S v New Zealand Law Society (Auckland Standards Committee Number 2)

[2012] NZHC 1559

SUPPRESSION ORDERS EXIST IN RELATION TO ASPECTS OF THIS JUDGMENT: SEE PARAGRAPH [29].

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-3044 [2012] NZHC 1559

UNDER the Lawyers and Conveyancers Act 2006

BETWEEN  S Appellant

ANDNEW ZEALAND LAW SOCIETY (AUCKLAND STANDARDS COMMITTEE NUMBER 2) Respondent

Hearing:         16 November 2011

Counsel:         J Katz QC for appellant

J McCartney SC and M Treleaven for respondent

Judgment:      1 June 2012

JUDGMENT OF WINKELMANN J

This judgment was delivered by me on   1 June 2012 at  5.00 pm pursuant to

Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Sorensen Law, Auckland Eugene St John, Auckland J Katz QC, Auckland

J McCartney SC, Auckland

S V NEW ZEALAND LAW SOCIETY (AUCKLAND STANDARDS COMMITTEE NUMBER 2) HC AK CIV-

2011-404-3044 [1 June 2012]

[1]      The appellant, S, faced three  alternative charges before the Lawyers and Conveyancers Disciplinary Tribunal (the Tribunal): misconduct; negligence or incompetence reflecting on fitness to practise or as to bring the profession into disrepute; and unsatisfactory conduct.  The charges related to the manner in which S had acted in the administration of a client’s estate.  The Tribunal found him guilty on the charge of misconduct.  S appeals that finding on the grounds that:

(i)        he had inadequate notice that he was charged with dishonest conduct;

(ii)the particular elements of dishonesty, deception, misleading and calculated conduct as found by the Tribunal were not put to him in cross-examination.

(iii)       the Tribunal failed to identify or apply the correct standard of proof

(iv)the Tribunal’s finding that he had been dishonest was not supported by  the  facts.    More  particularly,  the  Tribunal  failed  to  take  into account the inherent improbability that S, as a legal practitioner of some  25  years  standing,  was  more  likely than  not  to  have  acted honestly, even if misguidedly.

[2]      This is a general appeal1  and proceeds by way of re-hearing applying the principles articulated in Austin, Nichols v Stichting Lodestar.2

Factual background

[3]      I adopt the summary of facts set out in the Tribunal’s decision which is accepted as accurate.

[11]     … the testator, Ms Hilda Danielson, had made a number of bequests

in her will to some friends and family members.

[12]     Those bequests were,

1 Lawyers and Conveyancers Act 2006, s 253(3).

2      Austin, Nichols & Co Inc v Stichting Lodestar, [2007] NZSC 103, [2008] 2 NZLR 141.

(a)       $20,000 to her friend So’onalote Neru

(b)       $50,000 to her niece Dorothy Key

(c)       $20,000 to her sister Sophoronia Alofipo

(d)       $20,000 to her sister Vera Lui

(e)       $50,000 to her nephew Fred Purcell

(f)       $30,000 to her friends Asa & Mao Seumanu

(g)       $20,000 to her friend Fetalagia Lesa

[13]      The will providing these bequests,  which totalled $210,000, was signed by Ms Danielson on 28 February 2008.  It had been prepared by [S] after he took instructions from her, and he witnessed her signature on the will, together with his wife.

[14]      Ms Danielson died approximately 17 months later, in July 2009.  [S] confirmed that he considered she had testamentary capacity at the time the will was signed.

[15]     Probate of the will was granted by the High Court at Auckland on 7

August 2009.  The will appointed two of Ms Danielson’s brothers,

Frederick  Danielson  and  David  Danielson,  the  executors  and trustees.  It provided that after  payment of all her debts, expenses, and bequests, the residue of her estate was to be divided between those two brothers and a third brother, Oscar Danielson, in equal one third shares.

[16]      The estate had a value of approximately $278,000, and after debts and expenses were paid approximately $265,000 was available for distribution.  After payment of the bequests totalling $210,000 noted above, the residue available to be divided between Ms Danielson’s three  brothers  was  approximately  $55,500.     On  that  basis  the residual share for each brother was to be approximately $18,500.

