RY v P AN [2018] NZLCRO 83 (25 September 2018)

Last Updated: 30 October 2018

	LCRO 239/2016
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	RY Applicant
AND	P AN and T AN Respondent

DECISION

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

Introduction

[1] Mr RY, at the relevant time a partner with MDR Ltd (the firm), has applied for a review of a decision by the [Area] Standards Committee [X] (the Committee) which made a finding of unsatisfactory conduct against him.

[2] In July 2013, Mr RY acted for Mr T AN and Mrs P AN (Mr and Mrs AN) on the purchase of a residential section (the property) from a builder, and the construction of a new house on the property by the builder. The agreement for the purchase of the property and the building contract were both dated 29 June 2013.1 I use the term purchase agreement to describe both the property agreement and the building contract.

[3] The property agreement was subject to four conditions, including approval of “the form and content of the agreement” by Mr and Mrs AN’s lawyer, to be satisfied by

1 The property agreement provided that two agreements were interdependent.

Wednesday 3 July 2013.2 A deposit was payable by Mr and Mrs AN to LMO Ltd (the builder’s lawyer) as stakeholder upon confirmation (or satisfaction) of those conditions. The building contract also required them to pay a deposit to the builder within three working days of signature of that contract.3

[4] Mr RY advised Mr and Mrs AN by letter on 3 July 2013 that the builder was not registered as the owner of the property. To guard against that risk, and the further risk that the builder might become insolvent before settlement of the purchase due on completion of the new house, Mr RY recommended that the combined deposits of

$41,250 (the deposit) be held by an independent stakeholder until then.

[5] By email the following morning, 4 July 2013, Mrs AN informed the builder of Mr RY’s recommendation and forwarded Mr RY’s 3 July advice letter to the builder. In response that morning the builder proposed, in effect, that when Mr and Mrs AN confirmed (conditions satisfied) the purchase agreement, so long as the builder then owned the property, the deposit could be paid to the builder. The builder stated that its purchase of the property from the land developer was due to be settled “this week”.

[6] By email on 4 July 2013, Mrs AN asked Mr RY for advice on the builder’s response. Early that afternoon, by email to Mr RY, the builder’s lawyer explained the builder’s position concerning the stakeholder issue. Soon afterwards on that afternoon, Mr RY confirmed the purchase agreement to the builder’s lawyer. Mr and Mrs AN paid the deposit to the builder’s lawyer on 8 July 2013.

[7] The builder subsequently experienced financial difficulties. A year later on 15 October 2014, Mr RY explained to them that the deposit had in fact been disbursed to the builder.

Complaint

[8] Mr and Mrs AN lodged a complaint with the New Zealand Law Society Complaints Service (NZLS) on 5 June 2015. They claimed Mr RY had not protected their interests. They sought “financial reimbursement” for legal fees and the loss of the deposit.

2 Three working days from the date of both contracts.

3 Deposits (1) property agreement, $17,000.00 (10% of the property purchase price, $170,000.00 (including GST)); (2) building contract, $24,250.00 (10% of the contract sum, $242,500.00 (including GST)).

[9] Mr and Mrs AN stated that they “agreed” with Mr RY’s 3 July 2013 advice to them that the deposit be “held with an independent stakeholder until settlement”. They claimed that the following day, on 4 July 2013, having forwarded to and discussed Mr RY’s advice with the builder, and obtained the builder’s response, Mrs AN had forwarded those emails to Mr RY asking, “Are you happy with this”.

[10] Mr and Mrs AN alleged Mr RY did not subsequently raise with them “any issue

... who the settlement was between”. They referred to the firm’s 19 September 2014 letter to them which stated that “the deposit is held in the [builder’s lawyer’s] Trust Account as stakeholder until settlement” and had they not obtained Mr RY’s advice their “deposit would be in jeopardy”.

[11] Mr and Mrs AN also claim that the firm’s 25 February 2014 letter to them provided them with “inaccurate information” by incorrectly stating the amount they had paid towards the deposit.

[12] Lastly, they stated Mr RY overcharged them for the legal work he carried out for them which, contrary to their instructions, included attendances on the builder’s financier and unnecessary legal work to recover the deposit.

Standards Committee decision

[13] The Committee delivered its decision on 8 September 2016 and determined, pursuant to s 152(2)(b) of the Lawyers and Conveyancers Act 2006 (the Act), that Mr RY’s conduct constituted unsatisfactory conduct.

[14] The Committee ordered Mr RY to compensate Mr and Mrs AN by cancelling [Mr RY’s] final invoice to them, by paying them a portion of the legal fees incurred by them with their new lawyer, and pay a fine and costs to the New Zealand Law Society.

[15] In reaching that decision, the Committee determined that:

• (a) the undertaking provided by the builder’s lawyer to Mr RY concerned “the settlement” of the builder’s purchase of the property from the land developer; and
  
• (b) taking into account “the background correspondence”, because there was “sufficient ambiguity” in the word “settlement” Mr RY should have obtained “clarification” before he approved the agreement.

