AA v BB [2019] NZLCRO 136 (29 November 2019)

Last Updated: 19 February 2020

LCRO 96/2017

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 AA

_Applicant

AND BB

_Respondent

_DECISION

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

Introduction

[1] Mr AA, who at the relevant time was a partner at [NVE] [Area], (the firm), acted for [VOI] Limited ([VOI]) in arranging settlement of the sale by [VOI] of a property. Ms CC, a lawyer employed by Mr BB’s firm, [RDY] (BB), acted for the Official Assignee (OA), the purchaser.

[2] Mr BB made a complaint about Mr AA’s conduct on that matter. The [Area] Standards Committee [X] (the Committee) made a finding of unsatisfactory conduct against Mr AA who has applied for a review of the Committee’s decision.

[3] In November 2014, [VOI] purchased the property from [FFH] Ltd ([FFH]). The sale and purchase agreement contained an option for [FFH] to reacquire the property for the price paid by [VOI], plus any costs incurred by [VOI] during its ownership of the property. In effect, [VOI] owned the property as security for money it had loaned to [FFH]. [VOI] stood to gain from the increase in value of the property if neither the vendor nor the OA exercised the option to purchase.

[4] The vendor and [VOI] entered into a second option agreement whereby the OA

could take an assignment of the vendor’s option if the vendor did not exercise the option.1

[5] In December 2014, the OA conditionally on-sold the property for considerably more than the purchase price paid by [VOI] to the vendor. On 13 January 2015 the OA exercised the option to purchase the property from [VOI]. The sale and purchase agreement provided for settlement on 16 January 2015, “[t]ime being of the essence”.

[6] Until 15 January 2015, Mr DD, a lawyer employed by the firm who was assisted by Ms EE, a legal executive, acted for [VOI]. Mr AA became involved that day.

[7] Initially Mr FF of Mr BB’s firm, later Ms CC, acted for the OA. Ms CC requested settlement in person at the firm’s offices proposing payment by bank cheque rather than electronic payment for a remote settlement.

[8] On 16 January 2015, upon learning that [VOI]’s mortgagee’s lawyer was unable to attend settlement in person, Mr AA says he arranged to extend the firm’s force limit, essentially an overdraft facility, with the firm’s bank (the force limit). That would have enabled the firm to repay the money, secured by mortgage against the property, electronically by same day cleared payment to the mortgagee’s lawyer instead of by bank cheque in person as proposed by Ms CC.

[9] Ms CC says she understood that if the mortgagee’s lawyer did not attend in person then settlement would not proceed. Late in the afternoon of 16 January, Ms CC ascertained, from her own enquiries, that the mortgagee’s lawyer would not be attending. She informed Mr AA who did not tell her that, having arranged the force limit, the mortgagee’s lawyer’s attendance was no longer required.

[10] Settlement did not proceed on 16 January 2015. [VOI] cancelled the agreement at 5:15 PM that day.

[11] The OA issued proceedings against [VOI] in the High Court challenging [VOI]’s purported cancellation of the agreement which the OA claimed was a repudiatory breach, and seeking declarations equivalent to specific performance of the agreement. 2

[12] For reasons which I summarise in my analysis, the High Court declined the remedies sought by the OA, but on appeal by the OA, the Court of Appeal unanimously

1 Pursuant to Court orders.

2 The Official Assignee v [VOI] Ltd [2015] NZHC 1416 [High Court judgment] at [7].

reversed the High Court’s decision and declared that [VOI] was not entitled to cancel the agreement.3

Complaint

[13] Mr BB lodged a complaint with the Lawyers Complaints Service on 25 October

2016. He sought “appropriate sanction for [Mr AA’s] behaviour which breaches the Rules and standards of the profession generally”.

[14] The substance of Mr BB's complaint was that:

(a) In a telephone conversation had by Mr AA and Mr DD, with Ms CC “at approximately 4pm”, 16 January 2015, Mr AA “deliberately chose not to inform Ms CC that he had (according to his own sworn evidence) arranged an alternative means of enabling settlement to occur”.

(b) Apart from Mr DD having informed Ms CC on 8 January that he did not consider there would be an issue with settlement arrangements on 16

January, neither he nor other members of the firm provided “any written responses in relation to settlement procedures or a settlement statement until repeated requests were made by Ms CC on 15 January”.

[15] Mr BB explained that Mr FF of his firm informed Mr DD on 2 January 2015 of

“the potential need to put arrangements in place for an urgent back-to-back settlement on 16 January” by “bank cheque”.

[16] He explained that between 8 January and 15 January, the only person at the firm with whom BB had communications “until the early afternoon” on 16 January, was Ms EE. He says Ms EE, who provided Mr BB’s firm with a draft settlement statement on

15 January, subsequently gave evidence that “she was not given any instructions by Mr

DD”. He says a final settlement statement was not received by the firm until 3:15pm on

16 January.

Response

[17] I include reference to Mr AA’s response, and submissions to the Committee

_{made by Ms GG, counsel for Mr AA, in my later analysis.}

3 The Official Assignee v [VOI] Ltd [2016] NZCA 415 [Court of Appeal judgment].

Standards Committee decision

[18] The Standards Committee delivered its decision on 4 April 2017 and determined, pursuant to s 152(2)(b) of the Lawyers and Conveyancers Act 2006 (the Act), that:

(a) Mr AA’s silence “may have conveyed the impression that settlement might not occur”; and

(b) that conduct fell short of the standards of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer, which constituted unsatisfactory conduct under section 12(a) of the Act.

