EK v IQ [2018] NZLCRO 105 (15 October 2018)

Last Updated: 13 November 2018

	LCRO 205/2016
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 [X]
BETWEEN	EK Applicant
AND	IQ Respondent

DECISION

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

Introduction

[1] Mr EK has applied for a review of a decision by [Area] Standards Committee

[X] (the Committee) to take no further action in respect of his complaint concerning the conduct of the respondent, Mr IQ.

Background

[2] Mr EK, a property developer, entered into a conditional agreement to purchase a $14m property in central [City]. Mr EK negotiated the terms and conditions of the agreement himself. It is helpful, because of the nature of the issues raised in this review, to detail the initial exchanges that took place between the parties involved in the transaction.

[3] On 25 May 2015, he emailed Mr IQ, who had previously acted for him, to advise he had:

under contract the [building] at [City], I have 20 working days DD then 5 weeks to settle. Would you be available to discuss potential structures and required documentation say tomorrow at 3?

[4] On 25 May 2015, Mr IQ rang Mr EK’s accountant to arrange a meeting time.

[5] On 25 May 2015, the real estate agent sent a signed copy of the agreement to Mr IQ.

[6] On 25 May 2015, Mr IQ emailed Mr EK and his accountant to suggest an alternative meeting time. Mr IQ made request of Mr EK to send him a copy of the agreement.

[7] On 25 May 2015, Mr IQ emailed the real estate and made request for the lease documentation. Mr IQ also sought clarification as to whether a title and LIM report had been obtained. This email was copied to Mr EK.

[8] Further communication followed about a suitable meeting time for all involved.

[9] On 25 May 2015, the agent forwarded documentation to Mr IQ. This email was copied to Mr EK.

[10] On 25 May 2015, Mr IQ sent an email to Mr EK, attaching a letter of engagement addressed to both Mr EK and his wife, and explaining that if the purchase was to proceed in the name of a new entity, then the file contents could be switched to the new file.

[11] On 25 May 2015, Mr EK replied by email to Mr IQ in the following terms, “Thanks [IQ], lets agree the scope of work to be done when we meet hopefully Wednesday at 8am”.

[12] Subsequent work and attendances by Mr IQ followed, including a further meeting, however shortly thereafter, Mr EK terminated the retainer and instructed another lawyer.

[13] On 18 June 2015, Mr IQ sent an invoice to Mr EK for $3,887.50 including GST and disbursements.

[14] On 7 August 2015, Mr IQ emailed Mr EK to follow-up on payment of his invoice.

[15] On 11 August 2015, Mr EK responded by email:

Hi [IQ], I have had a look at the invoice amount in the context of the very small amount of work you did and can only conclude that it is ridiculous. I am not

paying nearly $4,000 for you to send one email. I have today deposited into your account $750 plus GST which in my view is generous given you were never instructed to act on my behalf...

[16] On 11 August 2015, Mr IQ responded, setting out his position. In explaining the work that had been completed, he referenced time records that had been compiled during the course of the retainer. Mr IQ confirmed that he did not accept the amount paid by Mr EK in settlement and advised Mr EK that he was free, if he chose, to file a complaint with the Complaints service. If no steps were taken by Mr EK, Mr IQ made it clear he would be taking steps to recover the fee.

[17] An email exchange continued, with Mr IQ reiterating on two occasions that the complaints process was an option if Mr EK was unhappy with the fee. Mr IQ provided Mr EK with his time records. The dispute could not be resolved. Email correspondence between the parties ceased in late August 2015.

[18] On 25 January 2016, Mr IQ emailed Mr EK advising that as he had not heard further from Mr EK, he would be filing an application in the Disputes Tribunal.

[19] Mr EK responded the next day expressing the view that any claim filed would be “erroneous” but that he was looking forward to having the matter put before the Tribunal.

[20] Mr IQ filed a claim in the Disputes Tribunal. Those proceedings have been stayed, pending resolution of Mr EK’s complaint.

The complaint and the Standards Committee decision

[21] On 22 April 2016 Mr EK lodged a complaint with New Zealand Law Society Complaints Service (LSCS).

[22] The substance of Mr EK’s complaint was allegation that Mr IQ had:

• (a) overcharged for work based on exaggerating hours that had been worked;
  
• (a) charged for work he was not instructed to do;
  
• (b) been negligent in dealing with the file (this is in relation to an email received by Mr IQ during the due diligence timeframe and not attended to for some days);

• (c) lacked experience in the type of commercial structure Mr EK wanted to implement; and
  
• (d) after being followed up more than once, given a fee estimate of $37,000 plus GST and disbursements for work another lawyer estimated would cost $15,000 plus GST and disbursements.
  

