HK v CN [2019] NZLCRO 66 (22 May 2019)

Last Updated: 15 June 2019

	LCRO 098/2018 LCRO 201/2018
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	HK Applicant
AND	CN Respondent

DECISION

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

Introduction

[1] Mr HK, a lawyer, and at the relevant time a director of HK & Associates, [City] (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, and made orders of censure, payment of costs, and payment of compensation.

[2] In February 2014, Mr CN instructed Mr HK to act on the purchase of a residential unit yet to be constructed (the property) from a developer.

[3] The settlement date provided for in the sale and purchase agreement (the purchase agreement) was dependent on the developer obtaining title to the property.1

[4] An issue of title condition provided that if title had not issued by 8 February 2016, the “Sunset Date”, then “within 10 Working Days” thereafter either party could cancel the

1 Agreement for Sale and Purchase dated 8 February 2014.

purchase agreement. If neither party cancelled that agreement, then the right of cancellation would “lapse and the condition ... [be] deemed waived”.2

[5] Title to the property did not issue by 8 February 2016. Neither the developer nor Mr CN cancelled the purchase agreement within the following 10 working days. The condition was therefore deemed waived on 22 February 2016.

[6] The statutory condition imported into the purchase agreement by s 225 of the Resource Management Act 1991 (s 225 condition) was stated to be “modified so that [Mr CN’s] rights” under s 225(2)(b) did “not arise until [8 February 2016]”.3

[7] A month later, on 9 March 2016, Mr CN entered into an agreement to sell the property (the sale agreement). There were two conditions for the purchasers’ benefit. A finance condition to be satisfied within 10 working days from the date of the sale agreement; and the s 225 condition.4

[8] Mr HK delegated the task of looking after the legal work on that matter to Ms EH, a law clerk who had commenced work with the firm in February 2016.

[9] On 17/18 March 2016, the purchasers requested a variation to the sale agreement by inserting an issue of title condition for their benefit and an extension of the finance condition date (the variation).5 Although it is not certain whether the variation was prepared by Ms EH or the agent who effected the sale, Ms EH, acted for Mr CN on the matter.

[10] On 11 April 2016, the purchasers’ lawyer informed Ms EH that the finance condition in the sale agreement was satisfied. At the agent’s request, on 13 April 2016, the purchasers’ lawyer and Ms EH, each provided written notice to the agent that the conditions in the sale agreement were satisfied.

[11] Seven months later on 23 November 2016, the developer’s lawyer informed Ms EH that the developer could not complete its obligations under the purchase agreement.6

2 Clause 5.5.

3 Clause 5.8; s 225(2)(b) - confers a right of rescission on a purchaser if following the later of (a) two years from the date of the subdivision consent, or (b) one year from the date of the agreement, the vendor has not made reasonable progress in obtaining the territorial authority’s approval of the survey plan, or has not deposited the survey plan to obtain title.

4 Agreement for Sale and Purchase dated 9 March 2016; General Terms of Sale, cl 9.7, s 225 condition.

5 Variation of the Signed Sale and Purchase Agreement, dated 24 March 2016 — issue of title “on or before 8 February 2017”.

6 The developer’s mortgagee had entered into possession.

[12] On 25 November 2016, Ms EH informed the agent that the sale agreement “has been cancelled and the deposit needs to be refunded to the purchaser[s]”. She informed the purchasers’ lawyer on 30 November 2016 that because the purchase agreement was at an end, so too was the sale agreement.

[13] The purchasers treated Ms EH’s notice as a wrongful cancellation of the sale agreement and repudiated the sale agreement on the grounds of Mr CN’s breach of contract by not completing the sale.

[14] The purchasers brought a claim against Mr CN in the Disputes Tribunals which found against Mr CN and ordered him to pay $15,000 damages to the purchasers.

Complaint

[15] Mr CN lodged a complaint with the Lawyers Complaints Service on 3 July 2017.

[16] He claimed that when acting for him on the sale of the property, the firm had been negligent and did not give the matter “proper care and attention”. He claimed that the firm “wrongly declared [that] the [sale] Agreement was unconditional without obtaining ...title” and had authorised the agent to disburse the deposit which he said “should be held until the [sale] Agreement [became] unconditional” upon the issue of title.

[17] He sought reimbursement from Mr HK of the $15,000 he was ordered by the Disputes Tribunal to pay to the purchasers.

(1) Sale agreement

(a) Issue of title

[18] Mr CN stated that the purchasers knew he “did not own the property” which he was purchasing from the developer.

