Waikato/Bay of Plenty District Law Society v Harris CA86/05
[2006] NZCA 532
•12 April 2006
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NOTE: HIGH COURT ORDER PROHIBITING PUBLICATION OF NAMES, ADDRESSES OR PARTICULARS IDENTIFYING MR AND MRS A AND MS B REMAINS IN FORCE
IN THE COURT OF APPEAL OF NEW ZEALAND
CA86/05
BETWEEN THE COMPLAINTS COMMITTEE OF THE WAIKATO/BAY OF PLENTY DISTRICT LAW SOCIETY
Appellant
ANDWILLIAM RAYMOND HARRIS Respondent
Hearing: 28 November 2005
Court: Glazebrook, Chambers and O'Regan JJ Counsel: P N Collins and J H Olphert for Appellant
A L Hassall QC for Respondent
Judgment: 12 April 2006
JUDGMENT OF THE COURT
A The appeal is allowed. The order of the New Zealand Law Practitioners
Disciplinary Tribunal that Mr Harris’ name be struck off the roll of barristers and solicitors is restored.
B Costs are reserved.
REASONS
Glazebrook and O’Regan JJ [1]
THE COMPLAINTS COMMITTEE OF THE WAIKATO/BOP DISTRICT LAW SOCIETY V HARRIS CA CA86/05 [12 April 2006]
Chambers J (dissenting) [136]
GLAZEBROOK AND O’REGAN JJ
(Given by Glazebrook J)
Table of Contents
Para No
Introduction [1] Facts [4] Background [5] Transactions involving Mr and Mrs A [12] Transactions involving Ms B [26]
The Tribunal’s decision [39] Findings relating to Mr and Mrs A [39] Findings relating to Ms B [45] General remarks [59] Penalty [61]
The High Court decision [62] Approach [63] Findings relating to Mr and Mrs A [67] Findings relating to Ms B [78] Penalty [87] Parties’ submissions [91] Discussion [95] Jurisdiction [95] Analysis of the transactions [96] Penalty [111] Result [134]
Introduction
[1] Mr Harris was brought before the New Zealand Law Practitioners Disciplinary Tribunal on a number of charges. Most of these charges were found proved and to amount to misconduct. The Tribunal ordered that Mr Harris’ name be struck off the roll of barristers and solicitors.
[2] Mr Harris appealed to the High Court. The Court held that the order for striking off was disproportionately severe and instead suspended Mr Harris from practice for two and a half years from 26 November 2003, the date of the Tribunal’s
decision on penalty. It also prohibited him from practising on his own account in the future, unless authorised by the Tribunal to do so.
[3] The Society appeals against that decision and asks that the original penalty be reinstated.
Facts
[4] The parties did not provide us with a copy of the evidence that was before the Tribunal. Accordingly, this summary of the facts is based on the Tribunal’s findings as modified or expanded upon by the High Court.
Background
[5] The charges that were found proved by the Tribunal related to two series of transactions, involving clients referred to in the High Court as Mr and Mrs A and Ms B – see the Appendix for the Tribunal’s summary of the charges and its decisions on those charges. Charges relating to a third client were found to be either not proved or proved but not to amount to misconduct.
[6] Mr and Mrs A and Ms B were referred to Mr Harris by Mr McKelvy who operated as a finance broker in Hamilton. Mr McKelvy had been convicted of various offences of dishonesty in the period from 1996 to 2001 and had served terms of imprisonment. The offences included forgery, altering a document and conspiracy to defraud.
[7] Mr McKelvy’s business consisted largely in dealing with people in financial difficulties or in assisting those with a lack of resources or poor credit history into achieving home ownership. The Tribunal set out two techniques used by Mr McKelvy in his business:
[15.1] A McKelvy entity buying houses at mortgagee sales at what may well have been undervalue, building, making improvements to and tidying up those houses and their surrounds and then selling them on to prospective home owners with those home owners being given assistance. Sometimes
the assistance would be in the form of a gift of part of the said value of the property.
[15.2] Persons who were facing imminent mortgagees sales selling their homes to a trustee. This trustee would borrow monies short term sufficient to repay the loan which was producing mortgagee sale pressure. The trustee would then hold the property in trust, leaving the former registered proprietors in possession as tenants. The intention was for the former registered proprietors to build up a credit history, whereupon the short term loan would be refinanced on long term and at a better interest rate, and the property would then be transferred back to the previous registered proprietors as beneficial owners. The trustee would receive a fee for his or her services.
[8] Both techniques were used in the series of transactions involving Ms B but Mr and Mrs A were only subjected to the second technique. In each case, Mr McKelvy used Provincial Finance, based in Christchurch, as the lender.
[9] Provincial lends having regard to the equity available in a property rather than being significantly concerned with loan servicing ability. It lends short term at a high rate of nominal interest and there are various fees which increase the real interest rate to very high levels. The Tribunal found that there was a close relationship between Provincial and Mr McKelvy resulting in brokerage fees and what the Tribunal called “other opportunities for financial advancement” being presented to Mr McKelvy. The close relationship between Mr McKelvy and Provincial was also, the Tribunal noted, “confirmed by the relative informality of dealings between Provincial Finance and Harris Law”.
[10] The Tribunal found that there was a close association also between Mr McKelvy and Mr Harris. Although Mr McKelvy used other solicitors, he “provided a very significant share of the annual revenue” of Mr Harris’ practice. In addition, for a period of nearly a year Mr Harris’ legal executive, Ms Hemmes, had, with Mr Harris’ knowledge and agreement, worked two days a week for Mr McKelvy. Payment for her services was effected through the firm trust account. The Tribunal concluded that Mr Harris and Ms Hemmes must have had a detailed knowledge of how Mr McKelvy operated. It also found that Mr Harris was generally aware of Mr McKelvy’s criminal background.
[11] Further, the Tribunal found that Mr Jecks, who was used by Mr Harris to give independent advice on aspects of the transactions at issue before it, acted on a significant number of McKelvy transactions.
Transactions involving Mr and Mrs A
[12] Mr and Mrs A are a mature couple who returned to Taranaki in about 1989. They bought a section from Mr A’s mother. The land had previously been Maori land and had been in the family for many generations. The As built a house on the land with money borrowed from the Housing Corporation. For reasons that were not explained, the privatisation of the Corporation led to Mr and Mrs A refinancing that loan with Advantage Ltd. Their mortgage payments fell into arrears as did their rates payments. Eventually, Advantage threatened a mortgagee sale.
[13] Mrs A, who takes responsibility for the family finances, contacted Mr McKelvy for help with refinancing the loan. He asked Mr Buckland, a Hawera mortgage broker, to contact Mrs A and to deal with the matter as Mr McKelvy’s agent. Mr Buckland was provided with a partially completed form of agreement for sale and purchase of property for the As to sign. He got them to sign the document but, not knowing the scope or nature of the proposed transaction, provided no explanation to them. In fact, it was Mr A alone who was the registered proprietor of the property.
[14] On 4 April 2001, Mr Buckland was asked to bring the As to Hamilton to complete the refinancing transaction, which was to involve the second of the McKelvy techniques set out at [7] above. On the way to Hamilton, Mr McKelvy instructed him to go instead to the offices of Harris Law in Cambridge. The party duly arrived and a meeting of the various parties took place. Mr Harris’ legal executive, Ms Hemmes, was present, as was Mr McKelvy, his business associate Mr Fatu and a Mr Adams, who was destined to be the trustee under Mr McKelvy’s refinancing scheme. Mr Adams, unknown to Mr Harris (but possibly not, it appears, to Mr McKelvy), was a serial fraudster with a number of aliases and some hundreds of previous convictions. He has since been imprisoned on some 600 further
convictions. Mr Harris was also present at various times during the meeting in an overseeing role.