[16] The Committee found that Mr RY’s failures were first, to recognise the “nature of the undertaking” provided by the builder’s lawyer, and secondly, “to seek clarification

...[which] resulted in [Mr and Mrs AN] being given inaccurate assurances” by Mr RY concerning the deposit paid by them.

[17] The Committee declined Mr and Mrs AN’s request for compensation because “there was always going to be an added cost component” to the purchase due to the insolvency of the builder. However, “in recognition of the additional expense and unnecessary stress incurred by them”, the Committee considered Mr RY should reimburse Mr and Mrs AN part of the legal fees incurred by them first, with Mr RY, and secondly, with their new lawyer.4

Application for review

[18] Mr RY’s application for review was filed on 19 October 2016 by his counsel, Ms BV.

[19] Ms BV submits that the Committee was wrong in deciding that a competent lawyer first, would not have arrived at the same conclusion reached by Mr RY concerning the meaning of the word “settlement” contained in the builder’s lawyer’s 4 July 2013 email to Mr RY; and secondly, still had a duty “to go behind the plain English meaning of ... that undertaking”. In her submission, the Committee also failed “to examine [the builder’s lawyer’s] actions”.

[20] In particular, Ms BV submits that the word “settlement”, which appears in the property agreement, relates to settlement of the purchase of the property by Mr and Mrs AN from the builder. She contends that the “natural meaning” of “settlement” discussed between Mr RY and the builder’s lawyer means “settlement” of the purchase of the property by Mr and Mrs AN from the builder.

[21] In Ms BV’s submission, Mr RY was “entitled to rely upon the plain English interpretation of another firm’s undertaking”. That is, “settlement” meant settlement of the purchase of the property by Mr and Mrs AN from the builder. Ms BV contends this was supported by:

4 (1) $983.45 representing Mr RY’s final invoice concerning “issues with the deposit”; and

(2) $1,745 representing half of the legal costs incurred with their new lawyer.

• (a) the context of the purchase of the property by Mr and Mrs AN from the builder;
  
  • (b) conveyancing practice; and
    
  • (c) Mr RY’s experience in legal practice.
    

[22] Ms BV argues it was “incumbent” upon the builder’s lawyer to clarify for Mr RY the meaning of “settlement” and “make sure that [the builder’s lawyer] actually intended the plain English interpretation” of their undertaking.

[23] Finally, Ms BV submits it does not follow that Mr RY was “unprofessional or wrong” or “incompetent” because he interpreted “settlement” in the way he did. Therefore, a finding of unsatisfactory conduct by the Committee was unwarranted. Ms BV concluded by stating that the deposit paid by Mr and Mrs AN to the builder had been credited towards their ultimate purchase of the property.

Response

[24] In their response, dated 13 November 2016, Mr and Mrs AN largely repeat their claims made in their complaint. They blame Mr RY for the “loss of [their] deposit of

$41,250”. They consider that the orders made by the Committee were “lenient”. They state that the “additional time, stress and legal costs [they] incurred far exceed[ed] the petty compensation” awarded to them by the Committee.

[25] They seek compensation for their loss of the deposit, additional legal costs incurred by them, and additional rental costs of $30,000 incurred “waiting” for their dispute with the builder “to be resolved and the stress and emotional harm caused to [their family]”.

[26] They claim that “had Mr RY acted competently and in a timely way” the deposit would have been safeguarded with an independent stakeholder. They say they would then “have been able to cancel” the contract with the builder and “retrieve” the deposit “to put towards another property”.

[27] In response to Ms BV’s argument that the “test” for being competent “is [not] always being 100% correct”, they claim that Mr RY had not “done [his] due diligence to protect their ... interests”.

[28] In support of their position, they refer to the firm’s 19 September 2014 letter to them which, as noted earlier, stated that the deposit was held by the builder’s lawyer as stakeholder “until settlement”.

[29] Mr and Mrs AN repeat that the emails exchanged between them and the builder on 4 July 2013 concerning the terms of the purchase agreement, including the stakeholder issue, were sent to Mr RY “requesting his advice on the matter”. They state that Mr RY did not subsequently raise with them “who the settlement was between”.

Review

[30] This review was progressed by way of a hearing attended by both parties on 6 September 2018 by teleconference. Mr EF, counsel for Mr RY, also attended.

Nature and scope of review

[31] The nature and scope of a review have been discussed by the High Court, which said of the process of review under the Act:5

... 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.

[32] More recently, the High Court has described a review by this Office in the following way:6

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.

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

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

[33] 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 first, consider all of the available material afresh, including the Committee’s decision, and secondly, provide an independent opinion based on those materials.

Issues

[34] The issues I have identified on this review are:

• (a) What advice did Mr RY provide to Mr and Mrs AN in his 3 July 2013 letter to them concerning the deposit payable under the purchase agreement?
  
• (b) What terms did the builder propose upon which the builder’s lawyer would hold the deposit as stakeholder?
  
• (c) Did Mr RY respond to Mrs AN’s subsequent request for advice, contained in her email to him on 4 July 2013, 11.45 am, about those terms?
  