(b) Variation — insertion of issue of title condition

[19] He said that on 18 March 2016 Ms EH informed him of the cost of “drafting clauses” for the sale agreement. He claimed that on 22 March 2016 Ms EH, having drafted the variation, but without having advised him of the effect of the condition proposed by the purchasers, forwarded the variation to him for his signature.

[20] He said the issue of title condition “on or before 8 February 2017 (“Sunset Date”)” was for the purchasers’ benefit, which meant that if the developer cancelled the purchase agreement then he would similarly need to cancel the sale agreement.

(c) Satisfaction of conditions

[21] He said the purchasers’ lawyer informed Ms EH on 11 April 2016 “that the Finance condition had been satisfied”. He said the purchasers had paid the deposit of

$64,000 to the agent.

[22] He said two days later on 13 April 2016, the purchasers’ lawyer notified the agent “that the [sale] Agreement was unconditional”, and “authorised” the agent to disburse the deposit.

[23] He claimed without consulting with, and advising him beforehand, Ms EH had also notified the agent that the sale agreement conditions were satisfied and authorised the agent to disburse the deposit which was paid to the firm. By doing so he claimed Mr HK did not take due care on his behalf.

[24] He said Mr HK did not tell him that [the firm] had received the deposit which was not paid to him.

(2) Cancellation of both agreements

[25] Mr CN explained that in November 2016, following cancellation of the purchase agreement, he and the purchasers cancelled the sale agreement whereupon the firm refunded the balance of the deposit, $42,552.50, to the purchasers

Response

[26] I refer to Mr HK’s response in my later analysis.

Standards Committee decision

[27] In its decision dated 23 April 2018 (the conduct decision), pursuant to s 138(2) of the Lawyers and Conveyancers Act 2006 (the Act), the Committee determined that Mr HK’s conduct fell short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer which constituted unsatisfactory conduct as defined in s 12(a) of the Act.

(1) Sale agreement

(a) Issue of title

[28] The Committee found that upon receipt of the sale agreement Mr HK had not adequately advised Mr CN about [Mr CN’s] contractual obligations and rights as purchaser under the purchase agreement, and as vendor under the sale agreement.

[29] Having noted that the sale agreement did not contain an issue of title condition for Mr CN’s benefit, the Committee referred to the recommendations on the backing sheet of the sale agreement which included that “both parties seek professional advice before signing”. Also, that “if: the property is vacant land in the process of being subdivided or there is a unit title ... to be issued”, then “additional clauses may need to be inserted”.

[30] The Committee considered that Mr CN, as both purchaser and vendor of the property, “was vulnerable” if the developer did not obtain title, because that would prevent Mr CN from “pass[ing] title” to the purchasers.

[31] In the Committee’s view, upon receipt of the sale agreement, and “subsequently” the variation, these “deficiencies” should have been apparent to Mr HK and brought to Mr CN’s attention.

(b) Variation — insertion of issue of title condition

[32] The Committee stated that upon receipt of the variation Mr HK ought similarly to have advised Mr CN that [Mr CN] would be “in a perilous position ...if title was not issued under the [purchase] Agreement”.

(c) Satisfaction of conditions

[33] In the Committee’s view, Mr HK “was not under any obligation to agree” with the purchasers’ lawyer that first, the sale agreement was unconditional, and secondly, the deposit could be released.

[34] The Committee considered that Mr HK ought to have consulted with Mr CN before the firm notified the agent that the conditions in the sale agreement had been satisfied; not eight months later in November 2016 after the developer’s lawyer requested that Mr CN agree to the purchase agreement being cancelled.7

(2) Supervision

[35] Having observed that Mr HK was recorded as Mr CN’s lawyer in the purchase agreement, the Committee stated that although Ms EH was “responsible for the day-to- day dealing” on the matter, Mr HK, as the firm’s director, had "particular supervisory obligations pursuant to [r] 11.3” of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules).

7 The Committee referred to a lawyer’s duty to consult with clients — Lawyers and Conveyancers (Lawyers: Conduct and Client Care) Rules 2008, r 7.1.

Application for review

[36] Mr HK, by his counsel, Mr SO, filed an application for review on 1 June 2018 in respect of the conduct decision. He sought a reversal of the Committee’s finding of unsatisfactory conduct against him.

(1) Sale Agreement

(a) Issue of title — error of fact

[37] Mr SO disagrees with the Committee’s finding that upon receipt of the sale agreement, which did not contain an issue of title condition, Mr HK ought to have advised Mr CN about [Mr CN’s] “predicament”.

[38] He submits that in finding Mr CN was, for that reason, “vulnerable”, the Committee had overlooked the issue of title condition in cl 5.5 of the purchase agreement referred to earlier, which he says had by then lapsed.