[17]      The brothers were not happy with the provisions contained in the will.   In particular they expressed dissatisfaction with the bequests provided by the will to non-immediate family members and friends. They thought there had been some opportunism and inappropriate dissipation,  and  that  in  the  circumstances  of  this  estate  the  late Ms Danielson’s siblings should have been better provided for.   [S] recorded in his evidence that he was empathetic to their concerns.

[18]      Those provisions of the will causing dissatisfaction were made by Ms Danielson after consultation with and advice from [S] about her will  during  the  previous  year.    As  part  of  the  exercise  to  draft Ms Danielson’s will, [S] no doubt would have enquired into her circumstances and intentions regarding allocation of the estate.  He gave no evidence that he had counselled Ms Danielson against the provisions of her will now causing consternation in the family, so he appears to have had a change of heart about the appropriateness of

the provisions when confronted with those concerns by members of the family.

[19]      Once  the  value  of  the  estate  was  established,  the  executors  and trustees sought to have the estate distributed on what they considered to   be   a   more   equitable   basis.      They   decided   that   all   of Ms Danielson’s siblings should share equally in the estate residue established after paying costs and expenses, and after paying one of the bequests, an amount of $50,000 due to a niece, Dorothy Key.

[20]     That   scheme   of   distribution   required   that   specific   bequests Ms Danielson had made in her will should be ignored, disentitling legatees affected by not paying any of the bequests provided for them under the will.  The legatees due amounts under the will, who were   thereby   disentitled,   were:   So’onalote   Neru   (entitled   to

$20,000); Fred Purcell (entitled to $50,000); Asa & Mao Seumanu

(entitled to $30,000); and Fetalagia Lesa (entitled to $20,000).

[4]      There is also not much dispute about S’s role in carrying this scheme into effect.   In the affidavit he filed in response to the charges he said that all three brothers of Mrs Danielson expressed dissatisfaction with the terms of the will and the size of the bequests that were given to non-immediate family members and friends.  S said he was empathetic with their concerns but not knowing precisely the size of the estate at that time, asked for their patience until after probate and the estate size was determined.

[5]      After that had occurred, the brothers again expressed concern to him and sought to have the estate redistributed on what they considered was a more equitable basis.  Fred, one of the two executors, instructed S to make distributions contrary to the terms of the will.  Fred, in conjunction with his two brothers, worked out before a meeting with S, what should be paid to each of the legatees.   The amount settled upon reflected what that the brothers considered to be an appropriate or proper entitlement.

[6]      In his affidavit S described meeting with the three brothers in his office on 31

August 2009 as follows:3

At that meeting Fred had with him a pile of American size envelopes which he placed on the table before me and the other two brothers.  As the estate assets  were  largely  cash  in  hand  Fred  suggested  that  the  amount  the executors (together with the third brother Oscar) decided should be paid to

five of the eight legatees (the five being non-family) should be placed in cash in the envelopes and that he, Fred, together with David, would arrange to  pay  those  amounts  over  to  the  legatees  they  identified.    Two  other legatees, who are the deceased’s sisters, received the amounts as per the will together with an extra payment from the residuary estate.  The final legatee, Dorothy Key, was paid out in full by me on instructions from the executors, leaving the balance to be divided amongst the three brothers as residuary beneficiaries.  All three brothers and therefore both executors were in clear agreement with this proposal.  This I emphasize was their proposal and not one that originated from me.

After the payment to Dorothy Key the balance of the estate was distributed equally between the siblings of the deceased, namely Fred, David, Oscar and the sisters named as legatees each receiving a sum of $43,051.65.   David received  $800  more  to  be  paid  to  the  other  legatees  at  $200  each. Accordingly there was a redistribution of the estate with the payments being made to the siblings by telegraphic transfers by me on instructions from the executors.

[7]      S said that he reminded the executors that if they acted in this fashion it left some of the legatees out of pocket and the executors potentially vulnerable to a legal claim by those legatees.  He asked them if they were prepared to take that risk.  The two co-executors Fred and David, and the sibling Oscar, said that they were.