• (d) Did Mr RY take reasonable care when he considered the builder’s lawyer’s 4 July, 2.32 pm email before he confirmed the purchase agreement in his email to the builder’s lawyer at 3.15 pm that day?
  
• (e) Did Mr RY obtain Mr and Mrs AN’s instructions before he confirmed the purchase agreement?
  

Analysis

(1) Mr RY’s advice (issues (a), (b), (c))

(a) Relevant professional rules

[35] A lawyer must respond to a client’s inquiries in a timely manner (r 3.2, 7.2 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules)), disclose to his or her client information that is relevant to the retainer, take reasonable steps to ensure that the client understands the nature of the retainer, keep

the client informed about progress, and consult the client about steps to be taken to implement the client’s instructions (rr 7, 7.1, 7.2).7

[36] Importantly, lawyers’ duties are “governed by the scope of their retainer”. However, “[m]atters which fairly and reasonably arise in the course of carrying out those instructions must be regarded as coming within the scope of the retainer”.8

[37] With limited exceptions, a lawyer risks a complaint from a client with a prospect of a disciplinary response if the lawyer does not carry out the client’s instructions.9 However, where the lawyer is unsure about the client’s instructions then “it is incumbent on the lawyer to obtain clarification of those instructions. The lawyer may not proceed on an assumption the client agrees to a certain course of action”.10

(b) Discussion

[38] Mr and Mrs AN claim that Mr RY did not respond to their request on 4 July 2013 for his further advice.

[39] The previous day, 3 July 2013, Mr RY advised Mr and Mrs AN that to protect their interests the deposit should be held by an independent stakeholder until they settled the purchase of the property from the builder on completion of the new house.

[40] Mrs AN responded by telephone and email to Mr RY that day.

[41] In her 3 July 2013 email to Mr RY, Mrs AN informed him that having “read through [his] points” she had “gone back” to the builder on a number of points “which we feel uncomfortable with at this stage without clarity”. She referred to paragraph 4.2 of Mr RY’s 3 July advice letter noting that she wanted, amongst other things, “clarification on ... security of deposit as land is owned by” the land developer.

[42] She noted that Mr RY had recommended that the deposit be held by an “independent stakeholder until settlement”. She explained she had “only ever purchased houses in [the] UK” and “[hadn’t] had to get involved with negotiating legal contracts

7 A “retainer” is defined as “an agreement under which a lawyer undertakes to provide or does provide legal services to a client”.

8 Gilbert v Shanahan [1998] 3 NZLR 528 (CA) at 537.

9 Duncan Webb, Kathryn Dalziel and Kerry Cook Ethics, Professional Responsibility and the Lawyer (3rd ed, LexisNexis, Wellington, 2016) at 291.

10 At [10.3] — see r 1.6 as to the manner in which a lawyer must provide information to a client — see discussion in Sandy v Kahn LCRO 181/2009 (9 December 2009) at [38].

before”. She asked Mr RY whether she had to “action” the points he had raised “with the builder”. She asked what he meant by “the deposit should be reduced”.

[43] Mr RY’s handwritten file note of their telephone conversation included that they discussed his letter, Mrs AN would request an extension to the condition date, she would discuss the matter with Mr AN and revert to Mr RY, and Mr RY had warned her that 3 July 2013 was the condition date.

[44] Mr RY also wrote to the builder’s lawyer on 3 July 2013. He referred to the conditions of the purchase agreement. He noted that the “settlement date is regulated by the building contract”. He noted that the deposit of $41,250 was “due for payment on confirmation of the contract”. He drew attention to the fact that the “title was not in [the builder’s] name”, and requested confirmation that the builder had “an unconditional contract to purchase”.

[45] On 4 July 2013 Mrs AN sent to the builder, by email, a copy of Mr RY’s 3 July advice letter. She stated she and Mr AN wanted “to clarify” a number of points including “security of deposit as [the] land is owned by [the land developer]”. She referred to Mr RY’s recommendation to them that the deposit be held by “an independent stakeholder until settlement”. She requested a response from, and suggested a meeting with the builder after 11.30 am the following morning, 5 July, “to discuss”.

[46] The builder responded to Mrs AN with a counter proposal stating, “we are settling this week on the land ourselves, today or tomorrow so it can remain as stakeholder until ‘we’ settle the land, that is not an issue”.

[47] Each of Mr RY’s recommendation as communicated by Mrs AN to the builder, and the builder’s counter proposal in response, represented a variation to the position under the purchase agreement signed by the parties, namely, the deposit would be held by the builder’s lawyer as stakeholder pending satisfaction of the conditions. As noted earlier, the variation proposed by the builder was, in effect, that assuming the conditions of the agreement had been satisfied, the builder’s lawyer would continue to hold the deposit until the builder settled the [builder’s] purchase of the property from the land developer.

[48] By email to Mr RY on 4 July 2013, 11.45 am, Mrs AN sought advice from Mr RY on the builder’s response. She asked Mr RY “Are you happy with this”.

