FA v GD [2018] NZLCRO 138 (20 December 2018)

Last Updated: 23 January 2019

	LCRO 132/2016
CONCERNING	an application for review pursuant to section 193 of the Lawyers and Conveyancers Act 2006
AND
CONCERNING	a determination of [Area] Standards Committee [X]
BETWEEN	FA Applicant
AND	GD Respondent

_DECISION

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

Introduction

[1] Ms FA has applied for a review of the determination by [Area] Standards Committee [X] (the Committee) to take no further action in respect of her complaints about Mr GD and the firm of MDS.

[2] The Committee’s decision refers to both Mr GD and the firm as the parties complained about. Section 132(1)(a) of the Lawyers and Conveyancers Act 2006 (the Act) provides that any person may complain about the conduct:

(i) of a practitioner or former practitioner; or

(ii) of an incorporated firm or former incorporated firm; or

(iii) of a person who is not a practitioner but who is an employee or former employee of a practitioner or an incorporated firm.

[3] MDS is not an incorporated law firm and accordingly on 6 October 2016 a

Minute was issued by this Office which recorded:

[3] MDS is not an incorporated law firm. Consequently the determination of the Standards Committee should not refer to MDS as a party to the complaint.

[4] Pursuant to s 211(1)(a) of the LCA the determination of the Committee is modified to remove MDS as a party complained about. The respondent to this review is therefore Mr GD alone and all future correspondence and the decision on completion of this review will refer to Mr GD as the respondent.

Background

[4] On 23 April 2012, Ms FA and her partner entered into an Agreement with Mr and Mrs PJ to sell to them a lot in a subdivision which Ms FA and her partner were undertaking.

[5] Prior to the Agreement being signed Ms FA had a telephone conversation with a member of Mr GD’s staff in which she expressed a wish for the deposit to be paid directly to her and her partner as they were under some pressure from their bank. The file note made by the staff member included the following comment:

...understand they would have to repay deposit back if cancelled.

[6] The Agreement was signed and the deposit was paid to MDS.

[7] The Agreement contained a number of conditions, one of which was approval by the purchaser of the terms of the subdivision consent when issued.

[8] After entering into the Agreement the purchasers moved a number of items of their belongings on to the land,1 but in another file note dated 10 August 2012 it was noted that Ms FA had advised the purchasers were now removing these items and she was becoming nervous that the PJs may be “pulling out” of the Agreement.

[9] Ms FA’s nervousness was justified, because on 28 August 2012 a letter was

received from the purchasers’ lawyer advising:2

Our clients [do] not approve further term of sale 34 of the Agreement as they are not satisfied that the property is in all respects suitable to them and for their intended purposes. The Agreement is therefore at an end.

Please arrange for the deposit of $28,000.00 paid by our clients to you to be refunded to us immediately.

[10] The firm’s file then has a copy letter dated 29 August 2012 addressed to Ms FA

and her partner advising of the cancellation, and also advising:

Accordingly, we have refunded the deposit of $28,000 being the sum held in our trust account pending confirmation of the agreement.

1 Referred to in a file note 10 August 2012 as “...stuff in anticipation of building”.

2 The letter was sent by email.

[11] The file records indicate that the deposit was in fact repaid on the following day,

30 August 2012.

[12] The file also contains an undated file note of a telephone call from Ms FA in which it would seem she advised she did not want the deposit refunded. It also noted the staff member’s advice to her:3

... b/c issues of them damaging land etc...

... deposit must be reimbursed in full and sue separately

– accepted this.

[13] Ms FA then instructed another firm to act for her and her partner.

Ms FA’s complaints

[14] In the complaint Ms FA says that she and her partner consider that MDS had:4

... breached their obligations to us in releasing the deposit funds without our consent. MDS should have acted on our behalf and gone back to the PJ’s solicitor and said there was an issue which needed to be resolved before the deposit could be refunded.

[15] Ms FA says that Mr GD’ version of the telephone conversation with his staff member (relating to the acknowledgment that the deposit had to be refunded) was incorrect and that he had “more or less acknowledged [that] at the Disputes Tribunal hearing”.5

[16] The Disputes Tribunal hearing related to an application by MDS to recover its fees and resulted in a settlement between the parties, which is expressed as being a “full and final settlement”. Clearly any decision made in respect of the complaint (or this Review) could not include a reversal or amendment to the Disputes Tribunal settlement.

[17] In simple terms, Ms FA’s complaint, as addressed by the Committee, is that the deposit was refunded without consent (but see [34]–[40] below).

The Standards Committee determination

[18] The Committee requested and received the firm’s file relating to the sale. The

_{Committee recorded the issue to be considered in the following terms:}6

3 The staff member is Ms NT, referred to in the Committee’s decision

4 The complaint form is completed in the name of Ms FA only, but the complaint is made for herself and her partner

5 The complaint was lodged eight days after a hearing before the Disputes Tribunal.

6 Standards Committee determination, 12 May 2016.

14. The real issue for the Standards Committee to consider in this case is whether MDS breached the duties owed by them to Ms FA in relation to the return of the deposit in acting against Ms FA’s instructions.