[8]      All three brothers instructed him to act in accordance with the wishes of the two executors and he did so.  The essence of his defence to the charges against him arising from this conduct was that he assumed he could act as instructed by them as he considered the executors to be his clients and their instructions to him were instructions  from  his  clients.    He then went  on  to  say that,  in  addition  to  that

explanation, his conduct was also governed in part by cultural considerations:4

… and in the context of what would happen in the cultural setting of the Danielson family and the much more ready willingness of Samoan families to arrange matters, including inheritances, in accordance with family dynamics and what senior family members consider appropriate.  Given that Fred  Danielson  was  an  executor  of  the  Will  and  the  Patriarch  of  the Danielson family, I succumbed to his (and the other brothers’) instructions.

[9]      The evidence was that S prepared a written authority for the executors to sign.  In it he recorded that token amounts of money ($200 each) were to be paid to disentitled legatees “as if it came from the family rather than the estate”.

[10]     In a letter he wrote to the Lawyers Complaints Service,5  S said that the executors had instructed him not to send copies of the will to the other beneficiaries even though he pointed out to them that the will was a public record once the probate was granted.  In his letter he said:

I felt that I could not send off wills to anyone else contrary to their instructions or face litigation myself.  I was not prepared to face Court action from the executors if I breached their instructions as well as the inevitable challenge to the will...

Tribunal’s decision

[11]     The Tribunal noted S’s explanation for his actions as follows – that he was acting in accordance with the instructions of his clients as executors and that at no time did he act dishonestly or with any intention to do anything other than act honourably and in accordance with what he genuinely believed to be proper and correct procedures and conduct.   The Tribunal found that explanation inconsistent with the established facts which showed that S was well aware that the scheme proposed  was  not  lawful  and  that  he was,  by his  actions,  deliberately assisting implementation  of  the  scheme.    In  particular  the  Tribunal  noted  the  following matters:

1.S was aware at the time that the scheme for alternative distribution breached the terms of the will, and advised the executors and trustees that the legatees who were disentitled to their bequests under this scheme would have a right of action against the executors and trustees, and action could follow if any legatees found out.

2.The executors and trustees said that they were prepared to run the risk.  That concern about risk highlights the importance of another part of the scheme – keeping the matter from becoming known to the disentitled legatees, something with which S assisted the executors and trustees.  In particular, at the request of the executors and trustees, he did not communicate with the entitled legatees to advise them regarding their respective interests under the

will.

5      Dated 26 November 2009.

3.S’s claim that he was not any part of the deception to ensure the legatees did not find out cannot stand in light of these actions and the authority he wrote to the trustees and executors to sign, authorising his actions and summarising the scheme. The Tribunal said:6

He was well aware that deception was involved, and also referred at one point, in the context of the risk of legal action if the disentitled legatees discovered the will’s provisions had not been followed, to the position if the “beneficiaries under the will suspected anything

…. ”.

4.S provided the extra funds of $800 from the estate’s trust account to the brother  David  to  facilitate  the  payments  of  $200  each  to  four  of  the disentitled legatees, knowing the misleading purpose of the funds.  Moreover his records show that he paid out the estate funds following implementation of the scheme.

5.Accepting  instructions  not  to  communicate  with  the  beneficiaries  again confirmed to S that there was a scheme being put in place about which it was desirable the legatees did not become aware.  The Tribunal noted the element of subterfuge involved in that.

6.        The Tribunal concluded:7

In our view it is not open to [S] to claim, now that this matter has come  to  light,  that  he  did  not  appreciate  the  true  nature  of  the scheme, and that he felt obliged to follow the instructions of the executors and trustees.  He has lent his hand to a scheme that was clearly unlawful.   He was of the view that the scheme was not something which should have been undertaken, but he co-operated and helped the proponents of the scheme maintain their deception and  subterfuge  regarding  those  entitled  to  the  funds  diverted  to family members.

The  actions  the  executors  and  trustees  took  constitute  serious breaches of trust from which they benefited personally.   There is calculation in the execution of the scheme, with concern about risk of discovery, a desire to ensure no indication of entitlement to the legatees concerned, and token payments ex the estate misleadingly being characterised as gifts from the family.

6 At [34].

7      At [36]-[39].

We  consider  it  implausible,  against  the  background  in  evidence before us, that [S] did not understood the full implications of the proposal, and the need for him to co-operate in its implementation, which he agreed to do.  Suggestions were made in submissions of a need  for  any  assessment  of  [S’s]  conduct  to  recognise  cultural context, the fact that he succumbed to powerful personalities, and his attempt  to  avoid  the  undue  cost  to  a  small  estate  of  seeking directions from court.   In our view none of these matters mitigate [S’s] culpability.