[39] It follows, he submits, that by 9 March 2016, when Mr CN signed the sale agreement, the purchase agreement was unconditional. Therefore, he says, Mr CN was not “vulnerable” because [Mr CN] “faced the normal and obvious risks faced by a vendor whose sale is dependent on the completion of a purchase”.

(b) Variation — insertion of issue of title condition

[40] At the hearing Mr HK acknowledged that Ms EH saw the proposed variation, which he says was prepared by the agent, before signature by Mr CN.

(c) Satisfaction of conditions — r 7.1

[41] Mr SO submits that Ms EH’s notification to the agent that the sale agreement conditions, which were for the purchasers’ benefit, had been satisfied “was a routine matter”. He contends the firm had “implied authority given by Mr CN under the retainer” to give that notice.

[42] For those reasons, he submits there was no need for Ms EH to consult with Mr CN.

• (2) Supervision
  

[43] Mr SO submits it was wrong for the Committee to hold Mr HK “to be vicariously liable” for Ms EH’s conduct on the matter. He says the Committee ought to have sought information from Ms EH before making that finding.

[44] He submits that Mr HK was “careful and diligent in his supervision of Ms EH”. He says it does not necessarily follow that “compliance with a principal’s obligation to supervise an employed solicitor” will “eliminate the possibility of errors”.

[45] He says there was no evidence produced to the Committee about Mr HK’s “supervisory practices”. He says the Act requires that each lawyer is responsible for his or her own conduct.

Response

[46] Mr CN filed his response to Mr HK’s application for review of the conduct decision with this Office on 25 June 2018. He asks that the Committee’s decision be confirmed.

(1) Sale agreement

(a) Issue of title

[47] Mr CN agrees with the Committee’s finding that because the sale agreement did not provide an issue of title condition for his benefit, upon receipt of the sale agreement Mr HK ought to have informed him “about [his] predicament”.

[48] He disagrees with Mr SO’s submission that by 9 March 2016, when [Mr CN] signed the sale agreement, the issue of title condition in the purchase agreement had been satisfied. He refers to cl 5.3 of the purchase agreement which states that the issue of title condition is not fulfilled “until notice of fulfilment has been served by one party on the other party”.

(b) Variation — insertion of issue of title condition

[49] Mr CN says Ms EH advised him by email on 18 March 2016 of the cost of preparation of the variation.

[50] He says contrary to Mr HK’s position, Ms EH drafted and sent the variation to him but did not “provid[e] any advice in relation to [Mr CN’s] potential liability if the [issue of title] condition under [cl] 19 of the [sale agreement] was waived by the purchaser” before title issued.

(c) Satisfaction of conditions

[51] He says that on 5 April 2016, Ms EH advised him by email that the condition in the purchase agreement would be satisfied “when the developer fulfilled” the issue of

title condition, in respect of which she had asked developer’s lawyer for a progress report.

[52] He agrees with the Committee that Ms EH ought to have consulted him before notifying the agent that the conditions of the sale agreement had been satisfied.

[53] He rejects Mr SO’s submission that if Ms EH had advised him “to accept” that the sale agreement “was unconditional” he would have agreed. He says the financial loss he suffered could have been avoided if Ms EH or the firm had “provided reasonable care during the process of the sale”. He says the “mistakes made by Ms EH drafting the sunset clause” for the purchasers’ “sole benefit” in the purchase agreement led to that loss.

[54] He says after the sale agreement was cancelled the firm paid the balance of the deposit, held in the firm’s trust account as stakeholder, to the purchasers instead of to him.

(2) Supervision

[55] Mr CN says he had placed himself in the firm’s hands only “to suffer unnecessary financial loss”.

Review

[56] The review progressed by way of an applicant only hearing in Auckland on 2 May 2019 attended by Mr HK who was represented by Mr SO. Although invited to attend, Mr CN did not exercise his right to do so.

Nature and scope of review

[57] The nature and scope of a review have been discussed by the High Court, which said of the process of review under the Act:8

... 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

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

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.

[58] More recently, the High Court has described a review by this Office in the following way:9

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.

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

Issues

[60] The issues I have identified for consideration on this review are:

• (a) Was the firm instructed by Mr CN to act on the preparation of the sale agreement? If not, upon receipt of the sale agreement by Mr HK, what advice, if any, did he provide to Mr CN?
  
• (b) Was the firm instructed by Mr CN to act on the preparation of the variation of the sale agreement? If so, who in the firm undertook that legal work? What advice, if any, did Mr HK provide to Mr CN?
  

(c) What was the contractual effect of the variation for Mr CN?

• (d) Did that contractual position change after the purchasers’ lawyer, and Ms EH, notified the agent that the conditions in the sale agreement (finance, issue of title) were satisfied?
  