[15] Ms Hemmes received and acted on e-mail instructions from Provincial to prepare mortgage security documents for a loan to Mr Adams of $56,000. The term of the loan was six months. She prepared in blank a memorandum of transfer from Mr A to Mr Adams and an authority by Mr A authorising “the surplus funds” from the sale to be paid to Harris Law “on behalf of Paul Chris Adams our trustee”. She also prepared, and had Mr Buckland sign, an acknowledgement that he was to be responsible for the “creation of a Family Trust and acknowledgement of debt to the trustee being Mr Paul Chris Adams for the benefit of [Mr A].”
[16] Mr and Mrs A were then taken to Mr Jecks, a solicitor who was, according to Ms Hemmes’ evidence, to act for them. Mr Jecks explained to Mr A the implications of giving up his interest in the property and advised Mr A of the nature of the trust arrangements, including his obligation to pay a monthly rental of $800 a month for the first two months and $400 for the subsequent months. (The contract documents provided in fact for interest payments of $840.68 per month). Mr Jecks explained that Mr A could repurchase the property from Mr Adams later, recorded that Mr A could caveat the title and noted that Mr Buckland was to create the Trust deed.
[17] Mr A duly signed the transfer to Mr Adams (which had been prepared by Harris Law) and Mr Jecks witnessed his signature. Mr Jecks also, it appears, had Mr A sign the authority for disbursements of the surplus funds. That was the end of Mr Jecks’ involvement. Mr Jecks’ evidence was that his retainer was limited to giving independent advice on signing the transfer. That he did not see himself as acting generally is reflected in the fact that the meeting lasted only some 20 minutes and involved a modest fee of $70 plus GST and photocopying charges, making a total of $80.
[18] While the loan from Provincial was for a principal sum of $56,000, the total sum for which Mr Adams became indebted was $71,044.09. As we understand the position, interest and fees were capitalised into the borrowings and only the cash
amount of $56,000 was paid by Provincial to Harris Law. The various fees took the nominal interest rate of 16% to a finance rate of 31.8761%. The charges were as
follows:
Brokerage $ 4,000.00 Security inspection fee $ 1,000.00 Loan establishment fee $ 5,000.00 Interest $ 5,044.09
[19] The cash amount received was used in part to repay Mr and Mrs A’s existing mortgage to Advantage. The sum outstanding on that mortgage was $39,185.84 but Ms Hemmes negotiated a reduced repayment sum of $36,000. The balance of the
loan was (according to a letter sent by Mr Harris to the Society) used as follows:
Buckland – fee for preparation of deed of trust
and acknowledgement of debt
$ 2,000.00
Adams – fee for “agreeing to mortgage the property” $ 3,000.00 Harris – law fees (inclusive) $ 1,500.00 Jecks & Co fee $ 80.00 V Ratima – valuation fee $ 293.00 Robertson Telfer – further valuation fee $ 45.00 Real insurance on property $ 341.21 A E Fatu – money for Buckland $ 9,584.72 Waikato Trust $ 3,156.07 Total $ 20,000.00
[20] The High Court said that $9,200 of the sum paid to Mr Fatu was to be used for payment of other debts of Mr and Mrs A and that it had not been established that the other debts had not been so paid.
[21] The consideration for the transfer from the As to Mr Adams recorded in Mr Harris’ statement to Mr Adams was $86,000. By contrast, the purchase price recorded in the agreement and the memorandum of transfer was $103,000. The difference of $17,000 between the $103,000 and the $86,000 was described in the settlement statement as “equity left in the property” by Mr A. There was no valuation in evidence (even though Mr Harris’ letter indicated that two had been paid for) so it is not clear how the purchase price was arrived at.
[22] As to the difference between the $56,000 principal amount of the loan and the $86,000 in the settlement statement, it appears that Provincial required the sum of $30,000 in cleared funds to be injected into the transaction by Mr Adams. This was achieved by an entity of Mr McKelvy’s (Waikato Trust) lending that sum plus a further $9,584.72 to Mr Adams to be used as partial settlement for the purchase of the property. The money was paid into the Harris Law trust account in his name.
[23] Mr Adams signed an authority (prepared by Harris Law and signed in the presence of Ms Hemmes) for Harris Law to pay any surplus funds left over from the Provincial advance after costs were deducted “being Brokerage, Solicitor, Trustee, Valuation, Insurance and other sundries” to Waikato Trust. We note that no specific authority from Mr and Mrs A was obtained as to this payment. The sum of
$42,740.79 was duly transferred by journal entry from the credit of Mr Adams to the credit of Waikato Trust in the Harris Law trust account. It is open to doubt whether Provincial had in mind this type of “money-go-round” with a third party that occurred when it specified that $30,000 had to be injected into the transaction by Mr Adams.
[24] The loan from Waikato Trust was secured by an agreement to mortgage, although, as indicated above, the loan was repaid and, indeed, overpaid out of the Provincial loan. The High Court noted the apparently sinister connotations of the agreement to mortgage as recording an apparent obligation which did not exist. It is, however, not clear from the judgment whether Mr Harris was aware of that agreement.
[25] In the event the trust documentation that Mr Buckland was supposedly to draft was never completed, a caveat was never lodged, and Mr Adams took advantage of having the title of the property in his name to borrow further funds using the property as security. The As are, however, now the registered proprietors of the property again as, because of the controversy surrounding the McKelvy “technique”, Provincial has elected to abandon its security.
Transactions involving Ms B
[26] Ms B approached Mr McKelvy in January 2001 to arrange a loan of $700 to on-lend to her niece. She owned a property in Cambridge with a mortgage of some
$16,500 to the ANZ. She was not in default under that mortgage.
[27] Ms B agreed to apply for a loan of $72,500 from Provincial as a joint borrower with a Mr Neville whom she did not know. The reason for the involvement of Mr Neville was not explained in either judgment. The security for the loan comprised a mortgage over Ms B’s property and an unregistered second mortgage over Mr Neville’s property. There was also security over a 1992 Honda Accord.
[28] Ms B was to repay the ANZ mortgage from the borrowed funds and make a number of other payments, including $3,000 to one Mr Simpson, $11,000 to Mr Fatu, Mr McKelvy’s business associate, and $8,000 to the Waikato Trust. A sum of $2,000 was to be paid to Ms B. The balance of the borrowed money was to be advanced to a company to be incorporated, Pennies from Heaven Ltd. Ms B, along with Mr McKelvy and Mr Fatu, were to be the shareholders and Mr Fatu and Ms B were to be the directors. Ms B’s description before the Tribunal of the proposed business of the new company was:
people would give stuff, like a stereo, tv, and if they didn’t pay it in a certain time money would go into Pennies from Heaven.
[29] The loan agreement dated 23 February 2001 recorded Ms B as a “beneficiary”, and the loan principal as $72,500. The agreement stipulated for monthly payments of $973.80 with the sum of $76,500 due in twelve months (or on earlier demand). The total cost of credit was $15,565.64 comprising interest of
$11,285.64, a $2,000 establishment fee, a brokerage fee of $1,500 and a security inspection fee of $500.
[30] Ms B was taken by Mr McKelvy and Mr Fatu to Mr Harris’ offices for the purpose of completing the documentation for the proposed transaction. Mr Harris advised Ms B that the funds advanced to the company should be protected by way of
a term loan agreement and debenture. However, the completion of the documentation was flawed in that the securities were signed and dated prior to the incorporation of the company.
[31] Some days after completing the loan documentation, Ms B was taken to see Mr Jecks. She executed a typed document recording that she had received advice from him regarding the borrowing and a signed authorisation for the payments to be made out of the funds, including the payments to Mr Fatu and Mr Simpson.