[49] At 2.32 pm on 4 July, Ms QS, a registered legal executive employed by the builder’s lawyer, responded to Mr RY. Ms QS referred first, to Mr RY’s 3 July letter to the builder’s lawyer, and secondly, to the emails exchanged by Mrs AN and the builder that morning. Ms QS stated:

1. [the builder] has an unconditional contract to purchase the property and we are due to complete settlement tomorrow on the land.
   
2. [the builder] agrees that the deposit will be held in our trust account as stakeholder until settlement is completed.
   

[50] Ms QS concluded by referring to the property agreement. She noted her understanding that first, the deposit was payable upon confirmation (satisfaction of the conditions); and secondly, the transfer of title in the property to Mr and Mrs AN would occur on payment by them of the balance due under the purchase agreement following practical completion of the new house. Ms QS asked for confirmation that the “settlement/possession date” in respect of both contracts would be “5 working days after practical completion”.

[51] By email to Ms QS at 3.15 pm, Mr RY confirmed the purchase agreement:

We can and do hereby confirm on the basis:

1. of your representations 2. ...

3. settlement can take place five working days after practical completion ...

[52] An hour later at 4.21 pm, Ms CX, a lawyer employed by the builder’s lawyer, sent an email to Mrs AN. Ms CX stated she understood Mrs AN had “been communicating with [Mr] RY [that day] about the confirmation of [Mr and Mrs AN’s] purchase of [the property]”. She enclosed the builder’s lawyer’s trust account deposit slip and asked Mr and Mrs AN to pay the deposit direct to the builder’s lawyer.

[53] Title in the property was transferred to the builder on 5 July 2013. Mr and Mrs AN paid the deposit to the builder’s lawyer on 8 July 2013.

[54] I observe that the property agreement afforded Mr and Mrs AN 3 working days from signature of that agreement, that is, by 3 July 2013, within which to satisfy the agreement conditions.

[55] In that context, Mr RY’s professional duties on 4 July demanded that he, or a member of his firm, consider the email communications between Mrs AN and the builder, respond to Mrs AN’s inquiry, and obtain Mr and Mrs AN’s further instructions that day.

[56] As already noted, Mr and Mrs AN claim that Mr RY did not respond to their inquiry. They claim he did not raise “any issue ... who the settlement was between”. They claim he ought to have “clarified” any ambiguity at that time. They contend Mr RY is attempting to shift the focus from himself to the builder’s lawyer by seeking to rely on the “undertaking” he claims was provided in the builder’s lawyer’s email to him at 2.32 pm that day.

[57] Mr RY states there is “no question” he would have confirmed the purchase agreement without first having obtained Mr and Mrs AN’s instructions to do so. By this he is suggesting that his usual practice would be to obtain instructions before confirming an agreement. In support of his position, he relies on Ms CX’s statement in her 4.21 pm email to Mr and Mrs AN that day which, as noted above, refers to them “communicating with [Mr] RY” on 4 July about “confirmation” of the purchase.

[58] However, reliance on usual practice may be insufficient to affirmatively establish that a lawyer did, or did not take a particular action. Especially in this matter, where Mr RY has not gone so far as to say he did respond to Mrs AN’s request for advice, and Mrs AN’s certainty he did not respond to her request.

[59] Apart from Ms CX’s email, he is unable to produce any written evidence such as an email from him to Mrs AN, or, unlike his file note of his telephone conversation with Mrs AN the previous day, a file note of a telephone conversation he may have had with her on 4 July that recorded any advice to her.

[60] My analysis of these communications leads me to the conclusion that it is more probable than not Mr RY did not respond to Mr and Mrs AN with advice as requested by them.11 By not doing so, Mr RY contravened rr 3.2, 7, 7.1 and 7.2 which constitutes unsatisfactory conduct under s 12(c) of the Act.

(2) Stakeholder (issue (c))

(a) Lawyers’ undertakings

[61] An undertaking given by a lawyer is a promise, whether expressly or impliedly, that the lawyer will take a particular action which the lawyer will fulfil or honour by or on

11 Z v Dental Complaints Assessment Committee [2008] NZSC 55, [2009] 1 NZLR 1 at [26] — the standard of proof to be applied in disciplinary hearings, is “the civil standard of a balance of probabilities applied flexibly to the seriousness of the matter’’.

a specified date.12 An undertaking must be given by the lawyer personally in the lawyer’s capacity as a lawyer.13

[62] For these reasons, undertakings are held out by the legal profession “as having an elevated and special status”. It is “necessary for the profession to scrupulously honour them”.14 Undertakings are both recognised by and enforced by the Courts.15 Illustrations of undertakings in the context of land transactions include undertakings provided by the purchaser’s lawyer that the balance of the purchase price has been paid, and by the vendor’s lawyer to release the e-dealing upon receipt of those funds.16

[63] The Rules recognise the importance of undertakings in legal practice by requiring that:

10.3 A lawyer must honour all undertakings, whether written or oral, that he or she gives to any person in the course of practice.