[19] The issues identified by the Committee were whether:

(a) By not informing Ms CC that he had made other arrangements to enable settlement of the sale of the property, Mr AA had contravened the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules), rr 10 (promote and maintain proper standards of professionalism in a lawyer’s dealings), 10.1 (treat other lawyers with respect and courtesy), 11 (adhere to duties to the court and clients, preserve the reputation of the legal profession), and 3 (act competently).

(b) Relatedly, whether Mr AA had a duty to inform Ms CC that settlement could take place, and the reasons why.

[20] Describing Mr AA’s failure to update Ms CC as “an error of judgment”, the Committee stated that settlement “is a cooperative process”, and “professional obligations to [a lawyer’s] colleagues is paramount”.

[21] The Committee’s reasons for arriving at its decision were:

(a) Ms CC was “labouring under a misunderstanding that settlement could not occur”.

(b) Ms CC had “the distinct impression” from Mr AA having previously informed her that “settlement could not occur” because the mortgagee’s lawyer could not attend, that he did not mean it when he later indicated to her that settlement could proceed.

(c) Because Mr AA had taken “steps ...to ensure settlement could occur” by arranging the force limit, he “could have taken steps to correct Ms CC’s misapprehension”, and “should have clarified his intention”, particularly considering that the settlement “arrangement...was outside the [Property Transactions and E-Dealing Practice Guidelines]”.4

(d) Because the force limit arranged by Mr AA, of which only he was aware, “was outside of what the parties had agreed to”, Ms CC “understandably did not consider that Mr AA was being forthright”

Application for review

[22] Mr AA filed an application for review on 17 May 2017. He says the Committee

“erred in failing to give proper weight” to a number of considerations.

[23] He explains that because he “only picked up the file” on 16 January 2015 he had not appreciated “the financial implications of the transaction”, or that his client, [VOI], “would make a windfall” if it cancelled the sale agreement. He says in his mind “if settlement did not occur that day it would likely occur in the following days”. He says he did not appreciate “these other implications” until after 4 pm that day after settlement did not take place.

Force limit

[24] Mr AA says the force limit he arranged with the firm’s bank “allowed [settlement] to take place largely in accordance with the documents that had been exchanged between the parties for settlement”.

[25] He explains that because his area of legal practice is “primarily” litigation, he did not appreciate the force limit, which his firm had “used” previously, “to be highly unusual”.

Settlement

[26] Taking into account that Ms CC informed him that the OA “would not defer settlement”, he says in “extremely difficult circumstances”, he “went to extensive lengths” to ensure settlement “could take place”. He says “[a]t all stages [he] confirmed that [he] would be able to settle”, and “[a]t no stage” did he “say anything that misled Ms CC”, or

_{“agree that settlement was futile”.}

4 Property Law Section Property Transactions and E-Dealing Practice Guidelines (New Zealand

Law Society, July 2012).

[27] He says Ms CC “did not ask [him] how [he] was going to be able to settle” if the mortgagee’s lawyer “did not attend the settlement”. He says Ms CC ought to have tendered settlement “rather than to assume that tender was futile”.5

Duty to disclose

[28] Mr AA says he provided an undertaking to Ms CC “which amounted to a formal assurance from one solicitor to another that [he] could and would settle”. He says he did not appreciate he had a professional duty to tell Ms CC “precisely how [his] client had arranged to have funds in [his] trust account to meet [his] assurances”.

[29] He says he informed Ms CC in his final telephone conversation with her on 16

January that his “instructions were to settle that day, and that [his] client did not agree to defer settlement”. He says “[n]otwithstanding”, Ms CC “did not proffer settlement because she assumed [he] would not be able to do so”.

Response

[30] In his response, filed in this Office on 14 June 2017, Mr BB says he relies on his 27 January 2017 submissions to the Committee. He says the Court of Appeal’s facts summary, and judgment “speak for themselves”.

[31] In Mr BB’s submission, Mr AA ignores the Court of Appeal’s finding that Mr AA “must have known that Ms CC was acting under a false belief engendered by [Mr AA’s] actions and words”. He contends Mr AA’s “silence surrounding the proposal that a force limit had been arranged breached Mr AA's duty to inform Ms CC of that fact, to correct the situation his communications had created”.

[32] Mr BB submits that because the firm, of which Mr AA was a partner, entrusted [VOI]’s sale matter to him “at the last minute before the settlement deadline”, it is not open to him to put forward in his defence that he was “primarily a litigation solicitor”.

Hearing

[33] The review progressed by way of an applicant only hearing in Auckland on

22 October 2019 attended by Mr AA, and his counsel, Ms GG. Mr BB was invited to attend but did not exercise his right to do so.

5 Bahramitash v Kumar [2005] NZSC 39, [2006] 1 NZLR 577 referred to.

Nature and scope of review

[34] The nature and scope of a review have been discussed by the High Court, which said of the process of review under the Act:6

... 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.

[35] More recently, the High Court has described a review by this Office in the following way:7

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.