[32] Some three months later Ms B, without reference to Mr Harris, executed an agreement for the sale of the property to a Mr McCawe for $138,000. She also signed an authority to pay any surplus funds to Fast Money Limited, a company of which Mr Fatu was sole director and a Mr Millington the shareholder. Fast Money appears to have been another McKelvy entity. The High Court inferred that Ms B entered into the agreement at Mr McKelvy’s instigation and that it was an application of the second “McKelvy technique” – see at [7] above.
[33] The executed agreement was taken to Mr Harris and he processed it on the basis of the written documentation, without seeing Ms B or explaining the transaction to her. Mr Harris’ statement of 30 May 2001 records a receipt of
$138,000 from Mr McCawe, a part repayment of the Provincial loan of $55,000, a
“gift” to Mr McCawe of $17,000 plus $2,500 for outstanding rates. The sum of
$63,500 was then transferred to Fast Money in accordance with the authority signed by Ms B. The High Court records that there is no evidence of any benefit to Ms B from the payment to Fast Money. An (undated) deed was entered into by which Mr McCawe, by Mr Harris as his attorney, declared that he held the property on trust for Ms B. No caveat was lodged against the title.
[34] The next phase of the transactions was the purchase of a Hamilton property in June 2001. It appears that the Cambridge property was to be let (to cover the payments to Provincial on the borrowings that were still outstanding) and the Hamilton property was supposed to provide alternative accommodation for Ms B. The Hamilton property had been purchased at mortgagee sale by a McKelvy entity and onsold to a Mr Johnson for $93,500, supposedly as trustee for Ms B.
[35] A valuation of the Hamilton property on 6 June 2001 set a value of $120,000, which we assume was the price set for the purchase by Mr Johnson. Mr Johnson was “gifted” the deposit and borrowed funds for the rest of the purchase price from Provincial, a loan later refinanced by ANZ. Ms B was supposedly to keep up the payments on the loan due and the property was to be transferred to Ms B when she could raise the funds. Ms B was allowed into possession of the property. Ms B of course did not have the means to make the payment on the loan.
[36] Mr Johnson was paid a fee of $4,000 for his services as trustee. He was, however, exposed to full liability on the Provincial and ANZ mortgages. With regard to the “gift” of the deposit to Mr Johnson, we remark that, barring motives of pure altruism, the “gift” must be seen as resulting from Mr McKelvy holding a different view of the valuation of the Hamilton property from that held by the valuer. We do not know if the “gift” was disclosed to Provincial or the ANZ.
[37] On 3 December 2001, Mr Harris wrote to Ms B enclosing deeds of trust relating to the Cambridge and Hamilton properties, some other documentation relating to Mr Neville and a deed of acknowledgement of debt, apparently related to some payments that had allegedly been made on Ms B’s behalf. Mr Harris said in the letter that payments with regard to the Hamilton property were in arrears and that, if Ms B did not pay the rent, the ANZ would exercise its rights under the mortgage which could include a mortgagee sale. He said that there may be payments from Pennies from Heaven Ltd due to her and that she should take this up with the other directors. He also recommended placing the Cambridge property on the market to reduce her overall liabilities.
[38] In the event, the ANZ sold the Hamilton property as mortgagee. Mr Johnson has been left with a residual debt of $30,000. Ms B has been left with nothing.
The Tribunal’s decision
Findings relating to Mr and Mrs A
[39] The charges relating to Mr and Mrs A fell into three broad categories:
(a)acting when there was a conflict of interest and without the prior informed consent of Mr A (Charge 14);
(b)failing properly to protect Mr A’s interests when acting on the sale of his property (Charge 15);
(c) asserting to the Society that Mr A was not a client when he was and accordingly misleading the Society (Charge 16).
[40] The third charge of misleading the Society was found not proved (although erroneously described in the summary of the Tribunal’s findings as having both been proved and to amount to misconduct). The charges in the other two categories were found to have been proved and to amount to misconduct. We now examine the Tribunal’s reasoning in more detail.
[41] Mr Harris had taken the position throughout the hearing that Mr and Mrs A had been represented by Mr Jecks and not by him. The Tribunal had no doubt there was a solicitor and client relationship between Mr Harris and the As, for the following reasons:
(a) A trust account in the name of Mr A was set up by Harris Law;
(b)Mrs A thought Harris Law was acting for them. Given the time the As spent at the offices of Harris Law as compared to those of Mr Jecks, the Tribunal considered that she was entitled to so believe;
(c)Mr Jecks gave independent advice rather than acting in a transactional sense, the transactional work being undertaken by Harris Law;
(d)Ms Hemmes, of Harris Law, had arranged the reduction of the As’ debt to Advantage from $39,000 to $36,000, a matter the Tribunal regarded as conclusive of a solicitor/client relationship between Harris Law and the As;
(e)Mr Jecks did not accept that he was acting for the As in a primary sense or that it had ever been intended that he would;
(f)A bill of costs for $1,500, inclusive of GST and disbursements, was issued by Harris Law for the overall transaction. The Tribunal concluded that this fee included reimbursement to Mr Harris for the work undertaken for the As.
[42] The Tribunal concluded that Mr Harris was in dereliction of his duty to the
As in a number of respects:
(a)He should have gained a thorough understanding of the transaction and all facets of it;
(b)He should have advised Mr and Mrs A of the various conflicts of interest and either obtained their informed consent or ceased to act for them if not;
(c) Enquiries ought to have been made about Mr Adams and the appropriateness of Mr Adams to act as trustee;
(d)The extent and detail of the borrowing by Mr Adams ought to have been carefully explained to Mr and Mrs A and the transaction ought not to have proceeded without their acceptance of those arrangements. The lending was on onerous terms by a lender of last resort;
(e) The trust arrangements ought to have been discussed and properly documented. The Tribunal said that the trust arrangement was a difficult one to document adequately and the responsibility for it was not able to be passed to Mr Buckland, to Mr Harris’ exclusion. The
Tribunal said that it was inconceivable that a lawyer could consider his client’s interests properly protected in these circumstances. Mr Buckland’s evidence was that he knew nothing about the technique of forming a trust and the Tribunal accepted that he had never accepted the responsibility to form the Trust. Mr Buckland acknowledged that there had been talk of his having the trust documents signed by Mr and Mrs A in Taranaki and the Tribunal considered that it would have been logical for him to consider that that was the extent of his responsibility;
(f) The sum of $17,000, which was unpaid purchase monies, ought to have been secured. In the absence of protection the Tribunal noted that that sum appears to have been absorbed by further borrowings by Mr Adams;
(g) The giving of control of ‘surplus funds’ to Mr Adams and the passing of those funds on to the Waikato Trust was a dereliction of Mr Harris’ duty to Mr and Mrs A. The Tribunal noted that, as the transaction unfolded, Mr A ended up repaying the loan which Mr Adams raised to pay the deposit on the purchase;
(h)The appropriateness of the various fees, to Mr McKelvy, Provincial, Mr Adams and Mr Buckland, ought to have been addressed. In aggregate those fees were substantial and, in the Tribunal’s view, excessive and unjustified;
(i) The necessary precautionary and back-up documentation, such as wills and power or powers of attorney, ought to have been covered.
[43] Assuming that the transaction was a trust transaction, the Tribunal described the financial effects of the transaction for Mr and Mrs A in the following terms:
[70] … Mr Adams borrowed $71,044.09. The borrowing arrangements were never disclosed to Mr and Mrs [A] which of itself is a serious breach of propriety in a trustee situation. The cost of the borrowing was $15,044.09. The cash produced was $56,000. The cash produced went in part in
repayment of the Advantage loan ($36,000.00) and in further part in the payment of various fees and costs. What was left over of the cash was paid to Waikato Trust. The remaining equity in the property was not protected in any way. Subsequent to settlement it appeared that Mr Adams borrowed further monies against the [As’] property which he was supposed to have been holding in Trust and it appears that there is now little or no equity remaining. If there is any equity remaining then there is a question as to ownership of that equity.
