THE HARPER AND MAUDE CASE.

New Zealand Mail, Issue 1163, 15 June 1894, Page 39

THE HARPER AND MAUDE CASE.

STRUCK OFF THE ROLLS. At the Court of Appeal on the 2Sth the Chief Justice delivered judgment as follows upon the motions submitted in the case of Geo. Harper and T. W. Maude, that the rule nisi to disbar or suspend them from practice should be made absolute: — Though the rule granted against Mr Maude was argued separately from that granted against Mr Geo. Harper, it is not necessary, in giving reasons which lead to the conclusion arrived at in each case, to deal separately with them, except in some few particulars. The members of the firm —Leonard Harper, George Harper and T. W. Maude—-wero 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 financial 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 almost wholly consisted of liabilities in this branch of their business. In order to have a just view of the conduct 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 chis financial business, and how it was carried on. The senior partner, Mr Leonard Harper, when in New Zealand, had, it appoars probable, the sole control of this branch of the business of the firm, Mr Maude having the management of the convoyaUcing business, which was no doubt extensive, Mr G. Harper having the sole management of the common law branch, also an extensive business, requiring Mr G. Karper'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 anything like adequate interference by them in the financial business in order to control it at every step was impossible, by reason of the constant demands upon them in the management of their own departments. The business of the financial department, which was known in 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-investing the same, and collecting the interests. As to some clients, it appears that a guarantee of a certain amount of interest on their moneys sent for investment was given, and as to some a guarantee of interest on the moneys pending investment or re-investment. In order to enable the firm to represent their absent clients, powers of attorney were obtained from these clients to some of the members of the firm, and powers enabled the holders of the powers to execute re-leases and transfers 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 honest but also a careful and intelligent exercise of those powers. It is certain that the fact that the person on whom such powers are proposed to be conferred, and such trust to be put, is a solicitor of high repute for honesty and intelligence, would induce an absent person to readily adopt the proposal. The fact that the powers are proposed to be conferred on several members of a firm of such solicitors would in the estimation of most persons afford an additional guarantee of the honest, intelligent and careful discharge of the trust proposed to be created. In connection with the No. 2 department, |there was kept a separate banking account at the Union Bank, called the No. 2 account. This account was kept entirely separate from the bank account kept for the common law and conveyancing business; indeed it appears that No. 2 department, though carried on under the same roof, was conducted as far as possible as if not connected with the other departments, in so far as not only separate accounts and bank accounts were kept, but separate cheque books, letter books, &c. Mr George Harper became a clerk to his brother in 1870 and so remained till 1879, when he became a member of the firm. Mr Maude joined the firm in 1880. The conduct of the members of the firm in their business prior to June, 1885, is not of much concern. It seems certain that, though even during this period Mr G. Harper and Mr Maude, placing implicit confidence in the head of the firm, did not attempt to acquaint themselves with the transactions in the No. 3 department, yet did accept powers of attorney from absent clients, and did act upon them, and on acting upon them fail to inquire into the particular transaction in regard to which they were acting, it is certain that, though the two solicitors whose conduct is now in question are not proved to have been informed or acquired knowledge of the particular transactions undertaken and carried out by the No. 2 department, they had a perfect knowledge of the general character of the business, and of its hazardous nature. They must have known—indeed admit they know-how extensive their business was, and that a vory large amount of money and other property was by the nature of the business, and the way it was conducted, left to the uncontrolled management of one man, their senior partner; they undoubtedly also knew—l refer still to the period before June, 1885—of the hazardous nature of the business, and of the probability—the necessity indeed—of hazards being taken if they were to be able to pay the guaranteed high rates of interest, and inteiest at 5 per centum on moneys pending investment and re-invest-ment. It is true Mr G. Harper says that it was not till "shortly before the 29th July, 1885,1 found out that it had been the habit of the said firm in many instances to invest moneys belonging to clients on mortgage taken to and in the name of one or other of the members of the firm." I do not find that Mr Maude makes a statement that he did not knowof this till shortly before July, 1885. The question here occurs, had they grounds to