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

Issues

[37] The issues I have identified for consideration on this review are whether Mr AA

contravened professional rules, obligations or duties by not informing Ms CC on 16

January 2015 that:

(a) he had arranged the force limit with the firm’s bank which avoided the need for [VOI]’s mortgagee’s lawyer to attend personally at the firm’s offices to settle the sale and purchase of the property that day; or

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

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

(b) at the least, the presence of [VOI]’s mortgagee’s lawyer that day was no

longer required for settlement to go ahead.

Analysis

(1) Context

[38] In my analysis, as well as referring to the parties’ respective positions on the matter, and the relevant professional rules, to provide context I refer to the:

(a) events leading up to and including Ms CC’s and Mr AA’s endeavours on

16 January 2015 to settle the transaction, principally the communications

(email, telephone) between them;

(b) judgments of the High Court, and the Court of Appeal; and

(c) Property Transactions and E-Dealing Practice Guidelines published by the Property Law Section of the New Zealand Law Society, applicable as of January 2015 (the Guidelines).8

(a) Court proceedings

[39] Mr BB’s complaint about Mr AA’s conduct arose from the Court of Appeal’s finding that Mr AA did not tell Ms CC that he could settle without the mortgagee’s lawyer attending settlement in person.

(i) High Court

[40] In refusing the OA’s claim of wrongful cancellation of the sale and purchase agreement, the High Court concluded that the OA had not proved it was futile for Ms CC (or BB’s agent) to tender settlement at the firm’s office. Its reasons included that:9

(a) Mr AA “did not intend to mislead Ms CC”, he “was not going to assist Ms CC by telling her how [settlement] could be done”, but “[e]qually he was not intending to tell her about the force limit” he had arranged with the firm’s bank, and was “persistently agreeing to a bank cheque settlement”.

(b) Mr AA’s 3:15 PM, 3:27 PM, and 3:42 PM emails on 16 January to Ms CC, which evidenced he was “contemplating and confirming availability for a bank cheque settlement”, did not “suggest that his assurances [were]

8 Property Transactions and E-Dealing Practice Guidelines, above n 4.

9 High Court judgment, above n [2] at [121], [122] and [126].

dependent” on the mortgagee’s lawyer “being present to accept a bank cheque”, but “invit[ed] the tender of the purchase price of the property”.

[41] The High Court observed that Mr AA had asked Ms CC to settle in the usual way by electronic payment (not bank cheques), and to defer settlement.10 Referring to Mr AA having arranged a force limit, thereby avoiding the need for personal attendance by the mortgagee’s lawyer at settlement, the High Court observed “[i]f there was any misrepresentation” by Mr AA, “it was pure omission”.11

(ii) Court of Appeal

[42] The Court of Appeal arrived at the opposite conclusion. In the Court of Appeal’s view, Mr AA’s “silence” that he had arranged a force limit, “actively conveyed the impression that the mortgage problem had not been solved”.12

[43] In reaching that decision, the Court made the following findings:13

(a) Ms CC’s indication to Mr AA during the afternoon of 16 January that “settlement would not be happening”, was “clearly on the basis that [Ms CC] thought settlement could not occur in the absence of a representative from [the mortgagee’s lawyer].”

(b) Ms CC “reasonably concluded in the circumstances that [[VOI]] would not perform its concurrent obligations to transfer clear title in response to a tender of the contract price”.

(c) Ms CC’s “belief that settlement could not occur was reasonably based on her interactions” with Mr AA, “endorse[d] by his silence” which “spoke unequivocally”.

(d) Mr AA “had a duty to inform Ms CC that settlement could occur without a representative from [the mortgagee’s lawyer] attending” because he “must have known that Ms CC was acting under a false belief that had been engendered by his actions and words. Yet he said nothing.”

[44] The Court held that there were “three main reasons” why it was necessary for Mr AA “to correct Ms CC’s misapprehension”. First, Ms CC’s misapprehension “was founded on actions, correspondence and discussions” between them; secondly, [VOI]

10 At [129].

11 At [129] and [131].

12 Court of Appeal judgment, above n [3] at [127].

13 At [112], [113], [120], [121].

was contractually required “to provide clear title on settlement” which required [VOI] to arrange for the mortgagee’s lawyer to attend “a face-to-face exchange of bank cheques”; and thirdly, Ms CC “knew”, and “would have been expecting” those obligations “to be fulfilled”.14

[45] The Court added that “it was all the more important for [Mr AA] to correct the impression” those actions, correspondence and discussions “engendered and allowed [Ms CC] to maintain”.15 That is, unless the mortgagee’s lawyer attended, settlement would not take place.

[46] From the perspective of lawyers’ professional obligations and duties, the Court stated it was “inappropriate” for Mr AA “to allow Ms CC to act on that understanding”.16

The Court rejected the argument “it would have been contrary to Mr AA’s duty to [VOI] for him to tell Ms CC” he had arranged a force limit.17 Referring to r 11.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules), in the Court’s view, “[f]aithfull fulfilment of duties to a client cannot be invoked to justify misleading another [lawyer]”.18

(b) Property Transactions and E-Dealing Practice Guidelines – settlement protocols

[47] Since 1 June 2002 when electronic registration of land dealings (e-dealings) was introduced, the protocols in the Property Transactions and E-Dealing Practice Guidelines, designed principally by the Property Law Section for lawyers, spell out the respective roles of the vendor’s lawyer, and the purchaser’s lawyer.19 In particular, what is expected from each professionally, in the lead up to, and including settlement.