[44] It concluded:
[75] We have been driven to the conclusion that the transaction involving the [As] was unscrupulous, deliberately confusing in structure, inadequately explained and documented, doomed to failure and seemingly established by Mr McKelvy for his significant benefit. We have been driven to the conclusion that the role of Mr Harris was that of a dupe who turned a blind eye out of weakness and inability to cope with the pressure he was under. He was a person who had been inveigled into performing necessary functions in a wider scheme.
Findings relating to Ms B
[45] Mr Harris faced 24 charges in relation to the series of transactions involving
Ms B. The charges were split into four categories – the Provincial loan (charges
22 - 28), the Pennies from Heaven arrangements (charges 29 – 33), the sale to Mr McCawe of the Cambridge property (charges 34 – 39) and the purchase of the Hamilton property (charges 40 - 45). Of the 24 charges, 18 were found proved and to amount to misconduct and one was found proved but not to amount to misconduct.
[46] The Tribunal held that Mr Harris was acting for Ms B and that his duties extended further than merely processing the transactions. It said that, given the nature of the transactions, the limited degree of understanding by Ms B and the persons with whom Ms B was entering into a business relationship, Mr Harris’ professional responsibility to Ms B was somewhat higher than it would have been had Ms B been a person with more commercial acumen.
[47] With regard to the Provincial loan, the Tribunal held that Mr Harris failed to ensure that Ms B understood the terms and effect of the Provincial mortgage and loan agreement. Although Mr Harris had deposed that he had explained the terms of
the Provincial loan and the mortgage documentation to Ms B, his explanation did not include a discussion as to the repayments required or an investigation as to Ms B’s current income, a cursory examination of which would have revealed that her income, as stated by her to the Tribunal, of $200 - $300 per fortnight, was insufficient to meet the mortgage outgoings of $973.80 per month. In the Tribunal’s view, the ability to meet mortgage outgoings amounts to one of the most basic terms for explanation to and understanding by a borrower.
[48] The Tribunal also found that, although Ms B had provided a signed authority for the payments to Mr Simpson, Mr Fatu and Waikato Trust, Mr Harris had failed to ensure she had a full understanding of the payments. Ms B had no knowledge of the purpose of the payments to Mr Fatu and Mr Simpson. Indeed, she did not even know who Mr Simpson was.
[49] Charge 28 was a charge of acting in a conflict of interest situation on the Provincial loan by acting for Ms B as well as Mr McKelvy, Mr Fatu and Mr Neville without informed consent. The Tribunal found that charge proved to the extent that Mr Harris was acting for the joint borrower, Mr Neville, but that it did not amount to misconduct. The Tribunal held that Mr Harris was not acting for Mr McKelvy or Mr Fatu on the Provincial loan.
[50] With regard to the Pennies from Heaven transaction, which encompassed charges 29 – 33, the Tribunal held that neither Mr Harris nor Mr Jecks enquired as to the nature of the business of the proposed company. Neither did they offer any advice as to the wisdom of entering into the arrangement. The Tribunal also held that Mr Harris was acting in a conflict of interest situation in acting for Ms B, Mr McKelvy and Pennies from Heaven without informed consent.
[51] In relation to the sale transaction to Mr McCawe, the Tribunal found that Mr Harris acted solely on the strength of documentation provided to him from Mr McKelvy’s office to effect the sale of the property and to disburse the “surplus funds” of $63,500 to Fast Money. In his evidence, Mr Harris admitted that he had not gone through the agreement for sale and purchase with Ms B or explained the transfer to her. He also admitted that he had not fully advised Ms B of the effect of
the transactions and that he had not acted competently on her behalf in respect of the sale.
[52] The Tribunal did not hear any evidence relating to the financing of the purchase by Mr McCawe, but it considered that the “trust” structure established by Mr McKelvy (see at [7] above) was once again to be utilised and that it was intended that Mr McCawe would hold the property in trust for Ms B with Ms B meeting the mortgage payments due by Mr McCawe. The Tribunal found that it was quite clear that Ms B had no knowledge of any payments required by her. Indeed, she had no knowledge that her property was sold whether in trust or otherwise.
[53] The Tribunal held that Mr Harris had failed to obtain Ms B’s instructions to act on the sale of the property and failed to advise her of the trust position. It found that, in all the circumstances of the transaction, including the fact that Mr Harris had not discussed the nature of the transaction with Ms B, he should not have acted merely on the basis of an authority already signed by her in disbursing the sale proceeds. As a consequence, a charge that Mr Harris had failed to obtain Ms B’s informed consent to the disbursement of funds was held proved, as was a charge of failing to advise Ms B that, of the $138,000 purchase price being paid by Mr McCawe, Mr McCawe would receive a gift back of $17,000. A charge of conflict of interest without informed consent in acting for Mr McCawe and Ms B was also found proved.
[54] With regard to the purchase of the Hamilton house, a number of charges were found proved and to amount to misconduct. These included conflict of interest and a failure to inform Ms B of the details of the transaction, including that the Hamilton house was purchased in trust for her. The Tribunal said that it agreed with the findings of the Tenancy Tribunal adjudicator with regard to the state of knowledge of both Ms B and Mr Johnson. It said:
[138] … Once again, from the evidence, Ms [B] had a limited knowledge if any, of these transactions. Indeed, the Tenancy Tribunal adjudicator was driven to the conclusion that both Ms [B] and Mr Johnson had been duped by what at best could be described as irregular and unusual practices by the mortgage broker. The adjudicator further commented that they appeared to have received no adequate independent legal advice, and that at best, the legal advice/assistance they did receive was inadequate. The Tribunal
accepts that Mr Harris did not give evidence to the Tenancy Tribunal, but having heard the evidence itself, is driven to conclusions largely similar to those of the Tenancy Tribunal.
[55] The Tribunal noted that Mr Harris’ defence to this charge was that he had no knowledge of Ms B’s involvement in this purchase or the trust arrangements and had assumed that Mr Johnson was an ordinary purchaser. At best, the Tribunal considered that Mr Harris had turned a blind eye to the realities of the situation. Mr Harris was aware of Mr McKelvy’s modus operandi and even the most cursory of discussions with Mr Johnson would have revealed that he was not intending to live in the property and that the proposed source of funding to meet the mortgage outgoings was to come from Ms B.
[56] At that stage, it would have been clear to Mr Harris that, if Mr Johnson were purportedly purchasing the property on trust for Ms B, then Ms B’s position needed to be protected. The Tribunal considered that some inkling of Mr Harris’ state of awareness could be drawn from his affidavit dated 22 October 2003 where he stated that he did not know “with certainty” that this was to be a trust arrangement. We note in any event that Mr Harris appears to have been aware of the trust arrangements by the time of his December 2001 letter – see at [37] above.
[57] In the first three phases of the transactions involving Ms B, charges of failing to render a statement of account were also found proved and, in the circumstances, to amount to misconduct.