10.3.1 This rule applies whether the undertaking is given by the lawyer personally or by any other member of the lawyer’s practice. This rule applies unless the lawyer giving the undertaking makes it clear that the undertaking is given on behalf of a client and that the lawyer is not personally responsible for its performance.

[64] It follows that care is required by a lawyer before providing an undertaking.17 A lawyer proposing to rely on an undertaking is similarly required to ensure that the undertaking is capable of performance by the lawyer giving it.18

[65] Where an undertaking is given by a lawyer personally, and not on behalf of the lawyer’s client, to be enforceable against that lawyer, the undertaking given must be “precise and unambiguous in its terms”.19 An undertaking will be construed according to its “substance and intention” and not in a “technical legal manner”.20 Any “ambiguity” will generally be construed in favour of the recipient.21

12 Webb, Dalziel and Cook, above n 9 at [15.9.1]. See also the Rules of Professional Conduct for Barristers and Solicitors (7th ed, New Zealand Law Society, Wellington, 2008), r 6.07, commentary (4) which were in force prior ro the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008.

13 At [15.9.1]; see also GE Dal Pont Lawyers’ Professional Responsibility (6th ed, Thomson Reuters, Sydney, 2017) at [22.05].

14 Auckland Standards Committee 3 of New Zealand Law Society v W [2011] NZHC 659; [2011] 3 NZLR 117 (HC) at [67].

15 Lawyers and Conveyancers Act 2006, s 268; Webb, Dalziel and Cook, above n 9 at [15.9.2]. 16 New Zealand Law Society “Practice Guidelines: Property Transactions and E-dealings” ( April 2015) <www.lawsociety.org.nz> at 32.

17 Auckland Standards Committee v Stirling [2010] NZLCDT 4.

18 Dal Pont, above n 13 at [22.70].

19 Rules of Professional Conduct, above n 12, r 6.07, commentary (6).

20 Auckland Standards Committee 3 of New Zealand Law Society v W. above n 14, at [41].

21 At [42] and [60].

[66] The context in which the undertaking has been given must be considered objectively.22 The Court of Appeal has stated that “[t]he subjective views of the practitioner giving the undertaking are irrelevant. So too, are the views of the practitioner or party receiving the undertaking”.23

(b) Stakeholder

[67] In the context of the sale and purchase of land, a stakeholder holds a deposit “on trust, as agent for both parties, to be disbursed in accordance with the provisions of the contract”.24 In such circumstances, r 10.3.2 requires that:

A lawyer who receives funds on terms requiring the lawyer to hold the funds in a trust account as a stakeholder must adhere strictly to those terms and disburse the funds only in accordance with them.

[68] Where a purchaser is entitled to the return of the deposit “the stakeholder may release the deposit to the party entitled with the consent of the other party”.25 However, if the parties are in dispute:26

the party claiming entitlement to the deposit may sue the stakeholder, whereupon the stakeholder should interplead and pay the money into court. The court’s order will determine which party is entitled to the deposit.

(c) Discussion

(i) Mr RY’s position

[69] Mr RY acknowledges that the builder’s lawyer was not an independent stakeholder. However, he says he relies on Ms QS’ statement in her 4 July 2013,

2.32 pm email to him that “[o]ur client agrees that the deposit will be held in our trust account until settlement is completed”. He says he regards Ms QS’ statement as an undertaking.

[70] Mr EF, counsel for Mr RY, contends that the “undertaking” was not ambiguous. He disagrees that “settlement” could mean either settlement of the purchase of the property by the builder from the land developer as contended by the builder’s lawyer, or

22 At [63].

23 W v Auckland Standards Committee 3 of New Zealand Law Society [2012] NZCA 401, [2012]

NZAR 1071 at [45].

24 NZ Conveyancing Law and Practice Commentary (online ed, CCH) at 7-170. See also Real Estate Institute of New Zealand Inc, Auckland District Law Society Inc Agreement for Sale and Purchase of Real Estate (9th ed, 2012) at cls 2.4 “Deposit”, 9.8 "Operation of conditions".

25 At 7-200.

26 At 7-200.

the purchase of the property by Mr and Mrs AN from the builder. He argues that even if the “undertaking” was considered ambiguous, because undertakings are to be construed according to their “substance and intention” and not in a “technical legal manner”, Mr RY is entitled to the benefit of that ambiguity.27

[71] It follows, submits Mr EF, that the Committee’s decision that Mr RY’s “failure to recognise the nature of the undertaking ... nor to seek clarification in relation to any ambiguity” concerning the meaning of the term “settlement” was “wrong in law and fact”.28 In his submission, Mr RY’s conduct in this matter, at worst does not reach the threshold for an adverse finding against him.

(ii) Mr and Mrs AN’s position

[72] Mr and Mrs AN claim, in effect, that if Mr RY had any doubt about the basis on which the deposit would be held by the builder’s lawyer as stakeholder, then in order to protect their interests it was his duty to clarify the position.

[73] In support of their claim that Mr RY did not advise them whether there was “any issue ... who the settlement was between”, they refer to Ms CX’s letter to them a year later on 19 September 2014 that the deposit was held by the builder’s lawyer as stakeholder “until settlement”.