[48] The Guidelines specify payment of the purchase price by the purchaser’s lawyer “unless lawyers for the parties otherwise agree”, by the “electronic transfer of funds” in accordance with “the agreed protocol” through the “same day cleared payments system of direct transfer between bank accounts that operates through the Reserve Bank (SCP)”.20

[49] That payment must be accompanied by the purchaser’s lawyer’s undertaking that the payment is “from cleared funds” and “will not be cancelled or changed in any

_respect”.21 _{To complete settlement, following receipt of that undertaking, the vendor’s}

14 At [122]–[123].

15 At [124].

16 At [124].

17 At [126]–[127].

18 At [127].

19 Property Transactions and E-Dealing Practice Guidelines, above n 4.

20 Property Transactions and E-Dealing Practice Guidelines at [6.2] and [6.9(c)].

21 At [6.9(d)].

lawyer is required to “immediately release the [e-dealing] instrument” into the possession

and control of the purchaser, in effect, the transfer of title.22

[50] Although Ms CC requested a settlement in person with payment by bank cheque, as noted below, Mr AA and Ms CC do not appear to have agreed how settlement would take place on 16 January.

[51] Where there is a “back to back” transaction such as the sale by [VOI] to the OA, and the on-sale by the OA to the on-purchaser on the same day, if the parties’ lawyers cannot agree on the method of settlement, then “settlement should be face-to-face with all parties”. In such circumstances, the Guidelines state that payment by SCP is “[t]he most appropriate way to exchange settlement funds in a back to back settlement”.23

[52] The Guidelines also provide that where the purchaser’s lawyer “acting professionally considers that it is necessary or desirable in the interests of the purchaser to make payment by bank cheque”, then the purchaser’s lawyer “may do so accompanied by an undertaking” that the bank cheque “derives from cleared funds in the purchaser’s lawyer’s trust account”, and will be “honoured”, and not stopped”.24

[53] Mr AA disputes that the undertakings proposed by Ms CC complied with the Guidelines at [6.5] which includes among the “[i]nstances” in which a purchaser’s lawyer “might justifiably wish to make payment by bank cheque” where the purchaser’s lawyer “considers it necessary or desirable to make formal tender of settlement”.25 He also contends, as also noted below, that Ms CC’s settlement proposal did not comply with the Guidelines because it required Mr AA to release the discharge of mortgage, and transfer instruments before payment.

(c) Chronology

2–15 January

[54] On 2 January 2015 Mr FF informed (by email) Mr DD of the likelihood of settlement taking place between 13 and 16 January. Mr FF suggested settlement by payment with bank cheques at the firm’s office in person. Mr DD informed (by telephone) Ms CC on 7 January that “he did not expect there to be any issues with settlement” that

22 At [6.6(d)], and [8.71], [8.73] and the associated Commentary to the Releasing and Submitting section of the Specific E-Dealing Guidelines at Part 8.

23 At [8.14]–[8.16] and the associated Commentary to the Back to Back Dealings section of the Specific E-Dealing Guidelines at Part 8. Mr HH and Mr II expressed different views on the effect of these Guidelines.

24 At [6.5].

25 At [6.5]. Mr HH at [84] of his Brief of Evidence in the High Court proceedings, disagrees with Mr II, for the OA, at paragraph [65], that the undertakings required by guideline 6.5 "do not necessarily apply in the case of a back to back, face to face, bank cheque settlement".

way. Ms CC sent follow-up emails to Mr DD on 8 and 12 January seeking a response to

Mr FF’s 2 January email.

[55] Also, on 12 January Ms CC asked (by letter) Mr DD for a settlement statement, and e-dealing details. She said she would “be in touch” with him “separately to discuss the arrangements for the contemporaneous settlements by way of bank cheque in person at [the firm’s] offices”.

[56] On 13 January Ms CC told (by email) the on-purchaser’s lawyer that she would similarly “be in touch” about settlement in person at the firm’s offices. On 14 January Ms CC asked (by two emails) Mr DD for a settlement time on 16 January.

[57] On 15 January Ms CC sent (by email) Mr DD a settlement memorandum about settlement in person with payment by bank cheque. Ms CC explained that the on- purchaser’s lawyer would act as the OA’s payment agent. She proposed that the discharge of mortgage and transfer instruments be released by the firm before payment by the on-purchaser’s lawyer.

[58] Ms EE sent (by email dictated by Mr AA) the firm’s settlement statement to Ms

CC on 15 January.

16 January

[59] Mr AA says at 8 AM on 16 January he notified (by telephone) the firm’s bank

that a large settlement would take place that day.

[60] Ms CC sent (by email) an amended draft settlement statement to Ms EE. She sought confirmation of her 15 January settlement proposals and draft undertakings. She said the on-purchaser’s lawyer would attend settlement in person at 2:30 PM that day. She asked for confirmation that the mortgagee had released its security.26

[61] At 1:17 PM Ms EE informed (by email) Ms CC that the mortgagee would release its mortgage upon receipt of payment of the amount required into the mortgagee’s lawyer’s trust account.