[58] The Tribunal made the following overall findings in relation to Ms B:
[148] Mr Harris could not have failed to have been aware that Mr McKelvy operated on the fringe of legitimacy. His schemes in respect of Ms [B] have been described by Mr A J Gurnell, a Hamilton Solicitor called by the District Society, and Mr Jecks as “odd” and “unusual”. Mr Harris’ professional senses must have been heightened by his knowledge of Mr McKelvy’s modus operandi assisted by Mr Fatu. As put by Mr Radich, “his alarm bells should have been ringing.” Mr Harris stood between Ms [B] and Mr McKelvy. He had the ability to protect her from the schemes promoted by Mr McKelvy and the Tribunal does not accept the argument put forward by his Counsel, that his was a limited retainer to carry into operation the schemes as put forward by Mr McKelvy. The Tribunal has absolutely no doubt that Ms [B] had very little comprehension of the structure of the various transactions or instructed Mr Harris with any level of understanding. A solicitor’s responsibility increases as the level of a client’s understanding
and commercial acumen decreases, and their trust in their professional advisors increases.
[149] Without Mr Harris’ facilitation, Mr McKelvy’s schemes could not have proceeded, and the tribunal finds Mr Harris’ lack of protection afforded to his client, Ms [B], reprehensible.
General remarks
[59] In its general remarks at the beginning of its judgment on the substantive charges, the Tribunal had noted the pressures involved in the practice of law. It stated, however, that a lawyer is always subject to the rules of professional conduct and no circumstances can justify an abrogation of basic duties of client care. It said:
[26] It is vital for lawyers to retain their independence. They are required to give advice free from influences which may compromise the acceptability or strength of that advice. Lawyers need to avoid being subject to improper or unacceptable pressures. They also need to avoid dependencies which can ultimately compromise their capacity to care for and protect the interests of their client without fear or favour.
[60] Later, in responding to a submission that responsibilities to clients were limited to the extent of the retainer and that, if the retainer were merely the implementation of an agreed transaction, the lawyer had no wider duty, the Tribunal had this to say:
[40] Lawyers live and practise in a world where transactions are becoming more complex, where moral standards have in some areas frayed, where there are predators in business and commerce and where there are vulnerable people liable to be disadvantaged. The duties of lawyers must be such as to respond to these circumstances and to ensure that where it is reasonable and appropriate for protective duties to arise they do so arise and are faced. In the context of the nature and extent of professional duties we do not feel ourselves to be tightly constrained by technical boundaries of retainer.
[41] It is within the experience of each and every member of this Tribunal that badly motivated or criminally motivated operators of one kind or another will seek out professionals (lawyers or others) whose participation is necessary to enable them to achieve their objectives. In the case of lawyers such operators may need the office of a lawyer to undertake transactional arrangements in relation to property or borrowing. Sometimes such operators may need the cover of respectability which a lawyer may be able to offer. Invariably the lawyers who are sought out in these situations are those who through weakness, inclination or vulnerability are likely to be receptive to participation. In the experience of this Tribunal a pattern usually follows once the initial relationship has been established. That
pattern often involves increasing pressure, increasing financial rewards, increasing complexity with increasing loss of independence, judgement and perspective on the part of the practitioner. Practitioners must recognise these situations, avoid them at all costs, or suffer the consequences if they do not. A situation where a lawyer becomes a servile agent of unscrupulous or criminal people is intolerable.
Penalty
[61] In its subsequent oral penalty decision of 26 November 2003, the Tribunal, after summarising its findings in relation to the individual client transactions and setting out the legal principles relating to findings of professional misconduct and penalty, had this to say:
[30] … While in this case there was no personal benefit to Mr Harris or active dishonesty or deceit by him there was such a high level of failure of duty to clients, one of whom was vulnerable and the other both vulnerable and desperate, that bearing in mind our primary duty is to act for the protection of the public, we have come to the clear, certain and unanimous view that striking off is the appropriate remedy.
[31] We consider that the appropriate remedy in respect of both sets of charges. We are not persuaded that there is any mitigation of culpability of conduct such as to warrant a penalty short of removal from the roll of barristers and solicitors. We therefore, pursuant to the powers we have under s 112(2)(a) of the Law Practitioners Act 1982, being of the opinion that Mr Harris has been guilty of misconduct in his professional capacity, order that the practitioner, Mr Harris’ name, be struck off the roll.
The High Court decision
[62] We now summarise the High Court decision. In the course of this summary, we provide comment on some aspects of the decision.
Approach
[63] In considering Mr Harris’ appeal against the Tribunal’s decision, the High Court reviewed the primary facts itself rather than relying on the Tribunal’s findings. It considered this review necessary because the Tribunal, near the beginning of its judgment, had referred to a number of stark conflicts in the evidence where Mr Harris’ credibility was called into question. It had, however, given as the sole
example an instance which the High Court understood the Society had conceded could not be sustained. The example given by the Tribunal was that Mr Harris had advised the Society that he did not act for Mr Johnson when his trust account records showed that he had acted for him three days before.
[64] Mr Olphert, for the Society, submitted on this point that its concession in the High Court had been misunderstood. The advice that Mr Harris was not acting for Mr Johnson was given to another solicitor and not to the Society but this was only a minor error. Mr Hassall QC, on the other hand, submitted on behalf of Mr Harris, that the Tribunal wrongly drew the inference from the trust account records that Mr Harris was currently acting for Mr Johnson. There was no evidence that the trust account records related to a recent transaction and, indeed, the evidence suggested that this was not the case. The Tribunal’s finding that Mr Harris had been untruthful was therefore unjustified and thus the High Court’s review of the Tribunal’s findings was clearly necessary.
[65] We consider this issue to be a red herring. In our view, the findings in relation to the charges rested largely on documentary evidence (or the lack thereof) and, in many cases, on Mr Harris’ own account of his actions. Credibility findings played a very minor part in the Tribunal’s decision. On the other hand, there was nothing to stop the High Court from taking the course it did, even in the absence of an erroneous credibility finding. An appeal to the High Court proceeds by way of rehearing: s 118(2) Law Practitioners Act 1982.
[66] The High Court is thus not bound to accept the Tribunal’s findings of fact or its evaluation of those facts, although it will pay due deference to the findings of a specialist tribunal – see for example Sidney v Auckland District Law Society [1996] 1
NZLR 431 at 434, Way v Auckland District Law Society [1999] NZAR 557 at
560-561 and Re A (Barrister and Solicitor of Auckland) [2002] NZAR 452 at [23]-[24]. (We note in passing that there may be some differences in approach between Re A and the earlier cases but it is not necessary for these purposes to resolve those differences).
Findings relating to Mr and Mrs A
[67] On the question of whether Mr Harris was acting for Mr and Mrs A, the High Court said that the Society had not established that Mr Harris lacked honest and reasonable belief that Mr Jecks would provide competent and independent advice to Mr and Mrs A as to the nature of the transaction to the extent of the information with which he had been provided. On the other hand, the High Court held that there were matters which Mr Jecks could not have been expected to have attended to.
[68] In particular, the High Court held that Mr Harris cannot have expected Mr Jecks to reveal Mr McKelvy’s criminal past to Mr and Mrs A or to advise on the possible risk of relying on an unknown trustee, introduced by a known criminal. He also cannot have expected Mr Jecks to reveal that Mr McKelvy’s entity, Waikato Trust, was going to take some $3,000 from the proceeds of the transaction. The Court concluded:
[76] Mr Harris could have insulated himself from assuming a solicitor- client obligation by making full disclosure of these matters to Mr Jecks with instructions to communicate them to Mr and Mrs A. But he did not do so. We are satisfied that as a result Mr and Mrs A had good reason to believe, as they did, that Mr Harris’s introduction of them to, and his then carrying out, the application of the “technique” in relation to Mr Harris’s property gave rise to a professional responsibility to them as their solicitor to safeguard their interests, a responsibility which did not terminate with the temporary involvement of Mr Jecks. …
[69] Although [76] of the High Court decision is couched in wide terms, it seems to us that the High Court must have meant that Mr Harris could have insulated himself from the obligation to give advice on the transaction. As Mr Jecks was not undertaking a transactional role, it is difficult to see how Mr Jecks’ involvement could have absolved Mr Harris of his duties with regard to documenting the transaction, including ensuring the preparation of the trust documentation.