(iii) Considerations

[74] Mr and Mrs AN forwarded the property agreement to Mr RY on 1 July 2013. Because the date for fulfilment of the conditions, including solicitor’s approval, was 3 July 2013, the instructions were relatively urgent.

[75] The property agreement stated that Mr and Mrs AN were required to pay the deposit “to the [builder’s lawyer’s] trust account on confirmation of [the] agreement”. Clause 2.4 of the General Terms of Sale of the property agreement stated that the person to whom the deposit is paid must hold it as a stakeholder pending satisfaction of the conditions, or the agreement being avoided due to non-fulfilment of any condition.29

27 W v Auckland Standards Committee 3 of New Zealand Law Society, above n 23.

28 Standards Committee determination, 8 September 2016 at [26].

29 Real Estate Institute of New Zealand Inc, Auckland District Law Society Incorporated, above n

24. See also cl 9.8 "Operation of conditions".

[76] Having received Mr and Mrs AN’s instructions on 1 July 2013, Mr RY promptly advised Mr and Mrs AN on 3 July that the deposit should be held by an independent stakeholder until they settled their purchase of the property following completion of construction of the new house.

[77] Mrs AN then informed the builder of Mr RY’s advice. The builder responded with a counter proposal, the effect of which, as noted earlier, was that assuming the conditions of the purchase agreement had been satisfied, the deposit would remain with the builder’s lawyer as stakeholder until the builder settled the purchase the property from the land developer.

[78] As I have already found, it is more probable than not that Mr RY did not respond to Mrs AN’s request on 4 July at 11.45 am for advice on the builder’s response received by her that morning. However, he was presented with another opportunity to consider the stakeholder issue when he received Ms QS’ email at 2.32 pm that afternoon.

[79] Mr EF argues that Ms QS’ statement in paragraph 1 of her email to Mr RY that the builder was “due to complete settlement ... on the land” does not qualify her statement in following paragraph 2 that the builder “agrees that the deposit will be held in our trust account as stakeholder until settlement is completed”. In his submission, because paragraph 2 stands alone, “settlement” in paragraph 2 means settlement of the purchase of the property by Mr and Mrs AN from the builder.

[80] I am not persuaded the position is so clear. To my mind, Ms QS’ statement that the builder “agrees that the deposit will be held in our trust account as stakeholder until settlement is completed” represents no more or less than the builder’s agreement to a variation of the stakeholder provisions of the purchase agreement discussed above.

[81] Moreover, I do not consider Ms QS’ statement contains the essential elements of a lawyer’s undertaking referred to earlier, namely, a promise to pay a sum of money, or take action by a specific date, and expressed to have been given either personally, or by and on behalf of the lawyer’s client.

[82] However, because this difference of opinion between Mr RY and the builder’s lawyer concerns the meaning and interpretation of a term of a contract, that is a matter for the courts to consider and determine, not a Standards Committee, or this Office on review. For that reason, I am unable to take this issue any further.

(3) Reasonable care, instructions (issues (d), (e))

[83] It remains for me to consider whether Mr RY discharged his professional duties owed to Mr and Mrs AN when he received Ms QS’ 4 July 2.32 pm email. In particular, whether he consulted with Mr and Mrs AN about the builder’s counter proposal before he confirmed the purchase agreement later that afternoon.

(a) Relevant rules

[84] The purposes of the Act include maintaining public confidence in the provision of legal services and protecting the consumers of legal services.30 To that end, r 3, which imposes several duties and applies when a lawyer is providing “regulated services” to a client, requires that:31

In providing regulated services to a client, a lawyer must always act competently and in a timely manner consistent with the terms of the retainer and the duty to take reasonable care.

[85] The duty to be competent has been described as “the most fundamental of a lawyer’s duties” in the absence of which “a lawyer’s work might be more hindrance than help”.32 Relatedly, the definition of “unsatisfactory conduct” in s 12(a) of the Act includes:

... conduct that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer.

[86] The observation has been made that in the practice of law competence “entails an ability to complete the work required by finding the relevant law and applying the relevant skills”. Whether the lawyer concerned meets this standard is to be determined objectively.33

[87] However, this does not impose the duty “to provide a high level of service to clients”, and “is, in reality, a duty not to be incompetent ... aimed at ensuring minimum standards of service”. The duty is concerned with “the outcome of lawyer’s work rather than the way in which they deal with clients”.34

30 Lawyers and Conveyancers Act, s 3(1)

31 Section 6 “regulated services” is defined as including “legal services” and “conveyancing services”, which are themselves defined. Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules, r 1.2: “retainer”.

32 Webb, Dalziel and Cook, above n 9 at [11.1].

33 At [11.3].

34 At [11.3].

[88] Rule 3 also requires that lawyers must provide regulated services to clients “in a timely manner”. This has been acknowledged in decisions from this Office where it has been stated that the rules “do place some emphasis on timely action as part of expected client service” which, as noted earlier, is reflected in rr 3, 3.2, 7, and 7.2.35

[89] I earlier referred to a lawyer’s duty, in r 7.1, to consult with a client about steps to implement the client’s instructions.