We consider that [S’s] knowledge of and involvement in the scheme, with  its  elements  of  deception  and  serious  issues  of  honesty involving a  not insubstantial amount of money,  must result in a finding of misconduct against [S].

Grounds of appeal

First  and second  grounds  of  appeal: That  S did  not  have adequate notice that dishonesty was alleged against him.

[12]     The first ground of appeal must fail.   It is apparent from the nature of the charges that S faced an allegation of dishonesty.  Dishonesty was a particular of the each  of  the  charges  brought  against  him,8   including  the  charge  that  was  found proved. The first charge against him reads as follows:

1.Misconduct in that between August 2009 and November 2009 in providing regulated services the conduct of the lawyer was conduct that would reasonably be regarded by lawyers of good standing as disgraceful or dishonourable in that:-

(a)       The lawyer accepted instruction to make distributions from the estate of Hilda Danielson, late of Auckland, deceased, (“the deceased”) knowing the same to be contrary to the provision of the deceased’s will; and/or

(b)       The lawyer made the said distributions without taking any steps to bring to the attention of the beneficiaries their entitlement under the deceased’s will and/or;

(c)       The lawyer made the distributions within the period of six months from grant of probate without taking any steps to bring  to  the  attention  of  the  beneficiaries  and/or  other possible claimants the intention to distribute and giving the

8Although the particularised conduct for the second and third charges included the allegation that  S  knowingly facilitated  the  dishonest  scheme  of  the  executor  and  trustees  of  the deceased estate, I assume that the allegation of negligence and unsatisfactory conduct was added in the alternative in case the Tribunal was not satisfied that assisting in the scheme amounted to dishonourable and disgraceful conduct.

beneficiaries/claimants opportunity to make any application and/or;

(d)       The  lawyer  made  the  distributions  without  first  seeking advice as to his duties and/or applying to the court for directions and/or;

(e)       The lawyer made the distributions, , rather than retaining the monies in his trust account pending agreement from the beneficiaries and/or directions from the court and/or

(f)       By  so  acting  the  practitioner  knowingly  facilitated  the dishonest  scheme  of  the  executor  and  trustees  of  the deceased estate.

[13]     In S’s formal response to the charges he denied knowingly facilitating the

dishonest scheme of the executors and trustees.

[14]     The second ground must also fail.  The requirement of s 92 of the Evidence

Act is that :

... a party must cross-examine a witness on significant matters that are relevant and in issue and that contradict the evidence of the witness, if the witness could reasonably be expected to be in a position to give admissible evidence on those matters.

[15]     The purpose of the requirement is grounded in fairness.9    Given S’s account of  his  own  actions  and  involvement  in  what  had  occurred,  the  only  issue  that remained in dispute by the time of the hearing was whether S had knowingly assisted a dishonest scheme.  He was given ample opportunity to answer the allegation that he had knowingly assisted in a dishonest scheme.  The reason he acted as he did, consistent with his defence, was the focus of much of his evidence.  Each aspect of S’s conduct that the Standards Committee relied upon as establishing dishonest was explored through cross examination.  It was put to S that he deliberately assisted in a breach of trust, that he deliberately prevented the beneficiaries from finding out their entitlements, and that he preferred the interests of the brothers over the interests of the named beneficiaries.  It is true that counsel for the Standards Committee did not put to S that he had acted dishonestly, but to do so would have been superfluous

when that was the very essence of the allegation against him.

9      R v Soutar [2009] NZCA 227; R v Gutierrez [1997] 1 NZLR 192 at 199.

Third and Fourth Ground of Appeal: The Tribunal failed to identify or apply the correct standard of proof and the finding of the Tribunal that S had been dishonest was not supported by the facts.