[70] The High Court then went on to consider the extent of Mr Harris’ obligations as Mr and Mrs A’s solicitor. It said that there had been no attempt by Mr Harris to narrow his obligations by an expressly limited contract of retainer. This meant that Mr Harris’ principal duty was to explain to Mr and Mrs A the intended legal structure of the transaction, the essential cashflows involved and the risks in the
transaction. While Mr Harris was under the erroneous impression, fostered by Mr McKelvy, that the mortgagee sale was imminent, the High Court considered that the provision of such information was vital. The Court did not consider, however, there to have been a breach of duty in Mr Harris failing to advise that one option was to allow a mortgagee sale to proceed. In the High Court’s view, the only live option was an application of the McKelvy technique.
[71] We remark that we have some difficulty in understanding how Mr and Mrs A could have been given proper advice on the transaction without being advised to consider the alternative of allowing the mortgagee sale to proceed. They were proposing to enter into an unorthodox arrangement, involving a very high interest rate and fees the Tribunal classed as excessive. They were passing title to the property to an unknown trustee who was an associate of a known criminal with all the obvious risks of fraud. There must also have been a significant risk that Mr and Mrs A would lose their property in any event, given that the effect of the transaction was to double the current borrowings which they had been unable to service.
[72] The High Court went on to consider the Tribunal’s decision on the charges and associated particulars. It endorsed the Tribunal’s conclusions on each, albeit in some cases with slightly different reasoning. It considered that, although not necessarily unlawful if properly explained and performed, the transaction was unorthodox and attended by the very real risk of abuse by a fraudulent trustee. On the other hand, the High Court said that the forced sale would have presented considerable risk of significant abatement in price while entailing auctioneer’s and other costs.
[73] It calculated that, had the transaction worked as planned, the As’ equity in the property (assuming a sale price of $103,000) would have amounted to “some
$32,000 less the monthly payments”. It also calculated that, on a mortgagee sale, assuming a value of $103,000, the resulting figure would have been “a good deal less than $50,000”, given the abatement of price and other costs involved in a mortgagee sale. A mortgagee sale would also have meant the inevitable loss of a property which was of great significance to the As. The High Court thus calculated the differential between a mortgagee sale and the McKelvy technique as “well under
$18,000”. The use of the McKelvy technique, however, allowed the “opportunity of retaining the property”. This meant, in the High Court’s view, that the use of the McKelvy technique was “economically intelligible”.
[74] We are uncertain what is meant by this phrase. In our view, any differential at all would make the transaction unjustified in a strict financial sense. We recognise that the transaction may nevertheless have been justified in an emotional sense with the differential being the price of keeping a property of emotional significance. The High Court’s calculation was also obviously rough and ready, given that there was no valuation of the property in evidence. There were a number of other unknowns, such as the possible level of abatement of purchase price on a mortgagee sale. Further, the calculation is, in our view, of necessity somewhat simplistic. The Provincial loan to the As was on very onerous terms. That the transaction also involved high fees to third parties must be a factor to take into account in assessing the transaction’s “economic intelligibility”. Certainly, any comparison must be risk adjusted. The High Court recognised that there were two major risks involved in the McKelvy technique – the risk of Mr and Mrs A not being able to meet the Provincial mortgage and that revolving around the trustee arrangements. If either risk eventuated then the As would have paid very high fees and still lost their property in any event, with a greater detrimental impact on their equity than a mortgagee sale.
[75] The High Court concluded that it saw “the undoubted misconduct in less absolute terms than did the Tribunal”. While clumsy and expensive, and with two obvious risks, each component of the transaction, apart from the payment of
$3,156.06 to Waikato Trust, could be justified as part of a lawful transaction providing an alternative to immediate mortgagee sale. If Mr Harris had prepared the trust documentation and registered a caveat immediately following the transaction, this would have ensured that the property was available for repurchase notwithstanding the diminution of the equity by the costs of the “technique” and also the financial burden of the mortgage payments and repayments.
[76] The High Court went on to say that a solicitor “with single-minded concern” for Mr and Mrs A would have placed an explanation of the cashflows at the forefront of his responsibility. Nevertheless, Mr and Mrs A sought and obtained time, which
necessarily entailed financial consequences. In the absence of any suggestion from the Society that Mr Jecks would not discharge his role professionally, the Court also considered Mr Harris’ breaches of duty mitigated by both the circumstances of urgency and Mr Jecks’ assumption of the responsibility to explain the transaction to Mr and Mrs A.
[77] We do not understand the High Court to be suggesting that Mr Harris, given he was acting for the As, was not, as in any normal solicitor/client relationship, required to have “single-minded concern” for his client. Indeed, in another part of the judgment, single-minded concern for a client free from compromising influences and loyalties was recognised as vital. We also do not take this passage as suggesting that Mr Harris was not obliged to explain the transaction to Mr and Mrs A, given that they were his clients. The High Court recognised there was such an obligation – see at [70] above. We take the Court as saying merely that Mr Harris’ failures in this regard are mitigated by what the High Court held to be his reasonable reliance on Mr Jecks and the urgency of the situation.
Findings relating to Ms B
[78] With regard to the transactions involving Ms B, the High Court agreed with the Tribunal’s findings on those charges, apart from charge 32 which they considered duplicitous of charge 31. The High Court said that it viewed these transactions much more seriously than that involving Mr and Mrs A. It accepted that, in agreeing to see through the transactions and in making the relevant entries in his trust account, Mr Harris was acting under the influence of Mr McKelvy. It also considered there to be ample evidence to justify the Tribunal’s conclusion that Mr Harris had failed to ensure that Ms B understood the components of the transactions.
[79] The Court considered that some degree of mitigation with regard to the loan part of the transaction was available because of the reference to Mr Jecks but it recognised that this did not apply to the balance of the transaction. It also said that it must have been glaringly obvious to Mr Harris that the proposed loan was improvident and that Mr Jecks had done nothing to educate Ms B about the risks.
The Court considered that no practitioner acting independently of Mr McKelvy would have countenanced it.
[80] In relation to the Pennies from Heaven transaction, the Court considered that it was the plain duty of Mr Harris to point out to Ms B, in language that she could comprehend, the risks of committing herself to a guaranteed loss of equity in her property in exchange for the shareholding in a start up company with no evidence whatever as to its substance or prospects. The Court considered that Mr Harris’ knowledge of Mr McKelvy’s criminal record was germane and ought to have been disclosed. Mr Jecks’ apparent failure to perform an analysis of the consequences of the legal transactions did not relieve Mr Harris of this responsibility.
[81] With regard to the McCawe transaction, the Court rejected a submission that at the stage of the “sale” to Mr McCawe, the transaction was a fait accompli. Given it was ostensibly a trust situation, Ms B had the right as sole beneficiary to bring the trust to an end and thus could have, with proper advice, decided not to proceed with the “technique”. Further, the Court noted that this was not the case of a pre-existing liquidity crisis (as in the case of the As) but a direct result of the Pennies from Heaven transaction.
[82] With regard to the final leg of the transaction, the Court held that, having lost her equity in the Cambridge property, Ms B was never going to secure any effective interest in the Hamilton property as she did not have the means to fund even the interest payments. The Court said that this “deplorable result” was a direct consequence of Mr Harris’s failure at the outset to give effective advice to Ms B. In its view, the subsequent McCawe and Hamilton property transactions afforded further examples of Mr Harris’s preparedness to subordinate himself to Mr McKelvy.