(b) Discussion

[90] Mr and Mrs AN claim Mr RY did not consult with them on the afternoon of 4 July 2013 before he confirmed the purchase agreement.

[91] This was an important matter to them. Mrs AN had explained to Mr RY that she was unfamiliar with the process of purchasing property in New Zealand. She sought and relied on Mr RY’s advice.

[92] As recommended by Mr RY, Mrs AN proposed to the builder that the deposit be held by an independent stakeholder until she and Mr AN settled their purchase of the property from the builder on completion of the new house. Assuming the purchase agreement had been confirmed, the builder’s counter proposal would have permitted the builder’s lawyer to release the deposit as soon as the builder had completed its purchase of the property from the land developer.

[93] As with issue (c) (Mrs AN’s request for advice), Mr RY states he would not have confirmed the purchase agreement without Mr and Mrs AN’s instructions. In saying that, he again relies on Ms CX’s 4 July 4.21 pm email to Mr and Mrs AN which refers to Mr and Mrs AN “hav[ing] been communicating with [Mr] RY today about confirmation of [their] purchase”.

[94] However, as with Mrs AN’s 4 July 2013 request for further advice discussed above, Mr RY has not produced any other evidence that having received Ms QS’ 2.32 pm email he either telephoned Mrs AN, or sent her an email to explain the builder’s position, and request her instructions before he confirmed the purchase agreement in his 3.15 pm email to Ms QS without comment.

35 KD v WW LCRO 83/2011 (30 March 2012) at [84]. Rule 3.2: “A lawyer must respond to inquiries from the client in a timely manner”; r 7: “A lawyer must promptly disclose to a client all information"; r 7.2: “A lawyer must promptly answer requests for information or other inquiries from the client”.

[95] I consider that had Mr RY given Ms QS’ 2.32 pm email the attention it deserved, then he would have realised that the builder proposed something different. I emphasise that Ms QS specifically referred to the emails exchanged between Mrs AN and the builder that morning, thereby reminding Mr RY that he consider them.

[96] The builder settled the purchase of the property from the land developer and took title to the property the following day on 5 July. Mr and Mrs AN paid the deposit to the builder’s lawyer on 8 July. The result was that at the time Mr RY confirmed the purchase agreement, the parties held different views on how stakeholder provisions of the purchase agreement would work.

[97] Having reviewed Mr RY’s 3 July advice to Mr and Mrs AN, the subsequent communications between the parties, and the communications between the builder’s lawyer and Mr RY, I am not satisfied Mr RY took reasonable care to ensure that he understood the effect of the builder’s proposal in response to Mrs AN’s request concerning the stakeholder issue. By not doing so he contravened r 3, which constitutes unsatisfactory conduct under s 12(c) of the Act. His conduct also constitutes unsatisfactory conduct under s 12(a), namely, “conduct that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer”.

[98] Mr RY again states he would have consulted with Mr and Mrs AN before he confirmed the agreement. However, as with Mrs AN’s request for advice earlier that day, he has not gone so far as to say he did consult with Mrs AN beforehand. This, coupled with Mrs AN similarly being adamant Mr RY did not consult with her again leads me to conclude it more probable than not Mr RY did not do so before he confirmed the purchase agreement. By failing to do so he contravened r 7.1, also referred to earlier, which constitutes unsatisfactory conduct under s 12(c).

Decision

[99] For the above reasons, pursuant to s 211(1)(a) of the Lawyers and Conveyancers Act 2006, the Committee’s overall finding of unsatisfactory conduct against Mr RY is confirmed, but modified in respect of my findings that Mr RY:

• (a) Failed to respond to Mr and Mrs AN’s request for advice thereby contravening rr 3.2, 7, 7.1 and 7.2, which constitutes unsatisfactory conduct under s 12(c) of the Act.36
  
  • (b) Failed to take reasonable care before he confirmed the purchase agreement thereby contravening r 3, which constitutes unsatisfactory conduct under s 12(c) of the Act, and also constitutes unsatisfactory conduct under s 12(a), referred to above.
    
  • (c) Failed to consult with Mr and Mrs AN before he confirmed the purchase agreement thereby contravening r 7.1, which constitutes unsatisfactory conduct under s 12(c).
    

[100] In conclusion, this matter serves to emphasise the importance for a lawyer to retain a written record, whether by email or letter to a client, or by a contemporaneous file note, of all advice provided to, and instructions received from the client. There are doubtless numerous instances where a clear, timely response or record of advice provided, instructions received and steps taken by the lawyer at a particular time assists to overcome any subsequent doubt about earlier events.