[16]     S argues that, in light of the decision in Z v Dental Complaints Assessment Committee10  the Tribunal was obliged to find the allegations of dishonesty proved only if  satisfied  that  there was  truly cogent  or  compelling evidence that  S  had connived in and acted with the executors in a patently dishonest scheme.   Where making such an assessment the Tribunal should have weighed the inherent improbability of S as a legal practitioner, with a previously unblemished record,

acting dishonestly.  S notes that the standard of proof that the Tribunal was applying was not identified in its decision, and that the inference is open, in all the circumstances, that it applied the wrong standard.  If the correct standard had been applied the Tribunal could have concluded no more that that S acted in an utterly foolish and stupid manner, in ignorance of his true obligation and in pursuance of instruction he quite wrongly but innocently believed he was duty bound to follow. That does not constitute dishonesty.   Dishonesty requires fraudulent or deceptive conduct.

[17]     As counsel for S identifies, the standard of proof to be applied in disciplinary proceedings is the civil standard, the balance of probabilities, but with a flexible approach applied as to the cogency of the evidence required having regard to the seriousness of the matters to be proved and the consequences of proving them.11

[18]     While it is certainly true that the Tribunal did not identify the standard of proof that it was applying, the reasons provided by the Tribunal strongly support the conclusion that it had clearly in mind that the matter to be proved (dishonesty), and the consequences of finding it proved, were grave.  In the course of its decision it extensively reviewed S’s evidence and set out fully the basis of its factual findings that S had knowledge of the improper and dishonest purpose represented by the

scheme, that he was complicit in it, and that he had acted deceptively to facilitate it.

10     Z v Dental Complaints Assessment Committee [2008] NZSC 55, [2009] 1 NZLR 1.

11     Ibid at [105] and [112].

[19]     Nevertheless, this appeal being by way of re-hearing, S is entitled to my assessment as to whether the evidence did establish knowing assistance by S in the dishonest scheme of the trustees and executors.  I have examined the evidence filed by S, the transcript and the evidence filed at the hearing.  For the reasons set out in the Tribunal’s decision I am satisfied that S knowingly assisted in a scheme he knew to be dishonest.   His conduct included deliberately involving himself in deceptive conduct to keep from the other legatees the breach of trust by the trustees and executors.  His willingness to accept instructions not to provide a copy of the will to the legatees, his facilitation of the payment of cash amounts to the legatees, and the record of events and his understanding of them recorded in his file notes and in the authority, provide compelling evidence that S fully understood that the plan was unlawful, and that he was prepared to, and did assist with it.

[20]     It is also true, as submitted for S, that the Tribunal made no reference to S’s previous unblemished record in reaching these conclusions.  Counsel for S identified this as making it inherently improbable that S had acted dishonestly.  Many of those who come before the Tribunal will have unblemished records and S’s record was not a significant fact to be weighed in this case.  There was no issue as to what events had occurred - the only issue was S’s knowledge and understanding of the true nature of the scheme and whether he assisted in it.  His previous record had little or no relevance to that assessment.  There was, after all, no suggestion that he provided the assistance for personal gain.   Having reviewed all of the evidence expressly including the fact of S’s previously unblemished record,  I am satisfied that the evidence that supports the findings of the Tribunal, as identified by the Tribunal, is properly regarded as overwhelming.

[21]     Having  found  that  S  knowingly  assisted  the  trustees  and  executors  in  a dishonest scheme and that he involved himself in misleading and deceptive elements of that scheme, a finding of misconduct was inevitable.  Misconduct is defined in the Act as including conduct:12

that  would  reasonably  be  regarded  by  lawyers  of  good  standing  as disgraceful or dishonourable.

12 Lawyers and Conveyancers Act 2006, s 7(1)(a).

[22]     In Complaints Committee No.1 of the Auckland District Law Society v C13 a Full Court of this Court commented that  expressions such as  “disgraceful” and “dishonourable” describe the seriousness of the misconduct but reveal little of the type of conduct  intended to be caught by the expression professional misconduct. The Court held that the essential characteristics of conduct that will  amount to professional  misconduct  are  well  described  in  Re A  (Barrister  and  Solicitor  of Auckland)14  and in particular in the passages set out there from Pillai v Messiter.15

Kirby P said this of professional misconduct in the medical context:16

Departures from elementary and generally accepted standards, of which a medical  practitioner  could  scarcely  be  heard  to  say  that  he  or  she  was ignorant could amount to such professional misconduct...But the statutory test [misconduct in a professional respect] is not met by mere professional incompetence or by deficiencies in the practice of the profession.  Something more is required.  It includes a deliberate departure from accepted standards or such serious negligence as, although not deliberate, to portray indifference and an abuse of the privileges which accompany registration as a medical practitioner...