[62] Six minutes later, at 1:23 PM Ms CC informed (by telephone) Ms EE this was not in accordance with [Ms CC’s] settlement proposals, principally because the firm, acting for [VOI], would be required to release the transfer instrument to BB, acting for the OA, upon receipt of the bank cheque.

26 Court of Appeal judgment at [23].

[63] As the Court of Appeal observed, that would not be possible if the mortgagee’s lawyer “had to wait” until receipt of the money from Mr AA, acting for [VOI], before releasing the mortgage. Ms CC suggested that the mortgagee’s lawyer attend settlement “to sight” the bank cheque payable by the firm to the mortgagee’s lawyer.27

[64] I detail, in my discussion below, the crucial communications (email, telephone) which followed from 1:39 PM to 4:24 PM between Ms CC and Mr AA about settlement arrangements.

[65] In the meantime, while those communications were taking place, Mr AA’s

evidence is that he had arranged an extension of the force limit with the firm’s bank.28

(2) Parties’ positions

(a) Mr BB

[66] As noted earlier, Mr BB’s position is that Mr AA “deliberately” withheld from Ms CC that he had arranged a force limit. In reference to the Court of Appeal judgment, Mr BB claims Mr AA “must have known” Ms CC “was acting under a false belief engendered” by Mr AA’s “actions and words”.

[67] Mr BB contends Mr AA’s “silence” that [Mr AA] had arranged a force limit “breached [Mr AA’s] duty to inform Ms CC of that fact, to correct the situation his communications had created”. In his submission, no weight ought be given to the fact that Mr AA’s area of legal practice is mainly litigation.

(b) Mr AA – counsel’s submissions

[68] Ms GG submits the Committee was in error to record that Mr AA (a) told Ms CC he would not be able to settle because the mortgagee's lawyer could not attend, and (b) agreed to settle outside the Guidelines.

[69] In Ms GG’s submission, Mr AA was intent on setting the transaction, but he and Ms CC were at “cross purposes” concerning the settlement method. In Ms GG’s view, based on the communications between Mr AA and Ms CC, the Court of Appeal was wrong to conclude Mr AA had misled Ms CC.

[70] Ms GG describes those communications as “miscommunication” which illustrates that Mr AA had not agreed with the method of settlement proposed by Ms CC, and ought not be relied on to make an adverse professional finding against Mr AA. For

27 Court of Appeal judgment at [28].

28 Mr AA, Brief of Evidence in the High Court proceedings (22 April 2015) at [27] to [35].

that reason, Ms GG submits Mr AA had “no duty to correct” Ms CC’s understanding how

settlement would take place.

[71] Ms GG describes as “unusual, bizarre” Ms CC’s proposal to attend settlement in person, and to pay by bank cheque after the e-dealing instruments had been released. In Ms GG’s view, Ms CC was “fixated on the e-dealing [instruments] being released before payment”, whereas the converse is the usual method of settlement provided for in the Guidelines.

[72] Ms GG contends Ms CC ought to have taken Mr AA’s statement that he was ready willing and able to settle at face value. In her submission, Ms CC was therefore obliged to attend, or make the appropriate arrangements for settlement without further explanation from Mr AA as to “how or why” he could settle.

[73] Ms GG argues that a finding Mr AA misled Ms CC would require a “subjective intention” by him to do so which Ms GG says is without support. She says Mr AA did not know Ms CC thought settlement was not possible unless the mortgagee’s lawyer attended in person, and therefore he did not do anything that was not appropriate.

(3) Discussion

[74] To recap, the Court of Appeal found that (a) Mr AA did not tell Ms CC he could settle if the mortgagee’s lawyer did not attend settlement in person, and (b) that silence, which “spoke unequivocally”, had created a “misapprehension” on Ms CC’s part, “founded on actions, correspondence and discussions” between Mr AA and Ms CC, which he had a duty to correct.

[75] As noted by both Courts, Mr AA acknowledges he did not make that disclosure to Ms CC.

(a) January 16 – afternoon

[76] In her 1:39 PM email to Ms EE and Mr AA, Ms CC stated that the OA was “ready, able and willing to settle”, and if settlement did not take place [VOI] would be in breach of the sale agreement.

[77] Any doubts Ms CC had that settlement may not take place on 16 January appear to have first arisen from Mr AA’s 2:26 PM message left on Ms CC’s voicemail that the mortgagee’s lawyer could not attend settlement in person. In her 2:56 PM email response, Ms CC referred to Mr DD having told her via telephone call on 7 January that settlement in person was not likely to be a problem.

[78] At 3:15 PM, Ms EE informed Ms CC via email that the mortgagee’s lawyer could not attend settlement in person, but the firm “was able to complete a normal direct credit settlement” that day by making electronic payment. Ms EE added that if Ms CC “insist[ed] on a bank cheque settlement”, which did not appear to be covered by the Guidelines, then Mr BB’s undertaking as set out in the Guidelines would be required.

[79] On the strength of that message, at 3:34 PM Ms CC telephoned the mortgagee’s

lawyer who told Ms CC he would ascertain whether settlement in person was possible.

