THE HARPER-MAUDE CASE.

Press, Volume LI, Issue 8806, 29 May 1894, Page 5

THE HARPER-MAUDE CASE.

JUDGMENT 0F THE COURT.

STRUCK OFF THE ROLLS.

(By Telegraph.)

(?ROM OUR SPBCtAL COKKESPOJJDEST.]

WELLINGTON, May 28.

1 At the Court of Appeal to-day the Chief Justice delivered judgment in « Harper and Maude as follows: — " Upon the motions submitted in the - caae of George Harper and T. W. Maude, that the rule nisi to debar or ffluspend them from practice should be made absolute, though the rule granted agajnet Mr Maude was argued aeparately from |hat granted against Mr George Harper, it iiinot necessary in giving the reasons which lead to the conclusions arrived at in each caae to deal separately with them except in s*>me fey particulars. The members of the firm, Leonard Harper, George Harper and T. W. Maude, were declared insolvent in March, 1893, with a deficiency of over £200,000. In connection with their business as solicitors they carried on what is described as a fiooncial and agency business, the extent of which may be understood from the fact that, at the time of the insolvency, the deficiency was so large, and it almost wholly oouaisted of liabilities in this brauch of their business. Iα order to have a juet view of tbe oonduct of Mr George Harper and Mr Maude, which is charged to amount to very grave professional misconduct, it is necessary to shortly recall what was the nature of this finaucial business, and how it was carried ou. The senior partner, Mr Leonard Harper, wheu in New SSealand, had, it appears probable, the sole control of this branch of the business of the firm; Mr Maude having the management of tho conveyancing buaiaers, which was no doubt extensive, Mr G, Harper having the eolo management of tho common law branch, also an extensive business, requiring Mr George Harper's personal exertions and attention to a very great degree. It must be conceded to Mr G. Harper, and, perhaps, also to Mr Maude, that anytuiug like adequate interference by them iv the financial business, in order to control it at every step, was impossible, by reason of the constant demands upon them. The business of the financial department, which wm known ia the office* as the No. 2 Department, consisted principally in receiving moneys from clients in New Zealand and abroad for investment on mortgage, investing and re-inveating the same, and collecting the interest. Aβ to some clients, it appears that no guarantee of s> oertato. amount of interest 'on their moneys sent for investment) was given, *nd as to some a guarantee of interest on the moneys pending investment or re-investment. Iv order to enable the firm to represent the absent clients powers of attorney were obtained from these clieuts to some of the members, so as to execute releases am! transfer* of mortgage securities without the delay and inconvenience of referring to the clients. The clients conferring such powers, of course, would rely not only on an hoiieab, but also on a careful and intelligent exercise of those powers. It is cor tarn that the foot that the petsoa on whom such powers «zb - proposed to be conferred, «uch trust to be pal;, is » solicitor of high repute for honesty and intelligence, would induce an a&eant person to readily adopt the proposal. The foot that the powers are proposed to be conferred on several members of a firm ot each solicitors would, in the estimation of most persons, afford en additional guarantee of the honeafc, intelligent and careful dacttarge of the trust proposed to be created, la connection with the No. 2 department, " there was kept a, separate banking account at the Union Back, called the No, 2 account. This account was kept entirely separate from the Bank account the eoramoa law and oonveyancing business ; indeed, It appears that Ho. 2 department) thoneii carried oa under the same roof, was conducted, as far as possible, as if not -connected with the other departments, in ao far as not only separate aooount and Bank accounts were Inapt* bnt separate cheque books, letter booyka, ie. Air George Harper became a clerk to his brother in 1870, and bo remained fcili 1879, when ha became a member of tho firm. Mr Maude joined the firm in 1880. 