• (e) Did Ms EH consult with Mr CN before giving notice to the agent that the sale agreement conditions were satisfied?
  
• (f) Was Ms EH competently supervised and managed by Mr HK?
  

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

Analysis

(1) Sale agreement — issue (a)

(a) Professional standards, rules

(i) Unsatisfactory conduct

[61] Should a determination be made that a lawyer’s conduct warrants a disciplinary response there are two findings that can be made. First, unsatisfactory conduct pursuant to s 12 of the Act, or secondly, misconduct pursuant to s 7.10

[62] Unsatisfactory conduct is defined in s 12 of the Act.11 When a lawyer is providing regulated services then ss 12(a), (b) and (d) apply.12 If not, then s 12(c) may apply.

[63] Section 12(a) 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”. Section 12(b) concerns:

conduct that would be regarded by lawyers of good standing as being unacceptable, including –

(i) conduct unbecoming a lawyer or an incorporated law firm; or
(ii) unprofessional conduct; or...

[64] Under s 12(c), unsatisfactory conduct means:

conduct consisting of a contravention of [the] Act, or of any regulations or practice rules made under [the] Act that apply to the lawyer or incorporated law firm, or of any other Act relating to the provision of regulated services.

(ii) Act competently

[65] When a lawyer is providing “regulated services” to a client r 3 requires that “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”.13

10 A misconduct finding can only be made by the New Zealand Lawyers and Conveyancers Disciplinary Tribunal.

11 See Duncan Webb “Unsatisfactory Conduct” (2008) 717 Lawtalk 18.

12 Lawyers and Conveyancers Act 2006, s 6 defines “regulated services”, and the interrelated terms “legal services”, “legal work”, and “conveyancing services”. s12(d) – unsatisfactory conduct

– compliance with a condition or restriction to a practising certificate.

13 Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2006, r 1.2: “retainer” — “an agreement under which a lawyer undertakes to provide or does provide legal services to a client” is described as the recipient of legal services from a lawyer. The term “client”, although not defined, is included in the definition of the term “retainer” in r 1.2.

(iii) Keep informed, consult

[66] Relatedly, a lawyer must 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.14

(b) Receipt of sale agreement — issue of title

[67] Mr CN did not ask Mr HK for advice before [Mr CN] signed the sale agreement in March 2016.

[68] Nevertheless, upon receipt of the sale agreement on or shortly after 9 March 2016, Mr HK, who was already acting for Mr CN on the purchase, would have been aware, or ought to have been aware that the issue of title condition in the purchase agreement had already lapsed leaving only the s 225 condition.

[69] The duty to be competent, expressed in s 12(a) and r 3 referred to above, 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”.15

[70] 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”.16

[71] 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.17

[72] The New Zealand Law Society Property Transactions and E-dealing Practice Guidelines of the Property Law Section (PLS Guidelines) informs lawyers that if a lawyer receives an agreement for sale and purchase after signature by a client vendor, then the lawyer should still “do all of the things [that the lawyer] should have done” if instructed

14 Rules 7 and 7.1.

15 Duncan Webb, Kathryn Dalziel and Kerry Cook Ethics, Professional Responsibility and the Lawyer (3rd ed, LexisNexis, Wellington 2016) at [11.1].

16 At [11.3].

17 At [11.3].

“before the agreement was signed”.18 That includes explaining the client’s obligations and rights under the agreement. This may extend to advising what conditions would have been desirable for the client’s benefit.

[73] To that end, having read the sale agreement Mr HK would have noticed that, save for the s 225 condition, the only other condition was a finance condition for the purchasers’ benefit.19 There was no issue of title condition for Mr CN’s benefit.

[74] Although Mr HK did not act for Mr CN on the preparation of the sale agreement, it was Mr HK’s professional duty to provide advice to Mr CN including (a) the effect of the conditions under both agreements, and (b) what [Mr CN’s] contractual obligations and rights were under both agreements, and how they might apply.

[75] Receipt by Mr HK of the sale agreement also presented Mr HK with an opportunity for him to review the purchase agreement. In particular, the issue of title condition, which it appears had lapsed the previous month on 22 February 2016.

[76] From my analysis of both the written information submitted by the parties, and Mr SO’s and Mr HK’s submissions at the hearing, I consider it is more probable than not that upon receipt of the sale agreement Mr HK did not consult with and provide Mr CN with an explanation of his contractual obligations under both agreements.20 No evidence has been produced that Mr HK did this before, as he acknowledges, he delegated the sale matter to Ms EH.