[83] The High Court considered, however, that there were a number of mitigating features, although the Court reminded itself of Sir Thomas Bingham MR’s remarks in Bolton v The Law Society [1994] 1 WLR 512 (CA) at 519, endorsed by the Court in Wellington District Law Society v Cummins [1998] 3 NZLR 363 at 370, where he said:
Because orders made by the tribunal are not primarily punitive, it follows that considerations which would ordinarily weigh in mitigation of punishment have less effect on the exercise of this jurisdiction than on the ordinary run of sentences imposed in criminal cases …
[84] The mitigating features identified were Mr Jecks’ involvement and Ms B’s confident demeanour (her evidence was that she had been persuaded by Mr McKelvy to pretend to Mr Harris that she understood the transaction).
[85] The High Court also expressed the view that the Tribunal, in assessing penalty, had endorsed as applicable to Ms B’s transactions some part of its conclusions as to Mr Harris’ failings with regard to the As as set out at [42] above. The Court went on to say that the difficulty with such an approach is that there was no conviction on the elements of charges 28 and 35 “containing that allegation”. As a result, the Court considered that convictions in relation to the dealings with Mr McKelvy were confined to omissions, not commissions. The High Court was not saying that breach of duty by omission cannot ever justify striking-off. Its point was rather one of fairness. While there was a powerful evidentiary base for the Tribunal’s conclusions, the Court did not consider it just following findings of breach on charges of omission to impose a penalty based on a commission “which was not squarely alleged”.
[86] Charges 28 and 35 were charges of conflict of interest in acting for other parties (including Mr McKelvy) without the informed consent of Ms B. As indicated at [49] above, the Tribunal did not uphold the charges relating to a conflict of interest regarding Mr McKelvy as it held that Mr Harris was not acting for Mr McKelvy on those transactions. We note that the High Court had earlier said that, given the business relationship between Mr Harris and Mr McKelvy and the fact that the loan was raised to invest in a McKelvy company, the Tribunal took too narrow a view of the conflict of interest question.
Penalty
[87] With regard to penalty, the High Court said that, as it saw the facts in relation to Mr and Mrs A rather differently than did the Tribunal, it was necessary for the
Court to make its own decision on penalty. On its assessment of the transaction involving Mr and Mrs A, Mr Harris’ conduct did not of itself justify the striking off order. With regard to Ms B, the Court considered that the Tribunal erred in principle in imposing penalty on the basis of commission when the charges and the convictions were of omission.
[88] Secondly, it said that the circumstances in which the breaches occurred did not warrant the ultimate penalty of striking off. It saw the breaches involving Mr and Mrs A as being mitigated by the perceived need to act urgently and Mr Harris’ reliance on Mr Jecks to explain the transactions to his clients. In relation to the charges involving Ms B, the Court pointed to the confident and knowledgeable demeanour Ms B presented to Mr Harris and, in respect of the loan part of the transaction, Mr Harris’ reliance on the advice to be given by Mr Jecks
[89] An important feature for the High Court was that there is no evidence of dishonesty in any aspect of Mr Harris’s dealings with the complainants. Rather, the Court accepted the Tribunal’s finding that Mr Harris was a dupe who allowed himself to be pressured into playing a necessary function in a wider scheme.
[90] In the circumstances, the Court considered that an order for striking off was disproportionately severe. Orders of suspension and a prohibition against Mr Harris practising on his own account were a sufficiently stern response to the gravity of the misconduct.
Parties’ submissions
[91] Mr Collins’ main submission for the Society was that the High Court should not have overturned the specialist Tribunal’s decision on penalty. In his submission, the High Court did not disturb the decision of the Tribunal on the various charges, with the exception of one duplicitous charge. The main reasons that led the Tribunal to striking off Mr Harris were also upheld by the High Court, namely that Mr Harris was prepared to subordinate himself to Mr McKelvy and that he was a dupe who allowed himself to be pressured into playing a necessary function in Mr McKelvy’s wider schemes.
[92] In Mr Collins’ submission, there is no place in the legal profession for a practitioner who lacks the strength of character and purpose to protect the interests of a vulnerable and unsophisticated client, and who allows his independent judgment to be subverted by a known criminal. Striking off was, in his submission, the only proper response.
Other points on appeal
[184] I come now to the four subsidiary grounds of appeal (summarised above at [137]). Three of them question the weight which the High Court gave to various matters. Given that the High Court was exercising a discretion as to penalty, it is never easy on appeal to challenge the weight accorded to specific matters, all of which the society accepted were relevant. But it was Mr Collins’s submission, of course, that the High Court should not have been indulging in first instance decision- making at all. It was for the tribunal to exercise its decision, with its weighting of relevant factors being accorded the utmost respect.
[185] But this brings us back to the point I have been discussing in the previous section of these reasons. If the High Court had accepted the tribunal’s assessment of Mr Harris’s conduct with respect to the A transaction and the total lack of merit of
the McKelvy proposal as an answer to Mr and Mrs A’s problem, but had nonetheless tinkered with the penalty, then Mr Collins would have been on strong grounds in his challenge. It would not have been for the High Court to substitute its opinion for the tribunal’s, unless the penalty imposed by the tribunal was plainly wrong. But the High Court did not accept the tribunal’s assessment in that regard. That necessarily involved a re-evaluation of penalty.
[186] It cannot fairly be said that the High Court gave insufficient weight to the need for public and client protection. They quoted from that part of Bolton where Sir Thomas Bingham MR was explaining why the Solicitors Disciplinary Tribunal “makes orders which might otherwise seem harsh”. One purpose was “to maintain the reputation of the solicitors’ profession as one in which each member, of whatever standing, can be trusted to the ends of the earth”. The High Court emphasised “the need for total reliability”: at [167]. But the need for public and client protection needed to be weighed up against other relevant considerations. These included the absence of dishonesty. All Mr Harris got from the transactions was fees. (They were
$1500 in the case of Mr and Mrs A; neither the tribunal’s decision nor the High Court’s reveals the sum charged to Ms B.) Mr Harris did at least ensure that both Mr and Mrs A and Ms B saw Mr Jecks for independent advice, inadequate though that was in the circumstances. In Mr and Mrs A’s case, the High Court saw Mr Harris’s breaches as “mitigated by the perceived need to act urgently”: at [184]. In Ms B’s case, the High Court considered relevant “the confident and knowledgeable demeanour she presented to Mr Harris”: at [184].
[187] In the overall circumstances, the High Court considered that public and client protection could be achieved by a lengthy suspension from practice and by an order that, following suspension, he was not to practise on his own account, whether in partnership or otherwise, unless authorised by the tribunal to do so. I am unable to conclude that the High Court was plainly wrong in reaching that balance.
[188] Mr Collins’s second “weight” point was that the High Court gave too much weight to the desirability of Mr Harris’s rehabilitation. I cannot accept that. The sole reference to rehabilitation was in [181]:
Mr Hassall’s argument is for the option of a substantial term of suspension, which does not receive mention in the Tribunal’s decision, and that a man who has exhibited symptoms of weakness can be controlled or rehabilitated by being permitted to practise as an employee under supervision and without access to a trust account.
[189] But the court did not indicate acceptance of that argument. Indeed, the court in the next paragraph said:
There is much force in the [society’s] argument. Even as an employee Mr Harris would be subject to pressure and temptation; we have emphasised in the citation from Bolton the phrase “of whatever standing”.
[190] Rehabilitation did not figure as a reason for the court’s conclusion that the penalty of striking out could not stand: see [183] – [185].
[191] Mr Collins’s third “weight” point related to the emphasis on Mr Harris’s lack of dishonesty. I do not accept the High Court gave undue weight to this matter. The society after all accepts that a finding of dishonesty is “highly relevant to a decision on penalty”; surely, therefore, it follows that an absence of dishonesty will similarly be weighty. As the Court of Appeal said in Bolton, where the solicitor is not shown to have acted dishonestly, the “lapse is less serious” and suspension comes into the frame as a possible outcome. The lack of dishonesty was relevant here and was not given undue weight by the High Court.