[19] In considering this matter the Committee took note of various comments made by the parties:

11. Ms FA states that she told Ms NT that there were issues with land damage and not to refund the deposit until issues had been resolved. Ms FA states that Ms NT then said that it was too late as the money had been refunded.

12. Ms NT states that she advised Ms FA that the deposit was required to be returned because of the contractual terms and that any issues would need to be dealt with separately and, importantly, that Ms FA accepted this advice. Further, Ms NT notes that Ms FA had been earlier advised (10 August 2012) that she would have to pay the deposit back if the contract was cancelled.

[20] The Committee found itself:

16. ...in the position of having to decide what occurred in a conversation which took place over 3 years ago without independent evidence.

[21] The Committee considered the documentation available to it:

• the letter received by MDS on 28 August 2012 cancelling the Agreement;

• the file note referred to in [11] above, made on the day of the telephone conversation between Ms NT and Ms FA in which Ms FA says she did not want the deposit returned because of damage to the property. (The note records that Ms FA “accepted” advice that the deposit had to be returned and any damage would need to be sued for separately); and

• the file note dated 29 August 2012 requesting the firm’s accounts department to

repay the deposit (done on the following day).

[22] After considering this series of documents, the Committee took note of the recorded acceptance by Ms FA that the deposit had to be repaid in full. It took note of the earlier file note in which Ms FA had been advised that the deposit would have to be repaid in full if the Agreement was cancelled and that this was understood and acknowledged by Ms FA.

[23] The Committee concluded:

22. Given the documentary evidence the Standards Committee is not in a position to say that Ms FA did not accept the advice of Ms NT regarding the repayment of the deposit. As such the Standards Committee can take no further action in relation to this complaint.

The application for review

[24] Ms FA disputes that she accepted the advice from Ms NT that the deposit had to be refunded. She accuses her of not telling the truth. She maintains that Ms NT had told her the deposit had already been refunded when she telephoned on 28 August.

[25] Her complaint is that she expected Mr GD to:

...at the very least... make a phone call to their solicitor to discuss the issue and ask for compensation to recover costs for the damage.

[26] She says that it is because he did not do this, they were:

put through two Disputes Tribunal hearings and nine months of ongoing issues with our complaint to the Law Society.

[27] She and her partner are “shocked that the NZ Law Society accepts such a low standard of business practice from their members”.

[28] She does not feel that the Committee has fully understood her complaint and wants Mr GD to be held “accountable”. She seeks the return of the deposit and accrued interest.

[29] Following a preliminary consideration of this Application, on 26 September

2018, the Review Officer advised Ms FA:

... it is apparent that there are evidential issues which will be difficult to resolve, notwithstanding the reasons for this. The documentary evidence, particularly the file note made by Ms NT, supports the finding of the Committee.

[30] Ms FA responded on 26 October 2016, and advised she wished to discuss the matter in person with the Review Officer. She also referred to her complaint as being against the law firm of MDS and requested the review to continue on that basis.

[31] That issue was addressed in the Minute of 6 October 2016 and is confirmed here.

Review

Delegate

[32] The review progressed by way of a hearing by telephone on 6 December 2018 attended by Ms FA, Mr GD and Mr GD’s counsel, Mr YP.

[33] The hearing was conducted by Mr Vaughan acting as a delegate duly appointed by the Legal Complaints Review Officer (LCRO) pursuant to cl 6 of sch 3 of the Act. The

LCRO has delegated Mr AR to report to me and the final determination of this review as set out in this decision is made following a full consideration of all matters by me after receipt of Mr Vaughan’s report and discussion.

Ms FA’s complaints

[34] During the course of the hearing, Ms FA said that it had always been part of her complaint that Mr GD had not contacted the PJs’ solicitor to discuss the issue of the damage caused to the property by Mr and Mrs PJ.

[35] Mr YP objected to this submission, saying that he had not understood this to be part of Ms FA’s complaint.

[36] Ms FA expressed her complaint in the following terms:

We believe MDS as “solicitors responsible for holding funds in a stakeholder account” breached their obligations to us in releasing the deposit funds without our consent. MDS should have acted on our behalf and gone back to the PJ’s solicitor and said there was an issue which needed to be resolved before the deposit could be refunded.

[37] In his response to the Complaints Service on behalf of Mr GD, Mr YP said:

[Ms FA’s] complaint appears to [be] that contrary to her instructions my client returned the deposit for the purchase of Lot 1 to the purchaser despite instructions which she gave to my client to the contrary.

All of Mr YP’s submissions are then directed to that issue.

[38] In her comments on Mr YP’s response, Ms FA says:

When Ms NT phoned on the 28th August 2012, she said they were refunding the deposit to the PJ’s. I told her we had issues with damage to our land by the PJ’s and not to refund the deposit until the issues had been resolved.