[23]     Counsel for S pointed to the lack of evidence which establishes the bench mark against which the conduct is to be  measured so that the Tribunal can be satisfied that such conduct constitutes misconduct.   This point was only lightly pressed by counsel and was by no means a central plank of the arguments in favour of the appeal.

[24]     In this case no such evidence was needed.  It is a fundamental requirement of legal practitioners recorded in the Act that they uphold the rule of law and facilitate the administration of justice.17    The Tribunal was correct to conclude that assisting the trustees and executors make away with property that was lawfully that of the other legatees, involved S in a departure from elementary standards of conduct for a legal practitioner.  It was a gross departure.  Legal practitioners are not free to assist their clients with dishonest schemes, even if instructed by them to do so.18   The fact

that S was apparently not motivated by personal profit but was more likely just

13     Complaints Committee No 1 of the Auckland District Law Society v C [2008] 3 NZLR 105.

14     Re A (Barrister and Solicitor of Auckland) [2002] NZAR 452.

15     Pillai v Messiter (No 2) (1989) 16 NWLR 197.

16     At 200.

17 Lawyers and Conveyancers Act 2006, s 4(a).

18     And here of course, the brothers were not his clients in their personal capacity, but in their capacity as trustees and executors of the trust.

weak, and dominated by more powerful personalities, cannot justify or excuse his conduct.

[25]     The final point raised by S in support of his appeal is that the Act required the Tribunal to first ask whether there had been any misconduct and to then ask whether such misconduct warranted the imposition of a disciplinary sanction.  The two stage test proposed by the appellant is that which has been adopted in medical disciplinary cases.19     S argued that there was no reason in principle why the test should not equally be applied to legal disciplinary proceedings where the same community interest factor exists.

[26]     That community expectations are at stake in these proceedings, as they were in the medical disciplinary cases, adds little to the appellant’s argument.  Community interests are a factor common to all professional disciplinary proceedings and thus it is the applicable statutory regime rather than community interests which dictates the approach to be taken.

[27]     The provisions upon which the medical disciplinary proceedings, and their two stage test are based,20  are very different from s 7 of the Act with which I am concerned.   Most obviously, s 7 is concerned solely with a determination of the nature  of  the  relevant   conduct  whereas  the  equivalent  medical  disciplinary provisions are additionally concerned with the circumstances in which sanctions may be imposed.  Adopting the proposed test in this case would require the addition of a

gloss to the words of the statutory provisions and one that has no justification as a matter of statutory interpretation.  I decline to adopt that analysis.  It would not avail S in any case given the seriousness of his misconduct.

[28]     I note finally that S sought leave to file an affidavit from a practitioner which was relevant to S’s character, and a letter from victims of his conduct.  I received this material provisionally under s 14 of the Evidence Act 2006.   It was not, however,

relevant  to  this  stage  of  the  inquiry  and  I  excluded  it  from  my  considerations

19     Medical Practitioners Act 1995, s 109; Health Practitioners Competence Assurance Act 2003, s

100.

20     B  v  Medical  Council  of  New  Zealand  [2005] 3 NZLR 810; F  v  Medical  Practitioners Disciplinary Tribunal [2005] 3 NZLR 774; L v Porfessional Conduct Committee of New Zealand Psychologists Board (2009) 20 PRNZ 92.

accordingly.  The material can be tendered for the penalty phase of the proceedings before the Tribunal.

[29]     The  final  issue  for  determination  is  name  suppression.     S  has  name suppression pending the outcome of this appeal.   I direct that name suppression continue until the Tribunal has issued its decision in relation to penalty.   I do this only  because  publication  of  S’s  name  will  be  one  of  the  matters  the  Tribunal considers as part of the penalty phase, and is properly an issue for the Tribunal.

Result

(a)       The appeal is dismissed.

(b)Name suppression for S is to continue until the Tribunal has issued its decision as to penalty.

(c)       The respondent is entitled to costs on a 2B basis.