[80] At 3:50 PM, Mr AA telephoned and asked Ms CC why settlement in person was required. Ms CC’s file note of that telephone conversation records Mr AA having stated settlement “[s]ounds too hard to arrange” that day. Mr AA’s file note refers to “trouble” having the mortgagee’s lawyer attend, [Mr AA’s] unavailability the following day, Saturday, and the possibility of deferment until the following Monday.

[81] However, at 4:01 PM Mr AA informed Ms CC via email that [VOI] required settlement that day.

[82] The outcome of Ms CC’s 4:07 PM email to Mr AA asking whether settlement in person at the firm’s office would take place that day, and their 4:08 PM telephone conversation, was that Ms CC would telephone to “try” to have the mortgagee’s lawyer’s attend.

[83] I observe that Mr AA’s file note of his 4.08 PM telephone conversation with Ms CC states that he informed her “as long as [he] had a bank cheque payable to [the firm]”, together with “the OA’s personal undertakings”, and “[he] had” [VOI]’s mortgagee “able to deal with the matter as well”, “then [he] could proceed”.

[84] Although Ms CC’s file note of the same telephone conversation is along similar lines with her comment that she thought she and Mr AA were “on the same page”, she concluded by stating she “[was] trying to get” the mortgagee’s lawyer “sorted for attendance” which she would “confirm”.29

[85] Having spoken to the mortgagee’s lawyer at 4:14 PM, and 4:16 PM, eight minutes later at 4:24 PM Ms CC telephoned Mr AA to tell him, as recorded by them in their respective file notes, that the mortgagee’s lawyer could not attend settlement, and settlement was “not happening”, “not going to happen”, respectively. They each

_{recorded that neither [VOI], nor the on-purchaser would agree to defer settlement.}

29 I make the further observation, although nothing turns on it, that Mr AA, the vendor’s lawyer, not Ms CC, the purchaser’s lawyer, would normally be expected to contact [VOI]’s mortgagee’s lawyer about attending settlement.

(b) Professional dealings

[86] As well as owing professional duties to their clients, lawyers owe professional duties to other lawyers, and in certain circumstances third parties. Rules 10, and 10.1, referred to by the Committee, require lawyers to “promote and maintain proper standards of professionalism”, and to “... treat other lawyers with respect and courtesy” respectively.

[87] Those rules concern a lawyer’s “speech and manner when dealing with other practitioners”.30 They encompass one lawyer being “able to rely and act on with impunity” information provided from another lawyer.31 Rule 10 “applies whether or not a person is a client”.32

[88] The rules have been described as having a twofold purpose: (a) “ensur[ing] that lawyers remain detached from any animosity between their clients”, and (b) “encourag[ing] a degree of cordiality” among lawyers who can rely on being treated “politely and fairly” with a view to “resolving the business at hand effectively” for their respective clients.33

[89] As the Committee observed, achieving settlement of a property transaction, for the mutual benefit of the lawyers’ respective clients, requires a degree of cooperation by the lawyers concerned which necessitates the extension of professional courtesies to each other.

[90] At the hearing, Mr AA said his integrity is at stake in this matter. He says he knows his obligation and duty as a lawyer to uphold the rule of law. He explained that as a lawyer practising in litigation, conveyancing “is a mystery” to him. Yet he says at the last minute, with other members of the firm being unavailable, settlement of this transaction became his responsibility.

[91] He explained that to have “everything organised at his end”, he alerted the firm’s bank early on 16 January, “about a large settlement” that day, and later organised an extension to the firm’s force limit when it became clear the mortgagee’s lawyer would not be attending. He acknowledges he was obliged to tell Ms CC he was ready to settle,

_{which he said he did. He says that ought to have been “good enough”.}

30 BC v YT LCRO 215/2010 (April 2011) at [44].

31 New Zealand Law Society Rules of Professional Conduct for Barristers and Solicitors (7th ed, Wellington, 2008) [the previous Rules] at r 6.01 and the Commentary of that rule at [3]. Rule 6.01 is the precedessor to r 10.1 of the (current) Rules.

32 JW v QE LCRO 192/2011(September 2012) at [18].

33 Duncan Webb, Kathryn Dalziel and Kerry Cook Ethics, Professional Responsibility and the Lawyer (3rd ed, LexisNexis, Wellington, 2016) at [15.2]. Illustrations of contraventions of r 10.1, include delay in responding to correspondence: R v D LCRO 56/2009 (June 2009).

[92] He said he would have settled had Ms CC, or BB’s agent, attended at his office.34 He rejected any suggestion that receipt of a windfall by [VOI] if settlement did not go ahead that day had any “effect on him”.

[93] He said he “dealt with Ms CC with honesty and integrity”. He said Ms CC may have had difficulty “departing from the [settlement] protocol she had put in place”, and he “did not understand” why Ms CC did not attend at his office to settle.

[94] Although, with the benefit of hindsight, he said he would do things differently, he explained it “did not cross his mind he had to tell Ms CC” how he could settle in person “to put her mind at rest”. He said he did not view that as “an obstacle” because he never told other lawyers about his settlement arrangements.

[95] For that reason, he said he did not regard his silence as “unprofessional or wrong” by not telling Ms CC how he was able to settle without attendance by the mortgagee’s lawyer.