[192] That leaves Mr Collins’s last point, the High Court’s emphasis on the fact that the charges proved against Mr Harris involved omissions on his part, not commissions: at [183]. Mr Collins submitted that, in its later decision on penalty, the tribunal showed that it “was mindful of the nature of the misconduct, being failings of omission, when it elected nevertheless to impose a penalty of striking off”. In any event, the commission/omission distinction “is a distraction from the essential meaning of misconduct”.
[193] Mr Collins also noted that the High Court appeared to have overlooked the finding of misconduct on charge 37, relating to Mr Harris’s disbursement of sale proceeds without discussing that with Ms B, acting instead “purely upon the strength of an authority received by him, already signed by [her]”. Mr Collins said the charge
the High Court ignored was in fact a wrongful commission. Accordingly, it was not correct to say that all the findings related to omissions.
[194] I do not accept this criticism of the High Court judgment. The court specifically said they were not saying that breach of duty by omission could never justify striking off: at [179]. But it is obvious that a solicitor who commits wrongs, particularly if done knowingly, is generally more culpable and more of a risk to clients and the public than a solicitor who merely omits to do that which a reasonably competent solicitor would do. That is all the High Court was saying, and it is unexceptionable. It is the case that Mr Harris’s misconduct, reprehensible though it was, was on the whole a failing to question sufficiently the overall scheme Mr McKelvy was propounding and to warn his clients about the risks of the McKelvy proposals. The position would have been quite different had Mr Harris devised the proposals and persuaded his clients to enter into them: striking off in those circumstances may have been the only reasonable outcome. But, in saying that, I in effect endorse the High Court’s essential proposition, namely that there is a difference, but only of degree, between commissions and omissions.
[195] The High Court’s error in overlooking the finding on charge 37 does not detract from its ultimate conclusion. That charge was in one sense an “omission” charge in any event: Mr Harris’s error was in failing to confirm with Ms B that he should rely on her authority to disburse the funds. And the reference in [178] to charge 35 not having been proved was clearly an oversight, as earlier in the judgment the High Court had referred to the tribunal’s finding of misconduct on that charge and had endorsed it: at [147] and [154].
[196] I am not persuaded that the High Court made any of the four errors Mr Collins developed as subsidiary points of appeal. I would have dismissed the appeal.
Solicitors:
Glaister Ennor, Auckland, for Appellant
Hesketh Law, Hamilton, for Respondent
APPENDIX
Summary of Tribunal’s Findings
Charge
No
Client Brief particulars Facts proved/ not proved Misconduct or not
misconduct
14
[Mr & Mrs A]
Failing to obtain prior informed consent
Proved
Misconduct
15
[Mr & Mrs A]
Failing to protect interests when acting on sale
Particulars:
1. Settled sale & purchase on agreement which he knew
was executed incorrectly as vendor [Mrs A] not a registered proprietor of said property
2 Failed to account to [Mr A]
for proceeds of sale3. Failed to ensure before settling sale and purchase of [Cambridge] property a Family trust for benefit of [Mr and Mrs A] had been properly established
4. Failed to advise [Mr A] about effect of authority to pay surplus proceeds from sale to purchaser, Mr Adams
5. Failed to ensure surplus funds from sale of $47,627 were secured, by Trust or otherwise, for benefit of [Mr A]
6. Failed to ensure further
$17,000 (representing monies payable to [Mr A] on sale) left in property were secured or protected for benefit of
[Mr A]
7. In paying $3,000 to
Mr Adams (of no benefit to [Mr A]) failed to protect [Mr A’s] interests
Proved
Proved
Proved
Proved
Proved
Proved
No finding required
Not misconduct
Misconduct
Misconduct
Misconduct
Misconduct
Misconduct
THE COMPLAINTS COMMITTEE OF THE WAIKATO/BOP DISTRICT LAW SOCIETY V HARRIS CA CA86/05 [12 April 2006]
Charge
No
Client Brief particulars Facts proved/ not proved Misconduct or not
misconduct
8. Knew and was aware [Mr A] had not given an informed authority to transfer funds from sale to purchaser Adams
9. Failed to advise [Mr A] surplus proceeds from sale would eventually be paid to an entity known as Waikato Trust
10. Failed to act properly and adequately for [Mr A] to protect his interests on sale of property at [Cambridge]
Proved
Proved
No finding required
Misconduct
Misconduct
16
[Mr & Mrs A]
In asserting W/BOP DLS on
26.8.02 [Mr A] was not a client, when practitioner had acted for [Mr A], misled the Law Society
[Not] Proved
[Not] Misconduct
22
[Ms B]
Failing to ensure client understood terms and effect of mortgage
Proved
Misconduct
23
[Ms B]
Failing to act in best interests and explain loan agreement
Proved
Misconduct
24
[Ms B]
Fails to advise in Solicitor’s Certificate that client had independent legal advice
Not proved
25
[Ms B]
Failing to ensure client was informed of payments from loan
Not proved
26
[Ms B]
Failing to ensure that client had full understanding of payments from Trustees of loan
Proved
Misconduct
27
[Ms B]
Failed to promptly render statements of account
Proved
Misconduct
28
[Ms B]
In relation to loan from Provincial Finance acted in conflict of interest situation
Proved
Not misconduct
Charge
No
Client Brief particulars Facts proved/ not proved Misconduct or not
misconduct
29
[Ms B]
Acted for McKelvy as covenantor and other parties in transaction in conflict of interest situation
Proved
Misconduct
30
[Ms B]
Failed to ensure client fully understood meaning of transaction involving debenture and term loan to Pennies from Heaven Ltd
Proved
Misconduct
31
[Ms B]
Failed to obtain informed consent or authority before transferring by journal entries monies to Pennies from Heaven Ltd
Proved
Misconduct
32
[Ms B]
Failing to ensure client fully understood transaction before transferring by journal entry
$31,956.13 to Pennies from
Heaven LtdProved
Misconduct
33
[Ms B]
Failing to promptly render statement of account after above transaction
Proved
Misconduct
34
[Ms B]
Failing to obtain instructions from client to act on sale of property at [Cambridge]
Proved
Misconduct
35
[Ms B]
Acting for [Ms B] as vendor and McCawe as purchaser in conflict of interest situation
Proved
Misconduct
36
[Ms B]
Failing to inform client property was to be held in Trust
Proved
Misconduct
37
[Ms B]
Failing to obtain consent of client to disbursement of proceeds of sale
Proved
Misconduct
38
[Ms B]
Failing to advise that purchaser would receive a gift back of $17,000
Proved
Misconduct
39
[Ms B]
Failing to promptly render statement of account for above transaction
Proved
Misconduct
Charge
No
Client Brief particulars Facts proved/ not proved Misconduct or not
misconduct
40
[Ms B]
Acted in conflict of interest situation and failing to advise [Ms B] when acting for her as purported beneficiary of Trust as purchaser, vendor and purchaser of [Hamilton property]
Proved
Misconduct
41
[Ms B]
Failing to inform of details of above purchase
Proved
Misconduct
42
[Ms B]
Failing to advise that the property was being purchased in trust for her
Proved
Misconduct
43
[Ms B]
Misapplying proceeds of ANZ Bank loan by transferring $15,000 to vendor when funds should have been held in Trust
Not proved
44
[Ms B]
When acting for purchaser Johnson failing to inform that purchase was being financed with a certain loan
Not proved
45
[Ms B]
Failing to promptly render statement of account after transaction to Johnson
Not proved
0
0
0