Auckland Standards Committee 2 v Small [2024] NZLCDT 32 (16 October 2024)

Last Updated: 31 October 2024

NEW ZEALAND LAWYERS AND CONVEYANCERS DISCIPLINARY TRIBUNAL

[2024] NZLCDT 32 LCDT 018/24

IN THE MATTER of the Lawyers and Conveyancers Act 2006

BETWEEN AUCKLAND STANDARDS COMMITTEE 2

Applicant

AND DAVID JOHN MATTHEW SMALL

Respondent

CHAIR

Ms D Clarkson

MEMBERS OF TRIBUNAL

Ms K King Ms A Kinzett

Mr T Mackenzie (attending by VMR) Prof D Scott

HEARING 26 September 2024

HELD AT Specialist Courts and Tribunals Centre, Auckland

DATE OF DECISION 16 October 2024

COUNSEL

Mr E McCaughan, counsel for the Standards Committee (attending by VMR) No appearance by or for the Respondent

REASONS OF THE TRIBUNAL FOR ORDERS MADE ON 26 SEPTEMBER 2024

Introduction

[1] On 26 September 2024, we made orders striking Mr Small from the role of barristers and solicitors of the High Court, and awarding costs against him. We reserved reasons for those orders. This decision provides those reasons.

Reasons for misconduct finding

[2] From July 2022, Mr Small, who was a sole practitioner, allowed his trust account to be overdrawn. This continued for over a year. As all lawyers know, that is absolutely forbidden. By his own admission, for at least three to four months leading up to August 2023, when the New Zealand Law Society Inspectorate became involved, Mr Small had also employed various means to use client funds for his own purposes.

[3] These included:

• (i) creating fictitious invoices to make payments to himself;
  
• (ii) preparing unclear statements which confused clients, leading them to overpay amounts; and
  
• (iii) making payments without client authority.1
  

[4] Mr Small’s bank and some clients notified the Law Society of concerns about Mr Small’s practice and his trust account. As authorised under the Lawyers and Conveyancers Act 2006 (the Act), the Law Society appointed an investigator. Mr Small met with the investigator. He was distressed and remorseful. He spoke of personal

1 As set out in submissions for the Standards Committee at [4.2](c).

problems, including financial difficulties, which had led to his offending. He was cooperative and signed a statement acknowledging that he had used client funds for his personal benefit, and that he was operating a trust account without a practising certificate.

[5] Following this, his practice was handed over to his attorney. Mr Small did not participate further in the investigative or disciplinary process.

[6] Misconduct is defined in s 7 of the Act as conduct which “would reasonably be regarded by lawyers of good standing as disgraceful or dishonourable”.2 Further it can consist of a wilful or reckless contravention of the Act or any regulations or rules made under the Act.3

[7] Section 110 of the Act provides that a practitioner, who in the course of his or her practice, receives money for, or on behalf of, any person, must hold the money, or ensure that the money is held, exclusively for that person, to be paid to that person or as that person directs.

[8] Section 110 of the Act provides:

110 Obligation to pay money received into trust account at bank

(1) A practitioner who, in the course of his or her practice, receives money for, or on behalf of, any person—

• (a) must ensure that the money is paid promptly into a bank in New Zealand to a general or separate trust account of—
  

(i) the practitioner; or

• (ii) a person who, or body that, is, in relation to the practitioner, a related person or entity; and
  

(b) must hold the money, or ensure that the money is held, exclusively for that person, to be paid to that person or as that person directs.

(2) An incorporated firm that, in the course of its practice, receives money for, or on behalf of, any person—

2 Lawyers and Conveyancers Act 2006, s 7(1)(a)(i).

3 Section 7(1)(a)(ii).

(a) must ensure that the money is paid promptly into a bank in New Zealand to a general or separate trust account of the firm; and

(b) must hold the money, or ensure that the money is held, exclusively for that person, to be paid to that person or as that person directs.

(3) For the purposes of this section, a practitioner or an incorporated firm is deemed to have received money belonging to another person if—

• (a) that person, or a bank or other agency acting for, or on behalf of, that person, deposits funds by means of a telegraphic or electronic transfer of funds into the bank account of—
  
  • (i) the practitioner or incorporated firm; or
    
  • (ii) a person who, or body that, is, in relation to the practitioner, a related person or entity; or
    
• (b) the practitioner or incorporated firm takes control of money belonging to that person.
  

(4) A person commits an offence against this Act and is liable on conviction to a fine not exceeding $25,000 who knowingly acts in contravention of subsection (1) or subsection (2).