[39] Further on, in the same letter, Ms FA says:

GD knew we had an issue with damage to our property by the PJs and we would have, at the very least, expected him to make a phone call to their solicitor to discuss the issue and ask for compensation to recover costs for the damage. That is the reason we employed him, to advise and help us with areas of concern.

[40] In response to that letter, Mr YP says:

Ms FA appears to complain in addition that my client should have pursued her claim for compensation from the purchaser. However, she withdrew her instructions and my client was therefore not required to take matters any further. Her claim for compensation was pursued by her replacement solicitors and they were not in any way prejudiced in doing so.

[41] The first letter from Ms FA’s new solicitors says:

When advised of [the cancellation] Ms FA maintains that she instructed that the deposit not be refunded as there were other matters relating to the conduct of the purchaser in taking possession of the property that Ms FA wished to pursue.

[42] On Mr GD’s advice the issue of damage to the property was pursued through the Disputes Tribunal, and there is no substance to the complaint against Mr GD that he did not telephone the PJs’ solicitor to discuss damage to the property before the deposit was refunded. That is a separate issue which is addressed subsequently in this decision.

[43] The Committee did not address the allegation that Mr GD did not contact the purchasers’ solicitor to discuss the damage to the property before the deposit was refunded. Given the content of the correspondence referred to in the preceding paragraphs it was not required to do so and if it had, the outcome of that consideration would have been to take no further action on that issue.

[44] To the extent that it is necessary to do so, pursuant to s 211(1)(a) of the Act, the determination of the Committee is modified accordingly.

Deposit held as stakeholder

[45] Clause 2.4 of the Agreement for Sale and Purchase provided:

The person to whom the deposit is paid shall hold it as a stakeholder until:

(1) the requisition procedure under clause 5.0 is completed without either party cancelling this Agreement; and

(2) where this Agreement is entered into subject to any condition(s) expressed in this Agreement, each such condition has been fulfilled or waived; or

(3) this Agreement is cancelled pursuant to subclause 5.2(3)(c) or avoided pursuant to subclause 9.7(5).

[46] In his response to the complaint Mr YP expanded on the obligations of a stakeholder. He says:

More fundamentally, even had Mrs FA instructed my client to hold onto the deposit, they were not at liberty to do so. In a decision called Allan McLellan Real Estate v Cohen (2004) 5 NZCPR 747, Justice Fogarty considered the duties of a stakeholder in this situation. His Honour said at paragraph 24 “..the vendor cannot unilaterally instruct the stakeholder to hold funds for different reasons from those agreed with the purchaser when the stakeholder’s status was established.

This proposition is confirmed by the decision of Justice Tipping in Neate v Manchester Home Centre Limited and Cave Rock Hotel Limited (in Liquidation) CP 343/89. At page 18 His Honour said

A real estate agent who holds a deposit as stakeholder between vendor and purchaser is not acting as the agent of either party alone but is the agent of both parties. He owes obligations to both. The obligation of the stakeholder is “to hold the deposit until the party properly entitled to it is known. If the deposit becomes repayable to

the purchaser he may bring an action directly against the stakeholder for money had and received.”

It appears to me that the law is settled and clear. McMorland, Sale of Land, paragraph 7.05 page 255 states “Once the event upon which the sum becomes payable to one of the parties occurs, the stakeholder must pay the sum accordingly. In the meantime the stakeholder may not pay the deposit to either party without the consent of both.

[47] Those submissions are accepted as representing the role fulfilled by Mr GD and MDS in this particular situation. Mr GD was not acting solely as Ms FA’s lawyer in this regard and his duty was to act as the stakeholder for both parties in accordance with the terms of the Agreement.

Analysis

[48] In her letter of complaint Ms FA says that Ms NT told her the deposit had already been refunded when she rang on 28 August 2012 to tell Ms FA that the Agreement had been cancelled. Ms FA accuses Ms NT of not telling the truth when (Ms FA asserts) Ms NT told them the deposit had already been repaid.

[49] The evidence is that instructions were given on 29 August to repay the deposit and it was repaid on 30 August. It is difficult to accept that Ms NT would say the deposit had already been repaid when she rang to advise the Agreement had been cancelled knowing that the facts would be clear that was not the case. Ms FA’s recall of the conversation cannot be accepted.

[50] In any event that is not solely determinative of the complaint. The deposit was held by the firm of MDS as stakeholder, and the Agreement clearly provided that the deposit must be repaid if the Agreement was cancelled. The Agreement was cancelled and the cancellation was not disputed. Mr GD was obliged by law and the terms of the Agreement to refund the deposit.

[51] The determination of the Committee to take no further action with regard to this issue is confirmed.

Decision

[52] Pursuant to s 211(1)(a) of the Lawyers and Conveyancers Act 2006 the determination of the Standards Committee is confirmed, modified by the Minute dated

6 October 2016 referred to in [3] of this decision.

_{DATED this 20th day of December 2018}

D Thresher

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:

Ms FA as the Applicant

Mr GD as the Respondent

Mr YP as Respondent’s Representative

[Area] Standards Committee [X] New Zealand Law Society