New Zealand Law Society - No independent advice and excessive fees — $15,000 fine
Published on 5 March 2018
A lawyer has been censured and fined $15,000 for unsatisfactory conduct that arose while acting for a client in relation to a company liquidation.
The lawyer, Snodgrass, acted for Mr A and companies of which he was a director.
When Mr A became aware the companies were facing some fairly serious problems, he appointed a liquidator.
In the course of the liquidator’s inquiries, Mr A faced questions arising from his obligations as a director. Allegations of possible breaches of director’s duties and serious fraud were made. There was a real risk of the bankruptcy of Mr A. The lawyer who Mr A initially engaged ceased to act and Snodgrass (a family friend) then offered to assist.
After Snodgrass had become involved, it became apparent that Mr A’s personal liabilities could be substantial. This could present a significant practical problem in terms of Snodgrass being paid, as he would become one of many unsecured creditors without any special priority. Snodgrass and Mr A discussed the situation and agreed the problem could be resolved by Mr A’s parents paying Snodgrass’ fees.
Snodgrass arranged for a second letter of engagement to be prepared, addressed to Mr A’s parents. Mr A collected the letter of engagement from Snodgrass, saying he had explained the circumstances to his parents and they understood and accepted the position.
Snodgrass stated that he suggested he should meet with the parents to explain the situation to them, but that he acquiesced to Mr A’s view that that was unnecessary.
A copy of the second letter of engagement was then returned to Snodgrass’ offices, apparently having been signed by Mr A’s parents. Snodgrass then continued acting for Mr A.
Over a six-month period, Snodgrass issued invoices for his fees, which ultimately totalled $303,394 ($266,445 plus GST and disbursements). Those invoices were addressed to Mr A’s parents but emailed to Mr A, and apart from one visit Snodgrass made to their home, Snodgrass had no direct contact with the parents.
Mr A’s brother complained to the Law Society on behalf of his parents and Mr A about Snodgrass’ conduct and fees. In the course of the first complaints process, the parties attended mediation and reached an agreement that Snodgrass would cancel his unpaid invoices and release a lien he had imposed over the files.
A lawyers standards committee then began an own motion inquiry into Snodgrass’ conduct, but not the fees complaints.
The committee determined unsatisfactory conduct by Snodgrass. The committee found he contravened rule 11.2 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (RCCC) and failed to ensure Mr A’s parents received independent advice before accepting liability for Mr A’s legal fees.
The committee fined Snodgrass $1,500, ordered him to pay $2,000 costs and directed publication of the facts.
Both parties applied to the Legal Complaints Review Officer (LCRO) for a review of this decision.
The LCRO overturned the unsatisfactory conduct finding and referred the whole complaint, including the fees complaint, back to the committee with a suggestion that the committee might be assisted by an investigator. Directions were given to commence a fresh investigation and appoint a costs assessor.
The committee appointed an investigator and a costs assessor.
The committee determined that there had been unsatisfactory conduct on Snodgrass’ part. It considered his conduct was high-end unsatisfactory conduct, and made six separate findings.
The areas of concern identified by the committee included inadequacies in the letter of engagement particularly as to the description of the services Snodgrass would provide, and who he would provide the services to. The committee noted that this was “a situation of a lawyer acting for elderly parents who were agreeing to advance significant funds to pay their son’s legal fees”. The committee found it difficult to see how it had not been “glaringly obvious” to Snodgrass that “advice as to the provision of such financial assistance would be required”. The committee concluded that Snodgrass’ failings in that regard and his failure to understand the differing interests between Mr A and his parents amounted to unsatisfactory conduct.
The committee considered Snodgrass should have advised Mr A’s parents to seek independent legal advice, and consider whether he should properly continue to act if they declined to do so, before he agreed to act. It concluded his failure to do so amounted to unsatisfactory conduct.
The committee also considered there had been a “very serious breach” of the rules relating to conflicting duties, amounting to unsatisfactory conduct.
The committee also considered Snodgrass’ failures in communication with Mr A’s parents amounted to unsatisfactory conduct. The committee’s view was that Snodgrass should at least have had instructions directly from Mr A’s parents confirming he was to direct all communications with them to Mr A.
The committee also agreed with the costs assessor’s view that the fees should be reduced by $107,000, from $266,445 to 159,425 plus GST and disbursements.
The committee censured Snodgrass, fined him $15,000, required him to write off the balance of his fees up to $107,000, and pay $10,000 costs.
Snodgrass applied to the LCRO for a review of the committee’s decision.
The LCRO said the “three key areas of concern on review” were “[Snodgrass]’s professional responsibility regarding arrangements to secure his fees; his professional obligations around termination of the retainer; and whether his fees were fair and reasonable”.
The LCRO found there had been unsatisfactory conduct on Snodgrass’ part in that he:
The LCRO said it was not necessary in the circumstances to “attempt the difficult task of quantification” of the fees. Rather the LCRO asked the question, “Was it fair for [Snodgrass] to have charged fees of $266,445 when he should not have allowed [Mr A’s parents] pay [sic] until they had received independent legal advice and had not complied with rules 3.4 and 3.5?” The LCRO concluded it was not fair.
The LCRO found no good reason to interfere with the orders the committee made, including the order that fees be written off.
The LCRO also ordered Snodgrass to pay $1,600 costs.