[9] Section 112 of the Act provides:

112 Obligation to keep records in respect of trust accounts and valuable property

(1) If, in the course of the practice of a practitioner or an incorporated firm, the practitioner, a related person or entity, or the incorporated firm receives or holds money or other valuable property in trust on behalf of any person, the practitioner, related person or entity, or incorporated firm—

• (a) must, in relation to the money, keep trust account records that disclose clearly the position of the money in the trust accounts of the practitioner, related person or entity, or incorporated firm; and
  
• (b) must, in relation to other valuable property, keep records that—
  
  • (i) describe the property received or held; and
    
  • (ii) show the date on which the property was received; and
    
  • (iii) if the property has been disposed of, give details of the disposition of the property, including the date on which, and the person to whom, the property was disposed of; and

• (c) must keep the records required by this section in such a manner as to enable those records to be conveniently and properly audited or inspected.
  

(2) Subsection (1) does not apply to a person (being a practitioner, related person or entity, or incorporated firm)—

• (a) who does not provide regulated services; or
  
• (b) who, in the course of providing regulated services, does not, on that person’s own behalf or in his or her capacity as a director or shareholder of an incorporated firm, do any of the following:
  
  • (i) receive or hold money or other valuable property in trust for any other person:
    
  • (ii) invest money for any other person:
    
  • (iii) have a trust account:
    
  • (iv) receive fees or disbursements in advance of an invoice being issued.
    

(3) A person commits an offence against this Act and is liable on conviction to a fine not exceeding $25,000 who knowingly acts in contravention of subsection (1).

[10] Rule 10.2 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules) provides:

Reputation of profession

10.2 A lawyer must not engage in conduct that tends to bring the profession into disrepute.

[11] Rule 10.9 of the Rules provides:

Misleading and deceptive conduct

10.9 A lawyer must not engage in conduct that is misleading or deceptive or likely to mislead or deceive anyone on any aspect of the lawyer’s practice.

[12] Rule 11(b) of the Rules provides:

Proper professional practice

11 A lawyer practising on their own account must ensure that—

...

(b) the reputation of the legal profession is preserved.

[13] At the time of the inspection by the New Zealand Law Society investigator, Mr Small’s trust account was in overdraft by approximately $55,000. There were, in addition, further client monies which had been misused. The total amount which has been misappropriated is in the order of $97,000.

[14] We accept the submission of counsel that the seriousness is demonstrated as being at the upper end of the misconduct spectrum by reason of the following features:

• (a) The amount of money misappropriated (at least $97,000).
  
• (b) The period of time over which misappropriations occurred. This was three to four months by Mr Small’s admission. However, the trust account was in overdraft for 12 months and that is the relevant period to be taken into account.
  
• (c) The number of different types of deceptive techniques employed by Mr Small to misappropriate the funds.
  

[15] To that we would add that the number of unlawful transactions i.e. using client money (at least 24 on the inspectorate’s review) was significant. But, even one intentional transaction of a low amount will still be a very serious matter and almost inevitably result in a finding of misconduct.

[16] The Tribunal is in no doubt that given Mr Small’s actions, and his admissions, he had wilfully breached the above sections and rules. That justifies a finding of misconduct.

[17] In addition, a lawyer who deals with a client’s funds in a dishonest manner, for personal benefit, can also expect to be viewed by lawyers of good standing as having behaved in a disgraceful and dishonourable manner. That finding would also justify a finding of misconduct.

Reasons for strike off

[18] As is well established, the Tribunal process for assessing proportionate penalty begins with the assessment of the seriousness of the misconduct. This conduct undoubtedly falls at the most serious end of the spectrum of acts which can constitute misconduct.

[19] Secondly, aggravating features are taken into account. In this case, the loss to the clients, and in turn the profession via, the Fidelity Fund, is an aggravating feature.

[20] A further aggravating feature in this case is that Mr Small has had three previous disciplinary findings against him, two at Standards Committee level and one at Tribunal level.

[21] The third step of the assessment process takes account of mitigating features.

[22] As recorded by counsel for the Standards Committee, based on the observations of the Law Society inspectors and Mr Small’s own admissions, he had struggled with alcoholism and consequently financial difficulties and depression. Unfortunately, because Mr Small took no part in the proceedings, we were not provided with any medical evidence to verify or clarify these claims. For that reason, we are unable to give much weight to them.

[23] Next, we considered cases involving similar conduct to ensure that consistency is able to be maintained to the extent that that is possible. Counsel for the Standards Committee, Mr McCaughan, referred us to four cases which involved misappropriation of client money, in various amounts and all resulted in strike off.4

[24] Pursuant to s 244 of the Act, the Tribunal may only make an order striking off the name of a practitioner if it is of the opinion that the practitioner or former practitioner is, by reason of his or her conduct, not a fit and proper person to be a practitioner.