'JDoe conduct of the member* of the firm in their business prior to June, 1835, is not of much concern. It ea&ma certain that, though even during this period Mr G. Hamper and Mr Maade placingrimplKsn in tbe head of tbe tutu did , not attempt to Acquaint themselves with the transr/LC&onu in tho No. 2 department, yet they did accept powers of attorney fram absent clients, and did act upon them, and, octieg upon them, failed to enquire iato the pai/dculax tranEAotious in zcgard to -which I they were acting. It ie certain that, chough tr/e two solicitors whose conduct ia now ia ! qqestion ere not proved to Jmve been iofctarmod or acquired knowledge ot tho par. tiicalar transections undertaken aad sarriei out by the No. 2 deportment, they hud a /perfect knowledge of the general character ioi the buemeaa and of itahaxardoue nature. 'They mußb have known—indeed, admit they ktvew—bow extensive tim bnainena was, aad that a very iarge amount of money and other property was, by tlie nature of tl*e hnttiama and tbe way it was oondaoted, left t>° the uncontrolled management of one man, their senior partner. They undoubtedly also knew, I refer to tbe period before June, 1835, of the hazardous nature of the business, and of the probability, the necessity indeed, of hazatds being oaken, if they vera to be Able to pay the guaranteed high ratoe of interest, and interest at 5 per centum on moneys pending investment and re-invest-ment. It ia true, Mr G. Harper it zrae not till shortly before the-29th July, 1885, that he found out that Jt had been tho habit of the said firm in maay instances to invest moneys belonging to clients on mortgage, taken to and in tbe name of one or other of the members of tbe firm. Ido not find that Mr Maude tn*kee a statement fcbat he did not fcabir of ttxs till shortly before July, 1885. The question here occurs—-had they grounds to believe in, did they thent&elves beliere in, the prudence, the skill, the trustworthiness of their senior. partner and those who were working under and with him? In June, 1885, the senior partner, h&viag been elected a member of the House of Representatives, had to attend Parliametifc on its meeting for baiiness. It was arranged that during hie absence Ue Maude should 'euperriee' the Ho, 2 department, which was left, subject to that 'a&pervieios,' to the management of aMr Park arson, who had been manager of toot for tome years. It is certain that soon after the departure of Mr Leonard Harper to attend Parliament, the fioaucial condition of tbe tirin in relation to the Nα. 2 department ooaaed grave anxiety to Mr Monde and Mr G, Harper. Enough is admitted, or v certain, to ebow that these members of the firm were anxious about other matters than mere inactivity in the collection of interest and wrerdae principal, and tbe financial strain upon themselves caused by the pay* meat* to their clients of the omosnteof each nwselleoted tnoaeya. Mr G. Harper admits that at taia time be expressed nis stcoog opinion and desire that MrPaofkereon euottld be remored from bis poaifeion, wd flonsß person'appointed in hie place* aeeigning as a reason that Mr Parkcreon *Wfte,»o£ looking afler the said No. 2 department in tfae way he should, and that he waejoot doing so, owing to hie reloctanoe to or attempt to control, the eaod Lecoard Harper in the management thereof.' In tl»: examination of Mr Q. Harper befo*n fcbe Official Aeeignee ia bankruptcy, he aaid Sbali it was aoc tail during Leonard XferpetrV absence ia England, from August, 1686, to AagUßfc 1837, "that hw n'rsb rsaiwed that the firm vfm in fio«iu»l difficulties, owing to Mr M&ude>'» investigatioa on taking over tte oaoagwnent of the No. 2 departmeat duxisg my brother's absence in Keglaud. , Hβ wye them, 'I did not then consider the firm isssolveut.' In his affidavit here he a»yp, 'Xβ or aboet Jnne, 1886, owing to investigation then m&de by the said T. W, Mm4p, daring 6he absence of fcbe said L. Harper aft Wellington, I became aware that considerable eums of money were owing to ao4 by 6be firm* and that ra«cli laxity was ■town hf the Nβ. 2 department m tbeoet* lectden aad recovery of the same, and tbafc