Orders

(1) Compensation

[101] Section 156(1)(d) of the Act provides that a person who seeks compensation must have “suffered loss by reason of any act or omission of [the lawyer]”. Compensation may not exceed $25,000.37

(a) Loss, costs claimed

[102] Mr and Mrs AN seek compensation for the loss of their deposit, additional legal costs incurred by them, and additional rental costs of $30,000.00 incurred by them

36 Lawyers and Conveyancers Act, s12(c): “unsatisfactory conduct, in relation to a lawyer ... means ... (c) conduct consisting of a contravention of this Act, or of any regulations or practice rules made under this Act that apply to the lawyer or incorporated law firm, or of any other Act relating to the provision of regulated services (not being a contravention that amounts to misconduct under section 7)”.

37 Lawyers and Conveyancers Act (Lawyers: Complaints Service and Standards Committees) Regulations 2008, reg.32.

“waiting” for their dispute with the builder “to be resolved and the stress and emotional harm caused to [their family]”.

[103] Mr EF acknowledges that “because of the liquidation of [the builder] extra costs would have been incurred, but that would have been so in any event”.

[104] I agree with both the Committee and Mr EF that it does not necessarily follow that Mr RY’s conduct would have led to the loss of the deposit, and to the additional legal costs incurred by them. For example, had Mr RY, after obtaining Mr and Mrs AN’s instructions, informed the builder’s lawyer that Mr and Mrs AN insisted on the deposit remaining with the builder’s lawyer as stakeholder until completion of the new house, the builder may not have agreed.

[105] In other words, there is not a clear “causative link” between Mr RY’s conduct and the losses claimed by Mr and Mrs AN. For these reasons, I do not consider Mr and Mrs AN are entitled to be compensated for the losses and costs they claim.

(b) Anguish and distress

[106] Mr and Mrs AN also claim compensation for the “stress and emotional harm caused” to their family as a consequence of Mr RY’s conduct.

[107] I note that the ability to compensate for anguish and distress in the lawyer-client relationship has been recognised by the courts, and by this Office, which has accepted that orders to provide compensation for personal stress and anguish may be made pursuant to s 156(1)(d).38

[108] The circumstances in which compensation on this basis has been awarded vary widely, but in general terms, there must be something more than the stress associated with the complaint itself.

[109] For example, in the first of the previous decisions of this Office referred to, the lawyer’s firm had acted for both parties on the sale and purchase of a business in circumstances where the lawyer was held to have had a clear conflict of duties owed to each client. In the second decision, the lawyer concerned had wrongfully terminated a retainer. Compensation was ordered in respect of the stress suffered by the complainant

38 Heslop v Cousins [2007] NZHC 2132; [2007] 3 NZLR 679 (HC).

in having to arrange new representation in the litigation in which he was involved, and the general disruption to his business and personal affairs.39

[110] There is no punitive element to an award of damages for anxiety and distress.

Such an award is entirely compensatory.40

[111] I consider that the stress Mr and Mrs AN claim they suffered in having to instruct new lawyers and the resulting disruption to them qualifies for an award of compensation.

[112] In that regard, I consider a fair approach would be to cancel Mr RY’s invoices first, dated 25 July 2013 for $647.92 (fee component $555.80 plus GST) in respect of his attendances up to and including his confirmation of the purchase agreement and, secondly, dated 16 October 2014 for $983.45 (fee component $800 plus GST) in respect of his subsequent attendances including communications with the builder’s lawyer about the deposit.41

(2) Orders

[113] Pursuant to s 211(1)(a) of the Act:

• (a) The Committee’s order that Mr RY pay to Mr and Mrs AN the sum of

$2,737.45 by way of compensation is reversed and substituted with an order that Mr RY cancel his invoices first, dated 25 July 2013 for $647.92, and, secondly, dated 16 October 2014 for $983.45, and if already paid by Mr and Mrs AN refund those amounts to them by the 31st day of October 2018.

(b) The Committee’s orders that Mr RY pay to the New Zealand Law Society a fine of $1,000.00, and costs of $750.00 are confirmed.

(a) Costs of review

[114] Where an adverse finding is made, costs will be awarded in accordance with the Legal Complaints Review Officer (LCRO) Costs Orders Guidelines. It follows that pursuant to s 210(1) of the Act, Mr RY is ordered to pay costs in the sum of $1,200.00 to

39 Sandy v Khan LCRO 181/09 (25 February 2010) — an award of $2,500; Wandsworth v Ddinbych & Keith LCRO 149 & 150/09 (5 March 2010) — an award of $1,200. An award of compensation would be appropriate for anxiety and distress where it can be shown to have occurred and is consistent with the consumer protection purposes of the Act — s 3(1)(b).

40 See Air New Zealand Limited v Johnston [1992] 1 NZLR 159 (CA).

41 Mr RY’s invoice dated 4 July 2013 in respect of his 3 July advice stands.

the New Zealand Law Society by the 31st day of October 2018. Pursuant to s 215(3)(a) of the Act, the costs order may be enforced in the District Court.

(b) Anonymised publication

[115] Pursuant to s 206(4) of the Act, this decision is to be made available to the public with the names and identifying details of the parties removed.

DATED this 25th day of September 2018

B A Galloway

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 RY as the Applicant

Ms P AN and Mr T AN as the Respondent Mr EF as the Respondent’s Representative Mr UC as the Related Person

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