[23] Mr IQ in response submitted that:

• (a) Mr EK instructed him to attend to various matters relating to the transaction, including documentation as to structure;
  
• (b) Mr IQ acknowledges he overlooked responding to one email received, however that failing did not amount to negligent conduct, and the delay in forwarding the email did not affect the transaction moving forward;
  
• (c) he confirms the level of his experience in dealing with commercial matters;
  
• (d) he confirms the veracity of his time records; and
  
• (e) he told Mr EK to approach the LSCS on more than one occasion however Mr EK did not elect to do so, until Mr IQ filed a claim in the Disputes Tribunal.
  

[24] In support of the submissions filed, Mr IQ provided a copy of his file.

[25] The Committee distilled the following issues from the complaint:

• (a) Whether Mr IQ failed to attend to correspondence in a timely manner?
  
• (b) Whether he was sufficiently experienced to undertake the legal work at issue?
  
• (c) Whether he charged a fair and reasonable fee?
  
• (d) Whether he charged for work undertaken without instruction?
  

[26] The Committee delivered its decision on 16 August 2016 and determined, pursuant to s 138(2) of the Lawyers and Conveyancers Act 2006 (the Act) that no further action on the complaint was necessary or appropriate.

[27] In reaching that conclusion the Committee determined that:

• (a) overlooking a single email did not amount to a breach of professional standards;
  
• (b) there was still sufficient time to deal with the matter engaged by the email despite the delay in responding;
  
• (c) the fee was not significant for the work undertaken;
  
• (d) the matter was clearly of importance to Mr EK;
  
• (e) the hourly rate charged was consistent with comparable Auckland practices;
  
• (f) Mr EK’s claim that Mr IQ charged for work he was not instructed to do was not supported by the evidence available to the Committee; and
  
• (g) a template partnership document was provided under urgency, as requested by Mr EK.
  

Application for review

[28] Mr EK filed an application for review on 15 September 2016. He submits that:

• (a) the Committee was in error when it determined the issue of delay in dealing with the email; the only reason Mr EK did not suffer loss was because he replaced Mr IQ and caught up on the time lost;
  
• (b) he disputes that the account was fair and reasonable; and
  
• (c) the Committee ignored the evidence of what had been charged and instead focused on the value of the property, an approach which was both unfair and incorrect.
  

[29] The outcome sought is that there be a fair fee charged based on the work Mr IQ was instructed to do and the quality of work completed, and that there is an acknowledgement from Mr IQ that he had been negligent in his handling of the file.

[30] Mr IQ was invited to comment on Mr EK’s review application. In a response of 29 September 2016, he submits that:

• (a) Mr EK is overstating the importance of the “missed” email as the email only contained information that Mr EK had already been provided with through other channels;

• (b) Mr EK did not raise any issue with delay at that time;
  
• (c) no loss was suffered;
  
• (d) the time records are self-evident as to the work completed; and
  
• (e) he has extensive commercial property experience and reasonable experience in limited partnerships.
  

The hearing

[31] Both parties attending a hearing on 11 October 2018.

[32] At that hearing, the parties had ample opportunity to advance their respective positions.

[33] After hearing evidence from the parties, I summarised their positions for them and invited them to alert me to any issues that may have been overlooked.

[34] Both Mr EK and Mr IQ confirmed that the summation of their arguments provided accurate account of their positions.

Nature and scope of review

[35] The nature and scope of a review have been discussed by the High Court, which said of the process of review under the Act:1

... 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.

1 Deliu v Hong [2012] NZHC 158, [2012] NZAR 209 at [39]–[41].

[36] More recently, the High Court has described a review by this Office in the following way:2

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.

[37] Given those directions, the approach on this review, based on my own view of the fairness of the substance and process of the Committee’s determination, has been to:

• (a) consider all of the available material afresh, including the Committee’s decision; and
  
• (b) provide an independent opinion based on those materials.
  

Analysis

[38] The issues traversed by this review are relatively straightforward and can be properly addressed by consideration of the following issues:

• (a) Did Mr IQ provide Mr EK with competent representation?
  
• (b) Were the fees charged by Mr IQ fair and reasonable?
  

Issue 1 — Did Mr IQ provide Mr EK with competent representation?

[39] When Mr EK filed his initial complaint, he emphasised that he was concerned that Mr IQ had failed to respond to an email that Mr IQ had received.

[40] This failure to respond was, it was initially argued by Mr EK, indicative of a general failure on Mr IQ’s part to progress his matters expeditiously, but more importantly, he argued that the failure to take the steps required on receipt of the email had resulted in a loss to him.

[41] The Committee concluded that there was no evidence of any loss having been suffered by Mr EK as a consequence of Mr IQ failing to respond to an email.