4 Wellington Standards Committee 1 v Gribben [2020] NZLCDT 21; Auckland Standards Committee 2 v

Woodhouse [2017] NZLCDT 16; Auckland Standards Committee 1 v Hackshaw [2016] NZLCDT 18; and

Waikato Bay of Plenty Standards Committee 2 v Stirling [2023] NZLCDT 30.

[25] This section also prescribes that this view must be held unanimously by the five members of the Tribunal.

[26] In the final phase of considering proportionate penalty, the Tribunal steps back and assesses whether, in the round, the purposes of penalty will be achieved by the penalties to be imposed.

[27] The protective purposes of the Act are set out in s 3, which provides:

3 Purposes

(1) The purposes of this Act are—

• (a) to maintain public confidence in the provision of legal services and conveyancing services:
  
• (b) to protect the consumers of legal services and conveyancing services:
  
• (c) to recognise the status of the legal profession and to establish the new profession of conveyancing practitioner.
  

(2) To achieve those purposes, this Act, among other things,—

• (a) reforms the law relating to lawyers:
  
• (b) provides for a more responsive regulatory regime in relation to lawyers and conveyancers:
  
• (c) enables conveyancing to be carried out both—
  
  • (i) by lawyers; and
    
  • (ii) by conveyancing practitioners:
    
• (d) states the fundamental obligations with which, in the public interest, all lawyers and all conveyancing practitioners must comply in providing regulated services:
  
• (e) repeals the Law Practitioners Act 1982.

[28] A number of cases have specifically referred to the issue of dishonesty in assessing the fitness of a practitioner to continue in practice. For example, in Dorbu:5

[35] The principles to be applied were not in issue before us, so we can briefly state some settled propositions. The question posed by the legislation is whether, by reason of his or her conduct, the person accused is not a fit and proper person to be a practitioner. Professional misconduct having been established, the overall question is whether the practitioner's conduct, viewed overall, warranted striking off. The Tribunal must consider both the risk of reoffending and the need to maintain the reputation and standards of the legal profession. It must also consider whether a lesser penalty will suffice. The Court recognises that the Tribunal is normally best placed to assess the seriousness of the practitioner's offending. Wilful and calculated dishonesty normally justifies striking off (emphasis added)

[29] And again, in Hart:6

• [185] ... the ultimate issue...is whether the practitioner is not a fit and proper person to practise as a lawyer. Determination of that issue will always be a matter of assessment having regard to several factors.
  
• [186] The nature and gravity of those charges that have been found proved will generally be important. They are likely to inform the decision to a significant degree because they may point to the fitness of the practitioner to remain in practice. In some cases these factors are determinative, because they will demonstrate conclusively that the practitioner is unfit to continue to practice as a lawyer. Charges involving proven or admitted dishonesty will generally fall within this category (emphasis added).
  

[30] It was the unanimous view of the Tribunal that, taking into account all of the above factors, Mr Small was no longer a fit and proper person to be a lawyer. The public must be able to completely trust a lawyer to deal honestly and with integrity, particularly with client funds. Further, to maintain the confidence of the public in the profession, there needs to be the strongest disciplinary response when a lawyer falls below these standards.

Costs

[31] While we understand that the strike off order deprives Mr Small of his livelihood and therefore impacts greatly on his ability to pay costs, we have no specific information from him on which we can make a proper assessment which would justify any reduction from 100 per cent of the costs incurred by his profession. These costs

5 Dorbu v New Zealand Law Society [2012] NZHC 564; [2012] NZAR 481 (HC).

6 Hart v Auckland Standards Committee 1 [2013] NZHC 83; [2013] 3 NZLR 103.

are reasonable and should Mr Small’s financial circumstances justify it, undoubtedly he can negotiate with the New Zealand Law Society in respect of arrangements for payment.

[32] Similarly, with the s 257 costs which are by, the mandatory nature of that section, ordered against the New Zealand Law Society, we consider these ought to be reimbursed by the practitioner to his professional body.

[33] For the above reasons we confirm the orders made on 26 September 2024.

Orders

[34] The orders are:

1. The practitioner was struck off the roll of barristers and solicitors as from 26 September 2024. (pursuant to ss 242(1)(c) and 244 of the Act)
   
2. Mr Small is to pay the costs of the Standards Committee in the sum of

$8,050. (pursuant to s 249 of the Act)

3. The New Zealand Law Society is to pay the Tribunal costs. These costs are now certified in the sum of $1,960. (pursuant to s 257 of the Act)
   
4. Mr Small is to reimburse the New Zealand Law Society in full, for the Tribunal costs. These costs are now certified in the sum of $1,960. (pursuant to s 249 of the Act)
   

DATED at AUCKLAND this 16th day of October 2024

DF Clarkson Chairperson