2.3, none of which are relevant on the present facts.

[72] On behalf of the Trust, Mr UY objected to the lawyers using the allegation of fraud as an attempt to defeat indefeasibility, rather than because there was actual fraud. In reliance on the decisions of Venning J and the Court of Appeal decision, Mr UY says it was obvious the case was always going to be about the indefeasibility of the covenant on the title of the land. He says the lawyers “used the right to allege fraud improperly”.

[74] The legal process the lawyers used was an application for leave to amend [Company A]’s statement of defence to allow it to allege fraud. Observing r 2.3, the lawyers could only use that process for proper, and not improper, purposes. The purpose of applying for leave to file a pleading alleging fraud that Mr GJ articulated was to raise a defence that was available to [Company A] on the evidence.

[75] The Trust’s position is contingent on the proposition that [Company A] did not have a proper defence available to it. For the reasons discussed earlier, that proposition is rejected. From the facts Mr GJ set out in some detail in support of [Company A]’s fraud argument in his reply to the complaint, and from counsel’s arguments on appeal, although he did not have the chance to argue fraud in support of defeasibility, it could not be said that [Company A] had no arguable defence.

[76] It is not the role of this Office to say whether or not there was fraud. It is abundantly clear from the facts Mr GJ set out in his reply to the complaint that there

was room for concern over the Trust’s dealings with Mr MN. Further, as Wylie J explained in his judgement, the Trust’s drafting and notification of the covenant did not stand up well to scrutiny.42

[77] There is no hint of any impropriety of purpose on the lawyers’ part and no evidential basis on which to say the lawyers used legal processes other than for proper purposes.

[78] Rule 2.3 also prohibits lawyers from using, or knowingly assisting in using, the law or legal processes for the purpose of causing unnecessary embarrassment, distress, or inconvenience to another person’s reputation, interests, or occupation.

[79] The Trust’s focus was on the damage it claims its reputation sustained because of [Company A]’s amended counterclaim alleging fraud. The contention advanced by the Trust is that the lawyers used legal processes to damage the Trust’s reputation.

[80] There is no evidence that demonstrates the lawyers’ purpose in using any legal processes was to cause embarrassment, distress or inconvenience to the Trust’s reputation, interests or occupation, unnecessarily or otherwise.

[81] If the Trust did suffer embarrassment, distress or inconvenience to its reputation, interests or occupation, responsibility for that cannot be laid at the feet of the lawyers. All that the lawyers did was uncover historical facts and endeavour to persuade the Court to allow Mr GJ to advance an interpretation of those facts in a way that furthered their client’s interests. That was a necessary part of his job.

[82] There is no proper basis on which to find that either lawyer contravened r 2.3 of the Rules.

[84] This complaint is also contingent on there being no basis on which a fraud argument could be advanced.

[85] There is nothing in the materials available on review that demonstrates a failure on the part of either lawyer to promote or maintain proper standards of professionalism in their dealings with the Trust, and therefore there is no proper basis on which to find that either lawyer contravened r 10 of the Rules.

13.8 A lawyer engaged in litigation must not attack a person’s reputation without

13.8.1 A lawyer must not be a party to the filing of any document in court alleging fraud, dishonesty, undue influence, duress, or other reprehensible conduct, unless the lawyer has taken appropriate steps to ensure that reasonable grounds for making the allegation exist.

[87] The Trust says there was not good cause to attack its reputation in court and the lawyers did not take appropriate steps to ensure that reasonable grounds for making the fraud allegations existed.

[89] [Company A] was a successor in title, with little but documentary evidence of the Trust’s dealings with its predecessor in title from which to establish the parties’ intentions at the time the covenant was negotiated, drafted, amended and notified. The Trust’s representative knew when he was in negotiations with Mr MN that he was elderly and probably vulnerable, but appears not to have taken the obvious precaution of encouraging him to take legal advice in respect of the covenant. The covenant was intended to be a restrictive agreement that Mr MN, and his successors in title, would not do certain acts in relation to his land that he or they could otherwise do. The Trust agreed that the covenant was defective. The interpretation preferred by the Trust imposed significant restrictions on [Company A]’s rights as owner of the land. The circumstances in which the Trust negotiated, drafted, amended and notified the covenant left much to be desired.

[90] It is apparent that the lawyers took appropriate steps to ensure that reasonable grounds for making the fraud allegation existed. Those steps are set out in some detail in Mr GJ’s reply to the complaint and outlined above. It was perhaps unfortunate for [Company A] that the opportunity to argue fraud was missed because it was too late, but that is not a complaint the Trust can advance.

[91] I am not persuaded that the lawyers attacked the Trust’s reputation. If I am wrong in that, I consider the facts provided the lawyers with good cause.

[92] The Committee’s discussion refers in some detail to relevant cases. It is not necessary to repeat those here. Suffice to say there is nothing in the Trust’s application for review or elsewhere in the materials available on review, all of which I have carefully considered, that persuades me that there is good reason to substitute my own judgment for that of the Committee’s.

Pursuant to s 211(1)(a) of the Lawyers and Conveyancers Act 2006, the decision of the

In accordance with s 213 of the Lawyers and Conveyancers Act 2006 copies of this decision are to be provided to:

CC and DD as Related Persons [Area] Standards Committee The New Zealand Law Society

New Zealand Legal Complaints Review Officer

HY Trust v AK [2019] NZLCRO 6 (21 January 2019)