[42] On review, Mr EK complained that the Committee had missed the point. It was his argument that loss had only been avoided because Mr EK had identified

2 Deliu v Connell [2016] NZHC 361, [2016] NZAR 475 at [2].

problems with Mr IQ’s management of his file and had been able to arrange alternative representation in order to avoid more serious consequences. At hearing, Mr EK graciously conceded that Mr IQ’s failure to respond in a timely manner to one email received would not, in the context of this case, provide a proper basis for a disciplinary finding.

[43] Mr EK was right to make that concession.

[44] There was no evidence to support suggestion that the delay in responding to the email had materially compromised the ability of the parties to complete the process of due diligence within the time required by the contract.

[45] Moving to Mr EK’s next issue of concern regarding competency, Mr EK says that Mr IQ was not qualified to do the necessary legal work to put in place the management structure that Mr EK wished to have his development operate under.

[46] Specifically, he says that he wanted to operate his business under the vehicle of a limited partnership, and that Mr IQ himself had informed Mr EK, that he (Mr IQ) had no experience of having set up such a partnership.

[47] Mr EK’s concerns were, he says, amplified when he received documentation from Mr IQ. In Mr EK’s opinion, the document received was simply a template document which gave little indication of Mr IQ having customised the document to suit his requirements.

[48] Mr IQ provided comprehensive response to complaint that he lacked experience to draft the necessary agreement. I found his response to be persuasive.

[49] It was Mr IQ’s view that the vehicle of the limited partnership, which he says was created by statute in 2008, was not initially perceived by lawyers to be a commercial structure of particular value.

[50] I take it from this, that Mr IQ was suggesting that not many lawyers would have had experience in setting up these partnerships.

[51] Mr IQ says that around 2012, the option of utilising the limited partnership structure had become more popular and was achieving a great deal more traction. He says that in the course of his business, he dealt with a number of clients who were operating limited partnerships, and that as a consequence, he was now quite familiar with the mechanism.

[52] He also emphasised that he had, within his office, access to another very experienced commercial lawyer who was able to provide input if required.

[53] Mr IQ accepts that he had no experience of setting up a limited partnership structure and that he acknowledged that to Mr EK, however he said that this did not present as any significant impediment to his ability to do so.

[54] The document provided to Mr EK was a draft. I take it that Mr IQ was providing Mr EK with a template for a standard agreement, and that there would be discussion and work done on customising the agreement to ensure that Mr EK’s particular needs were met.

[55] Mr IQ says that when he forwarded the partnership document to Mr EK, neither he nor Mr EK at that stage of proceedings had been focused on the partnership issues, but rather on completing that enquiry into relevant financial matters affecting the transaction. There had been, he says, no detailed discussions at this point, about the partnership issues.

[56] Mr EK, on receipt of the document, appears to have quickly formed the view that Mr IQ was not competent to manage his affairs.

[57] I think that this was a premature conclusion for Mr EK to reach, and one which sits uncomfortably alongside the background Mr EK had of working with Mr IQ over a number of years.

[58] Mr IQ explained that he had worked for both Mr EK and Mrs EK on matters affecting their interests over a period of around 10 years. After hearing account of that lengthy involvement with Mr EK, and the nature and variety of the work that Mr IQ had done for Mr EK, I am satisfied that an experienced and capable businessman such as Mr EK, would have formed a clear view as to whether Mr IQ presented as a competent practitioner. Whilst I accept that it was for Mr EK to form his opinion as to the quality of the representation he was receiving, I do not consider, on any objective analysis, that the complaints that Mr EK raises could be said to have been of such significance as to have fairly raised question as to Mr IQ’s professional capabilities.

[59] Mr EK suggested that there had been a pattern of Mr IQ failing to move things along, but there is no evidence to support suggestion that Mr IQ was dilatory in attending to Mr EK’s affairs.

[60] Suggestion that Mr IQ was lax in responding to enquiries is not supported by the evidence of the email trail between Mr IQ and Mr EK.

[61] That correspondence is significant for what is not said, as much as it is for what is said.

[62] The emails indicate that Mr IQ was keeping Mr EK informed in providing him with copies of information received. There is no evidence to suggest that Mr EK was becoming exasperated by a failure on Mr IQ’s part to properly advance matters.

[63] Suggestion that Mr IQ lacked experience to manage Mr EK’s affairs is not easily reconciled with the account Mr IQ provides of his professional background.

[64] Mr IQ has practised extensively in the commercial area. He was for a period of time, a partner in a large commercially focused law firm. He says that he has had seven years’ experience working exclusively in the field of commercial developments and purchases. Now practising on his own account, he says that he has a large portfolio of commercial clients.

[65] It is a professional background that does not easily lend itself to suggestion that Mr IQ would have been professionally challenged by request to set up a limited partnership, irrespective of the fact that he had no personal experience of having set up such a partnership.