[96] I have referred, in some detail, to the communications between Mr AA and Ms CC. Particularly on the afternoon of 16 January commencing from Mr AA’s 2:26 PM voicemail message for Ms CC that the mortgagee’s lawyer would not be able to attend settlement, until 4:14 PM/4:16 PM when the mortgagee’s lawyer told Ms CC over the phone that he or a colleague would not be attending, and 4:24 PM when Ms CC and Mr AA each recorded following their telephone conversation that settlement would not be taking place that day.

[97] From my analysis of those communications it is evident that Ms CC proceeded on the basis that the mortgagee’s lawyer’s attendance was required for settlement to take place, and conversely non-attendance by the mortgagee’s lawyer would prevent settlement taking place that day.

[98] As I have also noted, Mr AA stated to the High Court, the Court of Appeal, the Committee, and now to this Office that it is not his practice to offer any explanation to a purchaser’s lawyer how he and his client were in a position to effect a settlement. He maintains that when he told Ms CC during their 4:08 PM telephone conversation the basis on which he was in a position to settle, he had no obligation or duty to tell Ms CC how settlement was possible in the absence of the mortgagee’s lawyer’s attendance at a settlement in person.

[99] At the hearing, I asked Mr AA whether that time, or earlier in the afternoon when he had arranged the force limit, would have presented as the opportunity to tell Ms CC

34 Both the High Court, and the Court of Appeal found that Mr AA was in a position to settle.

that the mortgagee’s lawyer’s personal attendance at settlement was no longer required. In response, Mr AA maintained his view that all he was required to tell Ms CC was that he was ready to settle. Not how, or why.

[100] He also explained at the hearing that in his experience “the best way to solve a problem is cooperation”. He did not, however, as he stated was his practice in such circumstances, “get on the phone” to Ms CC to tell her that the mortgagee’s lawyer did not need to attend settlement.

[101] Having heard from Ms GG and Mr AA, and carefully reviewed the course of events in this matter objectively, as I am required to do, I accept Mr AA’s evidence that having arranged the force limit, if Ms CC or BB’s agent attended at the firm’s office on the afternoon of 16 January to settle, then he would have done so.

[102] However, I consider Mr AA had it within his control as to whether settlement took place. For these reasons it is therefore difficult to reach any conclusion other than that all Mr AA had to do to achieve settlement on 16 January was to tell Ms CC that attendance by the mortgagee’s lawyer was no longer required.

[103] Mr AA has not drawn attention to any impediment, or adverse effect to [VOI] or to him in paying to Ms CC, what I consider, the professional courtesy of informing her he could settle the sale regardless of whether or not the mortgagee’s lawyer attended settlement in person. As I have noted, he rules out any constraint imposed on him by his client, [VOI], which stood to gain a windfall in the increased value of the property if the sale did not go ahead.

[104] I do not place weight on Ms GG’s submission that Ms CC equally could have asked Mr AA how he was able to settle without attendance by the mortgagee’s lawyer for the simple reason it may not have crossed her mind to ask that question. Particularly where, as is supported by her having contacted the mortgagee’s lawyer as late as 4.16

PM, Ms CC’s actions were consistent with settlement being dependent on the

mortgagee’s lawyer attending.

[105] The High Court has stated that whilst the rules are to be “applied as specifically as possible”,35 they “are also to be applied as sensibly and fairly as possible.”36

[106] Adopting that approach, I consider that Mr AA owed a professional duty to

_{Ms CC to inform her not only of the basis on which he could settle, but in doing so extend}

35 Q v Legal Complaints Review Officer [2012] NZHC 3082 at [59].

36 Wilson v Legal Complaints Review Officer [2016] NZHC 2288 at [43].

to her the professional courtesy of informing her that the mortgagee’s lawyer’s

attendance was no longer required.

[107] Overall, the conclusion I have reached is that by failing to inform Ms CC that the mortgagee’s attendance was no longer required at settlement, Mr AA (a) failed “to promote and maintain proper standards of professionalism”, and (b) failed to treat [Ms CC] with respect and courtesy” thereby contravening rules 10, and 10.1 which constitutes unsatisfactory conduct under section 12(c) of the Act.

(c) Proper professional practice

[108] As I have noted, referring to r 11.1 which is included in the section of the Rules concerned with “Proper Professional Practice”, the Court of Appeal observed in its conclusion that “[f]aithful fulfilment of duties to a client cannot be invoked to justify misleading another solicitor”.37

[109] Rule 11.1 prohibits a lawyer from “engag[ing] in conduct that is misleading or is likely to mislead or deceive anyone on any aspect of the lawyer’s practice”. The footnote to the rule explains that the words “misleading or deceptive” are “... identical to those used in the Fair Trading Act 1986 and lawyers are referred to texts and authorities on that legislation for further guidance”.38

[110] The rule is “to ensure” that in operating his or her business, a lawyer “does not mislead clients or prospective clients as to the nature of his or her business”.39

Applications of the rule concern “matters such as the lawyer’s practising certificate status, expertise in particular areas of the law, the existence of an association, affiliation or endorsement, or GG charging practices”,40 as well as a legal firm’s letterhead, and the names of, and advertising by legal firms. 41

[111] There “must be something more than a mere error to warrant a finding that there has been a breach of the rule”.42 The presence of “intent” to mislead or deceive “is not necessary for there to be a breach of rule 11.1, nor is it necessary that someone is actually misled or deceived by the lawyer’s statement or action”. Such matters “go to

37 Court of Appeal judgment, above n 3 at [127].

38 Footnote 16. Section 9 of the Fair Trading Act 1986, which concerns misleading and deceptive conduct generally”; see RK v LP LCRO 292/2011 (October 2012) at [31].