[77] The conclusion I have reached is that by not doing so Mr HK, in contravention of r 3, failed to act competently, consistent with the terms of his retainer by Mr CN, and the duty to take reasonable care which constitutes unsatisfactory conduct under s 12(c) of the Act. I also consider that Mr HK’s conduct also fell short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer, which constitutes unsatisfactory conduct under s 12(a) of the Act.

18 New Zealand Law Society “Property Transactions and E-dealing Practice Guidelines” (April 2015) <www.lawsociety.org.nz> at [2.30].

19 Sale agreement, General Terms of Sale, cl 9.7.

20 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’’.

(2) Variation — issues (b), (c)

(a) Parties positions

[78] Mr CN claims that Ms EH drafted the variation to the sale agreement, but before he signed it, did not advise him of the effect of the issue of title condition inserted for the purchasers’ benefit. In particular, he says Ms EH did not explain to him what his exposure to the purchasers was likely to be if the purchasers waived that condition, and the developer did not obtain title to the property thereby preventing him from completing the sale.

[79] Mr HK says the variation, which contained an issue of title condition for the purchasers’ benefit, was drafted by the agent. He acknowledges that the variation did not contain a corresponding condition for Mr CN’s benefit. He also acknowledges Ms EH ought to have, but did not, refer the proposed variation to him for his comment before signature by Mr CN.

(b) Chronology

[80] On 17 March 2016, Mr CN asked Ms EH about the issue of title condition contained in the purchase agreement.21 In her response that day, Ms EH said that condition expired “two years after the date of the [purchase] agreement”, namely 8 February 2016. That evening the agent, in apparent reference to the issue of title condition requested by the purchasers for the sale agreement, informed Ms EH and Mr CN that the “sunset clause end[s] 8/2/2017”.

[81] The following day Ms EH informed the agent and Mr CN that the firm charged “$100 + GST for drafting clauses into the sale ... agreement”. She asked Mr CN to “confirm”, and she would then “draft the necessary clauses”. She said these costs were “separate from the purchase”.

[82] On 21 March 2016, Mr CN again mentioned the “sunset clause” to Ms EH.22 The next day Ms EH forwarded the variation, which she described as “further terms of sale”, to Mr CN. She asked him to let her know if he “require[d] any changes. Otherwise” she invited him to “sign at the side of each clause and return to” her to “forward to the purchasers’ solicitor for the purchaser to sign”.

21 All communications were by email. Mr CN’s emails were written partly in Chinese, partly in English. In his 17 March 2016 email, Mr CN also asked Ms EH about the Master Builders Guarantee clause.

22 Mr CN also referred to "90 days maintenance".

(c) Discussion

[83] The purchasers requested inclusion of an issue of title condition in the sale agreement which would allow them to cancel the sale agreement if title to the property did not issue by 8 February 2017.

[84] Just as it was Mr HK’s duty to explain to Mr CN what Mr CN’s contractual obligations and rights were under the sale agreement and how that would affect his obligations and rights under the purchase agreement, it was Ms EH’s duty to advise Mr CN what effect the proposed condition would have on those obligations and rights.

[85] Although Mr CN holds Mr HK responsible for not having advised [Mr CN] about the proposed variation, Mr HK maintains that Ms EH, to whom he had delegated that matter, did not refer the proposed variation to him for his comment and explanation.

[86] For that reason, I address this aspect of Mr CN’s complaint in relation to Mr HK’s duty to competently supervise and manage Ms EH’s legal work.

(3) Satisfaction of conditions — issues (d), (e)

(a) Parties’ positions

[87] Mr CN claims that having been informed by the purchasers’ lawyer that the conditions of the sale agreement had been satisfied, Ms EH, without consulting him, notified the agent, and authorised the agent to release the deposit.

[88] Mr HK regards Ms EH’s notice to the agent as “a routine matter” which “confirm[ed] the fact” that the conditions had been satisfied.

(b) Chronology

[89] In response to Mr CN’s query on 5 April 2016, Ms EH stated that the “unconditional date” in the purchase agreement “is when the developer fulfilled the conditions of issuing the certificate of title”. She said she had “asked the developer’s lawyers” when that was likely and was “waiting for reply”.23

[90] Six days later on 11 April 2016, the purchasers’ lawyer informed Ms EH that the purchasers had satisfied the finance condition and “[t]herefore the agreement is now unconditional”.

23 With the exception of the purchasers' lawyer’s 11 April 2016 fax, all of the communications with by email.

[91] On 13 April 2016 the agent sent Mr HK an advice notice for him to “sign and send back unconditional confirmation for our records”. Mr HK forwarded the agent’s request to Ms EH without comment or explanation.