[66] I am not persuaded that Mr IQ failed to provide Mr EK with competent representation.

Issue 2 — Were the fees charged fair and reasonable?

[67] Mr EK advanced challenge to the fees charged by Mr IQ on a number of fronts.

[68] He suggested that Mr IQ had embarked on work that he had not been instructed to do.

[69] At hearing, Mr EK focused on complaint that Mr IQ had reviewed the lease and LIM documentation when he had not been instructed to do so.

[70] That argument which identifies specific areas where Mr IQ was said to have worked without instructions, is underpinned by a more general argument that permeates Mr EK’s written submissions, where he suggests, in more general terms, that Mr IQ had embarked on work that was not required of him.

[71] In carefully reviewing the correspondence relating to the transaction, I am satisfied that Mr IQ received instructions from Mr EK to act for Mr EK on what was a

significant purchase, and that the steps taken by Mr IQ were consistent with, and what would be expected of, a competent practitioner instructed to act in a matter of this nature.

[72] With respect to complaint that Mr IQ had spent time examining the lease and LIM documentation, Mr EK argued, that Mr IQ had not been instructed to peruse this documentation. He said that it was his practice to review that documentation himself, and then, if he had any concerns, to identify those concerns to his lawyer and make request of his lawyer for clarification.

[73] Whilst I do not dispute for one moment, that Mr EK’s considerable experience as a property developer over many years had positioned him to be able to read and understand the documentation commonly associated with a property purchase, I am surprised that a lawyer would be specifically instructed not to review a lease agreement, or a LIM report, particularly in circumstances where the transaction was of such substance. The documentation associated with the LIM report is substantial, as is the lease.

[74] In a transaction as significant as this, it would, in my view, present as problematic if a lawyer instructed undertook a review of documentation of this nature, on such limited terms as described by Mr EK.

[75] This was a transaction involving a purchase price of around $14 million. It is difficult to envisage circumstances in which a lawyer responsible for ensuring protection of their client’s interests would not consider it both necessary and essential to review the title, lease and LIM documentation.

[76] There is no evidence to support suggestion that Mr EK instructed Mr IQ to review the documentation in such a limited manner. I accept Mr EK’s evidence that it was his common practice to approach property transactions in this fashion, and I accept that he was genuine and honest in advancing argument that he did not require Mr IQ to fully review the documents.

[77] But he did not instruct Mr IQ to adopt such a narrow approach and Mr IQ cannot be criticised for reviewing the documentation in a conventional way. Nor do I accept that Mr IQ was required to take specific instructions on every aspect of the transaction before proceeding. He took instructions to act on the purchase. The approach he adopted following receipt of those instructions, the steps he took, were entirely conventional and required.

[78] Mr EK complains that the fee charged by Mr IQ did not accurately reflect the time that had been spent on the file.

[79] Mr IQ rejects the notion that his account did not accurately record time spent on the file. He takes offence to suggestion that his account may have been inflated. He emphasises that work completed is conscientiously recorded in computer- generated files, and that the fee calculated is a reflection of time spent, and does not take into account any other of the factors that a lawyer may consider when setting a reasonable fee.3

[80] With respect to Mr EK, I do not consider that he has brought an entirely even- handed assessment to his appraisal of the work that had been done by Mr IQ on his behalf.

[81] In the email referenced at [15], Mr EK makes complaint that Mr IQ had charged him almost $4,000 for simply sending one email. This does not reflect a measured response on Mr EK’s part. In advancing argument that Mr IQ’s work could be categorised as having been reflected in the drafting of one email, Mr EK overlooks the evidence of the significant email exchanges between himself and Mr IQ, the evidence of Mr IQ’s engagement with third parties, the evidence of the meetings attended by Mr IQ and the evidence of the work done by Mr IQ in reviewing the documentation.

[82] I have given careful consideration to:

• (a) Mr IQ’s file;
  
• (b) the time records;
  
• (c) the email exchanges between the parties; and
  
• (d) Mr IQ’s charge out rate.
  

[83] Having conducted that assessment, I conclude that the fees charged by Mr IQ were fair and reasonable, that the work completed is accurately recorded in the time records, and that the work completed was both necessary and work that was required to be done.

[84] I see no grounds which could persuade me to depart from the Committee’s decision.

3 Those fee factors are set out in r 9.1 of the Lawyers and Conveyancers (Lawyers: Conduct and Client Care) Rules 2008.

Decision

Pursuant to s 211(1)(a) of the Lawyers and Conveyancers Act 2006 the decision of the Standards Committee is confirmed.

DATED this 15th day of October 2018

R Maidment

Legal Complaints Review Officer

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

Mr EK as the Applicant Mr IQ as the Respondent

Mr PP as the Related Person [Area] Standards Committee [X] New Zealand Law Society