consequently the said firm was in financial difficulties and prevented from investing moneys on behalf of clients, and from making arrangements with the said Bank fer advances for that purpose." Mr Maude, with reference to this period — June 1885 — says in his affidavit. 'Daring my supervision of the business I ascertained from representations made to mc by two of the clerks, that interest due from mortgages was largely in arrears that clients had been paid their interest whether collected or not, that temporary advances were being made to clients without proper security, that arrears of interest and other debts due were not promptly collected, and tiiat these advances and payments and lack of promptitude in •collecting debts, had led the tirua into financial difficulties, while a very large amount of assets had accumulated m the Bank of the department, the greater part of which could not be 'readily realised. Under these circumstances it became necessary to make arrangements with the Bank for accommodation to enable the firm to meet its engagements. Thereupon, as Mr Mauds says, a .special account was, by arrangement with the manager of the Bank, opened with the Union Bank called the ' investment account,' into which all principal moneys received from and on behalf of clients w.ie paid. Mr G. Harper cays as to this account: —' In order that the said firm might have batter control af moneys for investment on behalf of clients, pending investment of the same, it was considered advisable that a trust or investment account should be opened at the Bank, into which all moneys for investment should be paid, and, further, that the said account should, for the purpose of keeping it distinct from the other accounts of the firm, be operated upon by the said T. W. -Maude and myself. The said trust or ■investment account was opened at the time referred tc.' Now at this time Mr Leonard Harper was in New Zealand. He was only temporarily absent in Wellington. It must •be inferred from this that these two ■partners thought thia course necessary in order to exercise some control over Mr .Leonard Harper, the senior partner. For, though he resumed control of the department after the parliamentary session, no change was made as tp who should operate on the account from that time, although he remained in New Zealand till August, 1885. This account then was opened by arrangement with the Bank, and is spoken of at least by Mr G. Harper aa a 'trust account.' This account was maintained until Mr L. Harper left for England. The opening of this account is said by Mr Maude to •have been for the purpose of putting the business on a sound financial footing, and 'for the reasons already mentioned. He admita that at this time (1885) he knew that •the firm had large assets they were unable to realise. At the same time that Mr G. Harper and Mr Maude thought it necessary to establish the investment account {June or July, 1885), they also established a system of declarations of trusts, as already stated. Mr G. Harper says it was not until shortly before the" 29th July, 1885, that he learned of the habit of the firm in taking ■securities in their own name for clients' /investments, and thereupon he commenced ■to make declarations of trust to meet the cases of existing investments, and gave directions that on all new investments of a '■similar kind declarations of trust were to rbe made. Over' one hundred of such declarations of trust were made, the great ■majority about July, August, and September, 1885, the persons executing the declarations of trust being Mr G. Harper and Mr Maude. In order to give some proiectioh to the persons whose money the firm had received declarations of trust were made of mortgages, though the amount of the mortgage was not the precise amount of any client's money. Thus the declaration *of trust was in cases as to part of the secured money for one person and part for /another. What is to be inferred from the ifact of Mr G. Harper and Mr Maude establishing what is spoken of as a trust account and the systems of declarations of trust? Whether it was that ithey realised their peril, or whether ib was that they realised their duty to their .clients, matters not. It is impossible to conclude that their eyes were nob thus opened, if they had been closed before. They may have believed that they were not insolvent. They each say that they had that ibelief. They do not, however, appear to !have taken the necessary steps, or any, to ascertain