' believe in ? Did they themselves believe in ] the prudence, the skill, the trustworthiness I of senior partner, and those who wero ! working under and with him ? In June, 1885, the senior partner having been , elected a member of the House of Representatives, had on the meeting of Parliament then to be absent from his placo of business ; it was arranged that during his absence Mr Maude should " superviso " the No. 2 department, which was left, subject to that "supervision," to the management of a Mr Parkerson, who had been manager of that for some years. It is certain that soon after the departure of Mr Leonard Harper to attend Parliament the financial conditions of the firm in relation to the Nc. 2 department caused grave anxiety to Mr Maude and Mr G. Harper. Enough is admitted or is certain to show that these members of the firm were anxious about other matters than mere inactivity in collection of interests and overdue principal, and the financial strain upon themselves caused by the payments to their clients of the amounts of such uncollected moneys. Mr G. Harper admits that at this time he expressed his strong opinion and desire that Mr Parkerson should be removed from his position and some person appointed in his place, assigning as a reason that Mr Parkerson i " was not looking after the said No. 2 department in the way he should, and that he was not doing so owing to his reluctance to control or attempt to control the said Leonard Harper in the management thereof." In the examination of Mr G. Harper before the Official Assignee in bankruptcy, he said that it was not till during Leonard Harper's absence in England from August, 1886, to August, 1887, " that he first realised that the firm was in financial difficulties owing to Mr Maiide's investigations on taking over the management of the No. 2 department during my brother's absence in England." He says there, " I did not then consider the firm insolvent." In his affidavit here he says " In or about June, 1885, owing to investigations then made by the said T. W. Maude during the absence of the said L. Harper at Wellington, . . I became aware that considerable sums of money were owing to and by the firm, and that much (laxity was shown by the No. 2 department in the collection and recovery of the same, and that consequently the said firm was in financialdifficultie3 and prevented I from investing moneys on behalf of clients and from making arrangements with the said bank for advances for that purposes." Mr Maude, with reference to this periodJune, 1885—says m his affidavit:—"During my supervision of the business I ascertained from representations made to mo by two of the clerks that interest due from mortgagors was largely in arrear, 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 duo were not promptly collected, and that their advances and payments and lack of promptitude in collecting debts had led the firm into financial difhcultes, while a very largo amount of assets had accumulated in the bank of tho 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 Maude says, a special account was by arrangement with the manager of tho bank opened with the Union Bank, called the investment account, "into which all principal moneys received from or on behalf of clients were paid." Mr G. Harper sayrj as to this account: —" In order that the said firm might have better control of moneys for investment on behalf of clients pending investment of tho 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 to." Now at this time Mr Leonard Harper was in New Zealandhe was only temporarily absent at Wellington. It must be inferred from this that these two partners thought this course necessary in order to exercise some control over Mr L. Harper, the senior partner, for though he resumed control of tho department after the Parliamentary session, no change was made as to who should operate on tho account from that time, although he remained in New Zealand till August, 1886. This account then was opened by arrangement with tho bank, and is spoken of at least by Mr G. Harper as " 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 admits 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 Maudo thought it necessary to establish the investment account (June or July, 1885) they also established a system of declaration of trusts. As already stated, Mr G. Harper says it was not until shortly before 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 in all new investments of a similar kind declarations of trust were to be made. Over one hundred of such declarations of trust were made, the groat 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 protection to the persons whose money the firm had received, declarations of trust were nia.de of mortgages, though the amount of

tho mortgage was not the preciso amount of any client's money. Thus tho declaration of trust was in cases as to part of tho secured money for one person, and part another, and part for another. What is to be inferred from the fact of Mr G. Harper and Mr Maude establishing what is spoken of as a trust account and the system of declarations of trust? Whether it was that they realised their peril or whether it was that they realised their duty to their clients, matters not. It is impossible to conclude that their eyes were not thus opened—if they had been closed before. They may have believed that they wero not insolvent; they each say that they had that oelief. They do not, however, appear to have taken tho 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, who by 'the declaration of trust had taken upon themselves the position of express trustees 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 possibly be suggested for such acts, if it be borne in mind that such dealings wero long after they had learned what they certainly learned in 1885 ? As to the financial position of the firm, can it be any palliation that they continued to trust the brother and those whom he trusted, but whom they did not trust, and that they executed whatever was put before them and without enquiry. They knew that tho declaration of trust had been taken to afford protection to their clients. They know that there wero very many of them, over one hundred, and some or all of the trusts being on behalf of distant clients, it seems scarcely credible that they should, as they say, sign anything put before them and without enquiry. If it be the fact that without enquiry and without information they did sign whatever was put before them, it is consistent only with ono supposition —that they felt themselves unable to have a will of their own, unable to opposo any proposal without precipitating tho downfall of tho firm, which they foolishly trusted would bo maintained by further moneys of clients obtained by their partner for investment. Again, knowing the financial position of the firm after July, 1885, as they did, what palliatin or excuse can be suggested for acting| under powers of attorney for absent clients in dealing with securities taken in clients' names without enquiiy and without information ? The only excuse or palliation offering is they signed whatever was put before them " without enquiry as to contents or purport." Then the investment account, established under the circumstances already detailed, is abandoned. Can any excuse or palliation bo suggested for that ? It was commenced, as has been stated, about June or July, 1885, apparently by arrangement with Mr Melville, who was manager of the Union Bank at the time. Mr L. Harper left for England in August, 1886. There had about that time boon a change of manager of the bank. Shortly after Mr L. Harper left for England, Mr Moore, tho new manager, required that the " arrangement" should cease. According to Mr Maude, this is what happened: "Within a few days after his (Mr L. Harper's) departure, Mr Moore, who had recently succeeded Mr Melville as manager of tho bank, came to mo and stated that he could not continue to carry on Ihe business on its then present footing, xs he objected to an account running of which ho had notice that it was a trust account. He also stated that tho 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 of that account." On the 28th August, 1886, it was agreed to close the investment account, and closed it was in the following September, it being then in credit .£31,000, by a cheque drawn by Mr G. Harper and Mr Maude, which cheque was 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 is said that it was forced upon them by tho fact that he had failed to make satisfactory arrangements with the bank, as he had assured his partners before leaving he had done. This is very probable. But, again, the only possible reason for tho two partners abandoning this security was undoubtedly that they felt themselves helpless. There was but ono alternative—if they sacrificed the security, the bank must carry them on ; if not, the firm must fail. The result is that £31,000 of moneys admittedly entrusted to them for investment goes to wipe 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 till shortly before the collapse in 1893 tho 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 control 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 August, 1891, Mr L. Harper before leaving informed Mr G. Harper that the firm wa3 in debt in respect of clients' money entrusted to them for investment to the extent of .£150,000 unrepresented by any securities whatever, and that there were securities held for clients to the extent of .£250,000. Now, on the 3rd 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 schedule should be and remain with the bank as a security; and to convey the lands mentioned in the second schedule. In tho first schedule is described a inert*