39 _{RK v LP LCRO 292/2011 (October 2012) at [31].}

40 Matthew Palmer (ed) Professional Responsibility in New Zealand (online looseleaf ed, LexisNexis) at Annotated Conduct and Client Care Rules; Webb, Dalziel and Cook, above n 33 at [12.3].

41 Webb, Dalziel and Cook, above n 33 at [15.6]. Also see rr 2.01 and 4.01 of the Previous Rules, above n 32.

42 LE v VV LCRO 199/2011 (6 June 2012) at [25].

penalty”.43 However, if “it can be shown that a practitioner has intentionally misled

another practitioner, a client or a third party, this is likely to be misconduct”.44

[112] Having heard from Mr AA I also accept that he did not set out “to mislead or deceive” Ms CC by not telling her he could settle with or without the mortgagee’s lawyer being present at settlement. However, in my view, not doing so had the effect of reaffirming for Ms CC the need for the mortgagee’s lawyer to attend hence giving rise to doubts how settlement could be effected that day in the absence of the mortgagee’s lawyer.

[113] Although I consider the consequence of Mr AA not informing Ms CC the mortgagee’s lawyer’s presence at settlement was no longer required was that Ms CC was misled, it is my view that Mr AA’s failure or omission to so inform Ms CC concerns more his professionalism in his dealings with Ms CC, in respect of which I have already made an adverse finding.

[114] For that reason, I do not propose to make an adverse finding that his conduct also, in my view, contravened rule 11.1.

Decision

[115] Pursuant to s 211(1)(a) of the Lawyers and Conveyancers Act 2006, the decision of the Committee is confirmed as to the finding that Mr AA’s conduct in failing to inform Ms CC that the mortgagee’s attendance was no longer required at settlement constituted unsatisfactory conduct, but modified to provide that his conduct contravened rr 10 and 10.1 of the Rules, which constitutes unsatisfactory conduct under s 12(c) of the Act.

Orders

[116] Having made a finding of unsatisfactory conduct, s 156 of the Act includes among the orders that a Standards Committee can make, orders in the nature of penalty. The functions of penalty in the disciplinary context have been described by the Court of Appeal as punishing the practitioner, a deterrent to other practitioners, and to reflect the public’s and the profession’s condemnation or opprobrium of the practitioner’s conduct.45

[117] The starting points for penalty are the seriousness of the conduct and culpability of the lawyer concerned. Mitigating and aggravating features, as applicable, are also

43 LE v VV at [25].

44 Webb, Dalziel and Cook, above n 33 at [4.3.6].

45 Wislang v Medical Council of New Zealand [2002] NZCA 39; [2002] NZAR 573 (CA) at [21].

taken into account. Acknowledgement by the lawyer of, and insight into the error, and acceptance of responsibility are matters to be considered in mitigation.

Fine

[118] A fine is one of the orders a Standards Committee, or this Office on review, can make. The maximum fine available is $15,000.46 Concerning an appropriate fine, this Office has stated that in cases where unsatisfactory conduct is found as a result of a breach of applicable rules (whether the Rules of Conduct and Client Care, regulations or the Act) and a fine is appropriate, a fine of $1,000 would be a proper starting place in the absence of other factors.47

[119] Having regard to the purpose of a penalty which I have referred to, and to the Court of Appeal having been critical of Mr AA’s conduct, which was avoidable if he had informed Ms CC the mortgagee’s attendance at settlement was not required, I consider that a fine of $1,500 is appropriate.

Orders

[120] Pursuant to s 211(1) of the Act, Mr AA is ordered to pay to the New Zealand

Law Society within 30 days of the date of this decision a fine of $1,500.

Law Society’s costs

[121] Pursuant to s 211(1)(a) of the Act, the decision of the Committee is confirmed

as to the Committee’s order that Mr AA pay to the New Zealand Law Society the sum of

$500 by way of costs, such sum to be paid within 30 days of the date of this decision (s

156(1)(n) of the Act).

Review Costs

[122] Where an adverse finding is made, costs will be awarded in accordance with the Costs Orders Guidelines of this Office. Pursuant to s 210(1) of the Act, Mr AA is ordered to pay costs in the sum of $1,600 to the New Zealand Law Society within 30 days of the date of this decision. Pursuant to s 215 of the Lawyers and Conveyancers Act 2006, I confirm that the order for costs made by me may be enforced in the civil

_{jurisdiction of the District Court.}

46 Section 156(1)(i) of the Act.

47 Workington v Sheffield LCRO 55/2009 (26 August 2009) at [68].

Anonymised publication

[123] Pursuant to s 206(4) of the Act, I direct that this decision be published so as to be accessible to the wider profession in a form anonymising the parties and absent of anything as might lead to their identification.

_{DATED this 29}TH _{day of November 2019}

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 AA as the Applicant

Ms GG as counsel for the Applicant

Mr JJ as the Related Person

Mr BB as the Respondent

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