their position, and certainly there is no evidence to show that such a belief was founded upon any credible grounds. If it should be found that these two solicitors, 1 who by the declaration of trust had taken -upon themselves the position of acting as to the securities' for absent clients, who had entrusted to their firm very large amounts for investment, have, in fact, dealt with the trust securities in breach of ; their trust, what excuse or palliation can jpossibly be suggested for such acts ? If it "be borne in mind that such dealings were long after they had learned what certainly learned in 1885 as to the financial position of the firm, can tit be any palliation that they continued to trust the brother and those fwhoni he trusted, but whom they did foot trust, and that they executed whatever t was put before them and without enquiry ? KEhey knew that the declaration of trust had ibeen taken to afford protection to their ; they knew that there were very .many of them, over one hnndred ; and some or all of the trusts being on behalf of dieitant clients it seems scarcely credible that they should, as they say, sign anything put 'before them, and without enquiry and without information they did sign whatever ■was put before them. It ia consistent only with one supposition that they felt themselves unable to have a will of their own, unable •to oppose any proposal without precipitating the downfall of the firm, which they foolishly trusted would be maintained by further moneys of clients obtained by their partner for investments. Again knowing the financial position of the firm after July, 1885, as they did, what palliation or excuse can be suggested for their acting under powers of attorney for absent clients, in dealing with securities taken in clients' names, without enquiry and without information ? The only excuse or palliation offered is that they signed whatever was put before them 'without enquiry as to contents or purport.' Then the investment account, esblished t under the circumstances already detailed, is abandoned. Can any excuse or palliation be suggested for that ? It •waa commenced, as . has been stated, about June or July, 1889, apparently by -arrangement with Mr Melville, who was manager of the Union Bank at the time. Mr IL. Harper left for England in August, 1356. iCThere had about that time been a change of the manager of the Bank. Shortly after MrL. Harper left tor England Mr Moore, % the new manager, required that the • arrangement , should cease. According to Mr Maude, this is what happened :— * Within a few daya after his (Mr L. Harper's) departure, Mr Moore, who had recently succeeded Mr Melville as manager of the Bank, came to mc and stated that he could not continue to carry on the business on its then present footing, as he .objected to an account running, of which he "had notice that it was a trust account. He also stated that the Bank was prepared to find what moneys were required to meet payments to clients and others, if the investment account was closed and the business carried on as it was prior to the opening o£ that account. . On the 28th August, 1886, ib was agreed to close the investment account, and closed it was in the following September, ib being then in credit £31,000, by a cheque drawn by Mr G. Harper and Mr Maude, which cheque waa paid to credit to the No. 2 account,' then overdrawn £36,000. All this happened after Mr L. Harper had left, and therefore was not done under his influence. It ia said that it was forced upon them by the fact that he had failed to make the satisfactory arrangements with the Bank as he had assured hie partners before leaving he had done. This is very probable. But again, the only possible reason for the two partners abandoning this security was undoubtedly that they felt themselves helpless. There was but one alternative. If they sacrificed the security the Bank must cairy them on, if not the firm must fail. The result is that £30,000 of moneys admittedly entrusted to them for investment .goes to pay off an equal amount from their overdrawn account; and this at a time ■when admittedly they knew themselves to "be in .financial difficulties. From that time "tall sootly before the collapse, in 1895, the moneys sent to_ the firm for investment were allowed to go on to the overdrawn No. 2 account. Mr L. Harper returned to New Zealand in .August, 1887, and resumed control of the No. 2 department, and continued to'oontrol it till August/, 1891. In