gage from one Partem to G. Harper and T. Maude, dated September, ISB2, to secure X7OOO. As to this mortgage for X7OOO Mr G. Harper and Mr Maude had on 25th September, 1886, disclosed that as to .£IOOO of the advance it was the moneys of two Miss Shephards, and X'-KXX) the moneys of a Mr Jenkinson. These moneys have never been repaid to these persons. The excuse put forward by Mr G. Harpor and Mr Maude that Mr L. Harper caused the agreement to bo put before them for execution, and that they without inquiry or information signer" it; that they do not recollect more about it ; that they suppose they thought they were dealing 1 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 affords no excuse to either of the trustees. ' There is no evidence of any such active deception on tho part of Mr L. Harper as can afford any palliation. The two solicitors knew they had in 1885 and 188 G executed a large number of trust deeds; they knew that tho firm had taken a large number of securities in their 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 tho fact that this mortgage was under trust was not present to their minds at tho time, of signing tho agreement. But fcho real reason for their act is no doubt still tho same, they thought themselves powerless, and made no enquiries. Again in 1891, after Mr Maudo 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 tho firm of capital moneys belonging to clients, I 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 rolatives, Mr J. B. Acland and Mr Tripp, they to be secured by securities belonging to the firm. On tho 28th July, 1891, the day Mr L. Harper left for England, he, as already stated, informed Mr G. Harper, in answer to questions put by him, of the fact that tho liabilities of tho firm to clients on account of uninvested moneys was .£150,000, and that between .£250,000 and .£300,000 of clients' money was invested on mortgage. It is almost incredible that at this time, knowing of the many declarations of trust that had been executed, being informed of the financial straits of tho firm so as to require the guarantee to the bank by his relatives and tho agreement to secure them by securities of tho firm, Mr G. Harper should, nevertheless, without inquiry and without any active deception practised upon him, venture to deal with any property under the belief that the property was that of tho firm. But on the 22nd July, 1892, six days before the departure of his brother, he executed an agreement to mortgage to tho 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 this is that he had no recollection of the transaction, that he made no arrangement with the bank for it, 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 bo remitted to England on behalf of some clients of tho firm. The persons for whom tho trust was declared by George Harper for himself and his brother were as to .£SOOO for Mr Balfour, as to .£3600 for Mr Bradshaw, as to .£IOOO for Mr Douglas, as to .£IOOO for trustees of Dunkley, .£IOOO for a Mr Starkey, and .£4OO for a Mr Child. As to some, if not 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. As 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 he was doing. It appears that tho head office of tho 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, put beforo Mr G. Harper, he, without enquiry, executed it, being told it was to carry out an agreement with tho bank. The submortgage was executed by Mr Maude also. 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 of parts of the lands mortgaged and otherwise in which the various members of the firm took part, that it is surprising and almost incredible that tho deed of sub-mortgage to tho bank could have been executed without the fact of the trust occurring to Mr G. Harper, and indeed also to Maude, for Mr Maude, though not "a trustee, hold a power of attorney from the mortgagor and also was in charge of the conveyancing branch of the firm's business. A Mr Hotham had entrusted tho firm with .£4OOO to invest on mortgage; Mr L. Harper was the sole or principal owner of some coal mines at Springfield; he mortgaged the property to G. Harper and Mr Scott on Ist February, 1886, to secure .£SOOO. On the 22nd December, 1886, Mr G. Harper and Mr Scott declared themselves trustees of a mortgage for .£SOOO over this property, the trust as to .£2OOO of it for Mr Hotham, and .£IOOO for a Captain Watson. On tho 23rd July, 1891, Mr George Harper mortgaged this security to the Union Bank: he says he has no recollection of doing so. He does not deny that it took place, but has no recollection of the trust or tho transactions generally, He