[92] Ms EH completed the agent’s notice that day. She stated that the sale agreement “is unconditional”. She “authorised” the agent “to disburse any deposit held”. The purchasers’ lawyer sent a similar notice to the agent that day.

(c) Discussion

[93] The purchasers’ lawyer’s 11 April 2016 fax to Ms EH that the finance condition had been satisfied made no reference to the issue of title condition, inserted by the variation for the purchasers’ benefit, to be satisfied by 8 February 2017.

[94] Upon receipt of that communication, as recommended by the PLS Guidelines, it was Ms EH’s duty to consult with and explain to Mr CN that (a) the purchasers’ lawyer, whilst stating that the finance condition had been satisfied, had omitted reference to the issue of title condition which may suggest that condition had been waived, and (b) how that would affect [Mr CN’s] contractual obligations and rights.24

[95] Ms EH had informed Mr CN just over a week earlier that she had requested an update on the issue of title from the developer’s lawyer. It is to be expected that she would tell Mr CN she was still awaiting a response. Also, remind him that although the issue of title date under the sale agreement was 8 February 2017, the purchasers, without knowing when the issue of title was likely, appeared to have waived that condition.

[96] It could also be expected that Ms EH would (a) follow-up her request to the developer’s lawyer for a progress report, (b) ask the purchasers’ lawyer whether the issue of title condition had been overlooked, and (c) again report to and advise Mr CN what course(s) of action might be open to him in such circumstances.

[97] Another opportunity for Mr HK to review this matter presented itself two days later when he received the agent’s 13 April 2016 request to give notice whether the sale agreement conditions had been satisfied. However, as he did when he received the sale agreement, Mr HK passed the agent’s request to Ms EH without comment.

24 New Zealand Law Society, above n 18 at [2.34] — recommendation that lawyers “keep [their] client and ... agent informed” and provide them with “regular progress reports” concerning satisfaction of any conditions.

[98] I also address this issue next in relation to Mr HK’s duty to competently supervise and manage Ms EH’s legal work.

(4) Supervision — issue (f)

(a) Professional rules

[99] Rule 11.3 requires that a lawyer:

in practice on his or her own account must ensure that the conduct of the practice (including separate places of business) and the conduct of employees is at all times competently supervised and managed by a lawyer who is qualified to practise on his or her own account.

(b) Parties’ positions

[100] Mr CN holds Mr HK responsible for the loss he suffered when the firm acted for [Mr CN] on the sale of the property. His complaint, although directed at Mr HK, concerns how the firm acted for [Mr CN] on the sale of the property.

[101] Mr HK says he was “careful and diligent in his supervision of Ms EH”. He says the Committee was wrong to find he was “vicariously liable” for Ms EH’s conduct when she acted for Mr CN. He says the Committee reached that position without evidence of his “supervisory practices”, and without hearing from Ms EH.

(c) Discussion

[102] Mr HK acknowledges that upon receipt by him of the purchase agreement, and the signed variation agreement, he “delegated [the] responsibility” of acting for Mr CN on those matters to Ms EH.

[103] He says that because Ms EH had left the firm, he did not know on whose instructions the variation had been drafted and by whom, but “was not personally involved in the drafting”.

[104] Similarly, he says he does not know what advice, if any, Ms EH provided to Mr CN about the sale agreement, the variation, or the satisfaction of the conditions.

[105] A lawyer’s duty under r 11.3 to supervise and manage employees’ work applies to both non-legal, and qualified employees.25 This duty has been described as

25 Webb, Dalziel and Cook, above n 15 at [4.3.6].

“represent(ing) a more basic requirement” whereby “the practice and its employees must always be competently supervised by a lawyer qualified to practise on own account”.26

[106] The duty is a positive duty requiring:27

at the very least, regular meetings to discuss progress to satisfy the supervising lawyer that there are indeed no issues; or, if there are, to recognise them and address them.

[107] Partners or principals of firms:28

are also required to supervise the conduct of their junior practitioner employees. If a junior employee is guilty of misconduct through inexperience and insufficient supervision, the principal may be held partly responsible.

[108] An illustration of a contravention of the rule considered by this Office, relevant to this review, concerned a partner in a firm held not to have provided supervision of an employed lawyer, who had three years post-admission experience, in leaky building litigation. The findings included that the employed lawyer would not “be sufficiently experienced to recognise some of the problems that may arise in the conduct of [the] proceedings” in such “a specialist area of law”.29

[109] Mr HK says he and his partner, Mr AN, are responsible for the supervision and management of legal work carried out by the firm’s employees. He says this takes the form of “random checks” of files being worked on by employees, and of any “specific issues” brought to their attention. He says he and Mr AN can be “approached” by employees at any time.