May, 1891, Mr Maude left for England, in a bad state of health, and to remain away a year. In July or Aagnsb, 1891, Mr L. Harper before leaving iuformed Mr G. Harper that the firm was in debt, in respect of clients' money entrusted to them for investment, to the extent of £150,000 unrepresented by any securities, and that there were securities held tor clients to the extent of £250,000. Now, on the 3rd of January, 1891,, Mr G. Harper and Mr Maude executed an agreement with the Union Bank, as a security for moneys advanced and to be advanced to the firm, that certain deeds, mentioned in the first schednle, should be and remain with the Bank as a security, and to convey the lands mentioned in the second schedules. In the first schedule is described a mortgage from Parton to G. Harper and T. Maude, dated September, 1832, to aeenre £7000. As to this mortgage for £7000 Mr G. Harper and Mr Maude had on 25th September, 1886, disclosed, that, as tc £1000 of the advance it was the money of two Mis 3 Shephards, and £4000 the money of a Mr Jenkinson. These moneys have nsver been repaid to the persons. The excuse put forward by Mr G. Harper and Mr Maude is that Mr L. Harper caused the agreement to be put before them for execution, and that they, without inquiry or information, signed ib; that they do not recollect more about it than they supposed they thought they were dealing with securities belonging to the firm. Mr Maude says he was informed by Mr L. Harper that it was for the purpose of carrying out a financial arrangement with the Bank. This account may be accepted as true, but it affords no excuse to either of the trustees. There ias no evidence of any such active deception on the part of Mr L. Harper as can afford any palliation. The two solicitors knew that they had in 1885 and 1885 executed a large number of trust deeds. They knew that the firm had taken a large number of securities in thefr own names for moneys belonging to clients, and ought to have been impressed with these facts when asked to execute any instrument. They must have known also of the financial straits of their firm. It is probably true that the fact that this mortgage was under trust was not present to their minds at the time of signing the agreement, but the real reason for their act is no doubt etill the same. They thought themselves powerless, and made no enquiries. Again, ia 1891, after Mr Maude had left for England, and just before Mr L. Harper left for England in June, owing, as Mr G. Harper says, 'to unexpected withdrawals from the firm of capital moneys belonging to clients, 1 became aware that difficulties arose in meeting demands on the firm.' An advance of £30,000 was obtained from the Bank, secured by the guarantee of relatives, Mr J. B. Acland and Mr Tripp, they to be secured by securities belonging to the firm. • On the 28th July, 1891, the day Mr L. Harper left for Eogland, he, as already stated, informed Mr G. Harper, in answer I to questions put by him, of the fact that the liabilities of the firm to clients, on' account of uninvested moneys, was £150,000, and that between £250,000 and £500,000 of the clients' moneys only was invested on mortgage. It is almost incredible that at this time, knowing of the many declarations of trust that had been executed, and being informed of the financial straits of the firm so as to require the guarautee to the Bank by his relatives, and the agreement to secure them by securities of the firm, Mr G. Harper should, nevertheless, without inquiry, and without any active deception practiced upon him, venture to deal with any property, under the belief that the property was that of the firm. But on the 22nd Julj, 1892, six days before the departure of his brother, he executed an agieement to mortgage to the Union Bank certain properties. These properties, consisting of a mortgage security for £12,000 and other property, were in fact the subject of a trust executed by himself and Mr Maude on the 22nd December, 1886. All that Mr G. Harper can say about thia ia that he had no recollection of the transaction, that he made no arrangement with the Bank, and that he has since ascertained from the Bank manager that Mr L. Harper had made an arrangement for this agreement as a security for moneys to be advanced by the Bank to be remitted to England on behalf ot some clients of the firm. The persons for whom the trust was declared by George Harper for himself and his brother were—as to £3000 for Mr Balfour, as to £3600 for Mr Bradshaw, as to £1000 for Mr Douglas, as to £1000 for the trustees of Dunkley, £1000 for a Mr Slatery, and £400 for a Mr Child. As to some, if nob all, of these beneficiaries, they have been deprived of their security by this transaction with the Bank. In the following December a deed was executed by Mr G. Harper, giving effect to the security. Aβ "to the execution of this deed, all that Mr G. Harper can say is that even then he had made no enquiry, and was not aware of what was doing. It appears that. the head office of the Union Bank at Wellington had in October or November, 1892, instructed their solicitors at Wellington to see to the securities held at Christchurch by the Bank, and that, finding this agreement, the necessary sub-mortgage was