can hardly havo been ignorant of his brother's connection with the Springfield Company. AMr Robin had entrusted tho firm with a largo sum to invest ; of this .£SOO was lent to a Mr Hardy Johnston on, mortgage in March, 1886, tho security* being token apparently in Mr Robin's* name, so lato as the 3rd September, 1892, Mr G. Harper, as attorney for Mr Robin, transferred this mortgage to tho trustees of aMr Wilson ; Mr Robin has boon deprived of this money. All that Mr G. Harper can say about this is that he has no recollection of it. The trustees oC Holland entrusted tho firm with .£7OOO to invest on mortgage. This appears to> havo been borrowed by G. Harper and Mr Scott on land at Ohoka. Sales took place of portions of this land; tho firm received tho proceeds ; .£4550 of this .£7OOO has been misappropriated. Mr 0. Harper denies all knowledge of the transaction, and says ho has no recollection of executingtho conveyances to purchasers. He does not deny that the money was so borrowed and secured, and the sales made and the conveyances executed by him, but says ho does not recollect the transaction, and believes tho loan was arranged by Mr L. Harper. There are other instances than those mentioned by Mr G. Harper under power of attorney [transferring and releasing mortgages, and being unable to say more than tliat he does not recollect tho transactions, and is unablo to explain them. As already mentioned Mr G. Harper was informed before his brother left for England in July, 1891, of tho financial position of the business; Mr Maude had then left for England, but no change was made in tho mode of dealing with tho trust moneys paid to the firm. These moneys were still paid to the general No. 2 account, and dealt with as they were whilo his brother was in charge. While the brother was in England ho remitted to tho firm sums amounting to .£40,000; .£28,000 of this is said to have been practically a gift from rolatives. Whether the other £ 12,000 was a loan to tho firm or moneys entrusted for investment does not appear. Mr Maude retired from tho business in July, 1892, Almost the same time the brother returned from England, and left again for England in November. Shortly after Mr G. Harpor established a trust account, and so, ho says, saved for his clients some .£15,000. It is said that Mr Maude, for five years before he left for England, refused to draw cheques upon the No. 2 account or to take any part in the business in the No. 2 department. Ho does not himself say that this is so. Hit be the fact, such refusal is consistent only with a knowledge of tho improper manner in which tho business in that department was being conducted. Tho last eharge is that though Mr G. Harper became awaro' in March, 1892, that false accounts wero being sent out to clients representing moneys as invested when they were not, ho took no proper steps to prevent the continuance of the practice; that on his brother. Leonard Harper, returning in June, he spoko about the matter to him, and accepted his assurance that such accounts should not bo sent out in the future. Mr G. Harper does not seem to have actively interfered to secure that the September accounts should bo correct representations of their clients' investments. Enough has been described of the genoral course of conduct of Mr Geo. Harper and 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 tho roll of practitioners, but when the particular acts of each above detailed are considered, it is beyond doubt that the Court can take but ono course with regard to them, and that is that their names be removed from the rolls of barristers and solicitors of the Supreme Court. Mr J. B. Fisher applied for costs on behalf of tho Canterbury District Law Society. The Court allowed twenty guineas costs in each of the two cases. Chmbtchurch, June 3. The Supremo Court was occupied till late on Saturday evening hearing the charges of embezzlement against Edward Parkerson, the accountant of the late firm of Harper and Co. The defence was that Leonard Harper had authorised the accused to take the money, fearing that if Parkerson filed the collapse of the firm would be caused. His Honor submitted the following questions to the jury : 1. Did the accused appropriate the money for his own use ? 2. Did L, Harper authorise him to do so? 3. Did'the accused honestly believe that L. Harper had authority from the firm to tell him to take the money? The jury, after an hour's consideration, answered question No. 1 in the affirmative, and the others in the negative—this being a verdict of guilty. The foreman said ha was authorised to recommend prisoner to mercy. A sentence of two years' imprisonment with hard labour was passed. No evidence was offered on the other charges, and the prisoner was formally acquitted of them.