[110] He says the firm provides a process sheet as a guide to assist new employees who carry out legal work. He says their work is reviewed “every two days”.

[111] In response to my request at the hearing, Mr SO explains that before commencing work with the firm in February 2016 as a law clerk, Ms EH had approximately two years part-time legal experience in two law firms as an undergraduate, and several months following her university studies.30

26 Canterbury Westland Standards Committee v Simes [2012] NZLCDT 4 at [60].

27 DV v LS and HS LCRO 91/2017 (19 December 2018) at [188] and [199].

28 Webb, Dalziel and Cook, above n 15 at [4.3.6].

29 DV v LS and HS, above n 27 at [133], [166] and [172].

30 Ms EH’s emails during (a) March–April 2016 described her as a “Law Clerk”, (b) November 2016, when both agreements were cancelled, described her as a “Solicitor”.

[112] Although Mr HK says Ms EH’s undergraduate legal experience included “conveyancing transactions”, at such an early stage of her career, it is likely that would have been largely in a supportive role. I say this because conveyancing transactions, particularly those concerning sales and purchases of property, can require a varied number of attendances over a relatively short period not always suited to a part-time role.31

[113] While not intended as a criticism of Ms EH, whose property experience at the relevant time would have been limited, her response to Mr CN’s question on 17 March 2016 about the issue of title condition in the purchase agreement, which had expired some three weeks earlier on 22 February 2016, suggests she did not understand the effect of that condition as summarised by Mr SO in his submission.

[114] Mr SO refers to a decision of the Lawyers and Conveyancers Disciplinary Tribunal in which the observation was made that “[t]he actual supervision required in any situation will depend on the facts and circumstances applicable”.32

[115] In my view, Ms EH’s relative inexperience dictated close supervision and management of her work. Her omission or failure to refer the proposed variation and the satisfaction of conditions matters to Mr HK for his guidance, suggests that either Mr HK was not monitoring her work, or she did not appreciate that she required his guidance, or both.

[116] I expect that Mr HK would have produced, if they existed, any file notes, memoranda, or internal emails to Ms EH recording his explanation or instruction to her. I infer from the absence of any such written guidance that his supervision of her work on Mr CN’s matter was negligible at best.

[117] Similarly, Mr HK has not produced evidence of guidance provided to Ms EH in November 2016 when she acted on the cancellation of both agreements. Mr AN did not become involved until after the agreements had been cancelled when the purchasers’ lawyer demanded that Mr CN repay the balance of the deposit otherwise summary judgment proceedings would be issued.

[118] In summary, from the information produced for this hearing, I consider it more probable than not that when Mr HK delegated Mr CN’s sale matter to Ms EH, she was left to progress that matter as best she could without adequate supervision, explanation and instruction.

31 For example, initial enquiries and reporting, satisfaction of conditions, any variations and preparation for settlement.

32 Canterbury Westland Standards Committee v Simes, above n 26 at [66].

[119] The conclusion I have reached is that in contravention of r 11.3, Mr HK failed in his duty to competently supervise and manage Ms EH’s legal work on Mr CN’s matters delegated to her by Mr HK.

Decision

[120] For the above reasons, pursuant to s 211(1)(a) of the Lawyers and Conveyancers Act 2006, the decision of the Committee which made a finding of unsatisfactory conduct against Mr HK is confirmed but modified as follows:

• (a) By not providing advice to Mr CN concerning the sale agreement before he delegated that matter to Ms EH, Mr HK contravened r 3, which constitutes unsatisfactory conduct under s 12(c). Mr HK’s conduct in not providing that advice, also fell short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer, which constitutes unsatisfactory conduct under s 12(a).
  
• (b) By not providing adequate explanation and instruction to Ms EH when he delegated the sale matter to her, and by not providing competent supervision and management of her legal work on that matter, including the variation of the sale agreement, and the satisfaction of the conditions in the sale agreement, Mr HK contravened r 11.3, which constitutes unsatisfactory conduct under s 12(c).
  

Orders

(a) Committee’s penalty decision

[123] Having called for and received submissions from the parties concerning orders, the Committee, in its later determination dated 20 September 2018 ordered that Mr HK be censured, pay costs of $2,000, and pay compensation of $10,000 to Mr CN (the orders decision).