prepared to give effect to it; and so when it was, without information, pub before Mr G. Harper, he, without enquiry, executed ib, being told it was to carry out an agreement with the Bank. The sub-mortgage was executed by Mr Maude abo. The securities, the subject of this trust, were over properties of a. Mr Smith. There had been so many dealings with this security,, by sales I of parts of the lands mortgaged and j otherwise, in which the various members of the firm took pare, that ib is surprising, i and almost incredible, that the deed of submortgage to the Bank could have-been executed without the fact of the trust occurring to Mr G. Harper, and' indeed also tp Mr I Maude. For Mr Maude, though not a trustee, held a power of attorney from the 1 mortgagor, and also was in charge of the conveyancing branch of the firm's business. A Mr Hotham had entrusted the firm with £4000 to invest on mortgage. Mr L. Harper was the aole or principal owner of some coal mines at Springfield." He mortgaged the property to G. Harper and Mr Scott, on the Ist of February, ISS6, to secure £500. On the 26th December, 1886, Mr G. Harper and Mr Scott declared themselves trustees of a mortgage for £5000 over thia property; .the trust as to £2000 of it for Mr Hotham and £1000 for a Captain Watson. On the 23rd J uly, 1891, Mr George Harper mortgaged this security to the Union Bank. He says he has no recollection of doing so. r He does nob deny that it took place, bub has no recollection of the trust or the transactions generally. He can hardly have been ignorant of his brother's connection with the Springfield Company. A Mr Robin had entrusted the firm with a large sum to invest. Of this £500 was lent to a Mr Hardy Johnston on mortgage in March, 1886, the security being taken, apparently in Mr Robin's name, so late as 3rd September. 1892. Mr G. Harper, as attorney for Mr Robin, transferred this mortgage to the trustees of a Mr Wilson. Mr Rabin has been deprived of this money. All that Mr G. Harper can say about this Is that he has no recollection of it. The trustees of Holland entrusted the firm with £7000 to invest on mortgages. This appears to have been borrowed by G. Harper aod Mr Scott on iand at Opoka. Sales took place of portions of this land. The firm received the proceeds, and £4500 of this £7000 has been appropriated. Mr G. Harper denies all knowledge cf the transaction, and says he has no recollection of executing the conveyances to the purchasers. He does not deny that the money was so borrowed and secured, and the sales were made and the conveyances executed by him, bub says he does not recollect the transaction, and believes the loac was arranged by Mr L. Harper. There are other instances than those mentioned of Mr G. Harper, under powers of attorney. transferring and. releasing mortgages, and being unable to cay more tban that he does not recollect the transactions and is unable to explain them. As already mentioned, Mr G. Harper was informed before his brother left for i England in July, 1891, of the financial position of the business. Mr Maude had then j left for England. But no change was made in the mode of dealing with the trust; moneys paid to the firm. These moneys were still paid to the general No. ■ 2 account, and dealt with as they wero while bis brother was in charge. While the brother was in England he remitted to-the firm sums amounting to £40,000 ; £28,000 of this is said to have been practically a. gift from relatives. Whether the other £12,000 was a loan to the firm or not dose not appear. Mr Maude retired from

the business in July, 1892. Almost at the same time the brother returned from England, and left again for England in November. Shortly after Mr G. Harper established a trust account, and so he says saved for his clients some £25,000. It is said that Mr Maude for five yeare before he left for Eogland refused to draw cheques upon the No. 2 account, or to take any part in the business in the No. 2 department. He does not himself say that this is so. If it be the fact such refusal is consistent only with a knowledge of the improper manner in which the business in that department was being: conducted. The last charge is that, though Mr G. Harper became aware in March, 1892, that false accounts were being sent out to clients representing moneys as invested when they were not, he took no proper Bteps to prevent the continuance of the practices, and that on his brother Leonard Harper returning in J'>ne he spoke about the matter to him aud accepted the assurance that such accDunts should not be sent out in the future. Mr G. Harper does not seeai to have actively interfered to secure that the September accounts should be correct representations of their clients' investments. Eaough ha 3 been described of the general course of conduct of Mr Geo. Harper aud Mr Maude with regard to the firm's business in the No. 2 department to have raised grave doubts as to their fitness to longer continue on the roll of practitioners; but when the particular acts of each above detailed are considered it is beyond doubt that the Court can take but one course with regard to them, and that is that their names be removed from the rolls of barristers and solicitors of the Supreme Court."