(b) Mr HK’s application for review (penalty decision)

[124] On 1 November 2018, Mr HK filed an application for review in respect of the orders decision. He submitted that if the Committee’s finding of unsatisfactory conduct was not reversed then (a) the censure order was inappropriate, and (b) there were grounds for reduction of the compensation ordered.33

33 Both of Mr HK's applications for review were submitted by his counsel, Mr SO

(c) Orders — purpose

[125] Where a finding of unsatisfactory conduct is made, s 156 of the Act includes among the orders that a Standards Committee can make, orders in the nature of penalty. In this regard, the functions of penalty in the disciplinary context have been described by the Court of Appeal as (a) punishing the practitioner, (b) a deterrent to other practitioners, and (c) to reflect the public’s and the profession’s condemnation or opprobrium of the practitioner’s conduct.34

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

(d) Fine

[127] A fine is one of the orders a Standards Committee, or this Office on review, can make. The maximum fine available is $15,000.35 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, 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.36

[128] Although the Committee did not order a fine, I consider a fine is warranted, and that in these circumstances $3,000 is appropriate.

(e) Censure

[129] An order censuring or reprimanding a lawyer can also be made.37 The Court of Appeal has described “censure”, and “reprimand” as “synonymous”. Both are “likely to be of particular significance” in the context of the Act.38 This is:39

because it will be taken into account in the event of a further complaint against the practitioner in respect of his or her ongoing conduct ... and will inevitably be taken seriously.

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

35 Lawyers and Conveyancers Act 2006, s 156(1((i).

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

37 Lawyers and Conveyancers Act, s 156(1)(b).

38 New Zealand Law Society v B [2013] NZCA 156, [2013] NZAR 970 at [39].

39 At [39].

[130] In his application for review, Mr HK submits that considering no evidence was placed before the Committee “to suggest that [his] supervisory practices were in any way deficient”, a censure is not warranted.

[131] However, in view of my finding that Mr HK did not competently supervise and manage Ms EH’s legal work, I consider that the Committee’s censure should stand.

(f) Compensation

[132] Mr CN seeks compensation of $15,000.

[133] Section 156(1)(d) of the Act provides:40

Where it appears to the Standards Committee that any person has suffered loss by reason of any act or omission of a practitioner ... [it may] order the practitioner

... to pay to that person such sum by way of compensation as is specified in the order, being a sum not exceeding [$25,000].

[134] The section provides that the person who seeks compensation must have “suffered loss by reason of any act or omission of [the lawyer]”. In other words, there must be a clear “causative link” between Mr HK’s conduct and the loss claimed by Mr CN.

[135] The Committee considered that Mr HK’s failure (a) upon his receipt of the sale agreement to advise Mr CN of his potential liability to the purchasers if the developer did not provide title to the property, and (b) to obtain Mr CN’s instructions before notifying the agent that the conditions of the sale agreement had been satisfied “deprived Mr CN of the opportunity to prevent or limit his loss”.

[136] In ordering Mr HK to pay compensation of $10,000, the Committee took into account that Mr CN had “contributed significantly to his own loss”.

[137] In my view, there was not a clear causal link between Mr HK’s conduct and the loss claimed by Mr CN. This is because at the relevant times, namely, when Mr HK received the sale agreement, and when Ms EH acted on the variation, and the satisfaction of conditions, it was not known whether or not the developer would obtain title to the property. Also, assuming each agreement remained subject to a s 225 condition, then once it became known that the developer could not complete the sale to Mr CN, it may have been possible to negotiate cancellation of both agreements without loss to Mr CN.

40 Lawyers and Conveyancers Act (Lawyers: Complaints Service and Standards Committees) Regulations 2008, reg 32 — maximum compensation.

[138] This serves to illustrate the difficulty is determining claims for compensation in such matters which are best determined by the Courts in respect of any claim in negligence brought by a client against his or her lawyer where witnesses can be tested by cross examination.

(g) Orders

[139] Pursuant to s 211(1)(a) of the Lawyers and Conveyancers Act 2006, the decision of the Standards Committee is:

• (a) confirmed as to the Committee’s order that Mr HK be censured. (s 156(1)(b));
  
• (b) confirmed as to the Committee’s order that Mr HK pay to the New Zealand Law Society the sum of $2,000 by way of costs within 30 days of the date of this decision. (s 156(1)(n)); and
  
• (c) reversed as to the Committee’s order that Mr HK pay the sum of $10,000 to Mr CN by way of compensation. (s 156(1)(d)
  

[140] Pursuant to s 211(1)(a) of the Act, Mr HK is ordered to pay a fine to the New Zealand Law Society of $3,000 within 30 days of the date of this decision: section 156(1)(i).

Costs

[141] Where an adverse finding is made, costs will be awarded in accordance with the Costs Orders Guidelines of this Office. It follows that pursuant to s 210(1) of the Act, Mr HK 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.

Anonymised publication

[142] 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 22nd day of May 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 HK, as the Applicant Mr CN as the Respondent

Mr SO as the Representative for the Applicant Mr AN as a related person

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