Mapp Wayne: Lawyers and Conveyancers Bill — In Committee 
Mapp Wayne: Lawyers and Conveyancers Bill — In Committee 
[Volume:629;Page:1559] 
Dr WAYNE MAPP (National—North Shore) 
: 
 I would just like to continue developing the point that Dr Worth has been making in relation to fidelity funds. The key point here is that fidelity funds are not for negligence primarily as that can be insured for. They are not for accidental loss that can be insured for. Indeed I imagine it would be a requirement—or it should be a requirement—that lawyers hold the appropriate insurance cover for that sort of thing. Fidelity funds are actually for theft. So why did they come into being in the first place? 
It is worth looking at the history of this at least briefly. After all if one deposits money with a bank it could be stolen. So why do we not require banks to hold fidelity funds? The reason is that it is highly unlikely that any one theft from a bank or even a multiple series of thefts or theft by servants within the bank will endanger the financial stability of that bank so that it cannot recover the loss from its general assets. In the case of lawyers of course it is quite different. A firm might have two partners and when a partner is purchasing a house or assets the level of theft is so great that the honest partner if I can put it that way could not in truth cover it. Therefore a fidelity fund is a way of spreading the prospect of theft not able to be covered from within a firm across the totality of all other members of the profession. Put like that it has a logic and I can understand why the fidelity fund exists from that origin. 
However the particular issue that I raise is that the Government has then said that the conveyancers must also have a fidelity fund presumably on the basis of a level playing field—if it is reasonable for lawyers it must be reasonable for conveyancers. The problem is that fidelity funds—by the description of the design that I mentioned—require a sufficiently large number of people. That is so that the contributions from any one of them to cover the defalcation of a particular person are sufficiently low that they are actually manageable. So when there is a profession of some thousands of lawyers and one or two of them steal the others can cover it. We know in practice that it actually proved to be quite difficult a number of years ago in the case of Renshaw Edwards. Every principal at that time had to pay $10000 for one major defalcation by one not-so-large firm. Even across thousands of people it was a real difficulty for many practitioners. 
Conveyancers will form a much much smaller pool. Some say it might be as low as six people. Realistically once created the profession will increase in size but it is highly unlikely that the spread will be broad enough to cover the defalcation by one conveyancer without effectively bankrupting the rest of them. Looking at it in that light the role of a fidelity fund at least for conveyancers is moot. So if it will be hard for fidelity funds to work in practice for conveyancers what is the point of retaining it for lawyers across the board—for the very reasons that Dr Worth gave. The Minister in the chair the Hon Lianne Dalziel said: “But we’re professionals.” I guess she would say that bankers and accountants are also professionals. Maybe the argument is then that accountants do not have large deposits of vulnerable clients’ funds and perhaps that is broadly speaking true. However in the case of purchasing a house for many people that is their major asset therefore they need that particular level of protection. 
The fidelity fund exists in part because of the offer by the Law Society as part of the overall package that it should be continued. There are a lot of people in the legal profession who are unhappy with that decision but it became something of the deal that was entered into between the profession at large represented by the Law Society and the relevant Ministers of the time as the price for modernisation of the profession. National feels that the time has come when the fidelity fund is no longer appropriate. But given that I recognise that the Government has probably got the numbers on that issue it is not a sufficient reason to vote the bill down as a whole. However we do wish to raise those points of principle as to why fidelity funds look increasingly inappropriate for the future. It will be particularly difficult for a fidelity fund to work in practical terms in relation to conveyancers. It is a sort of nod to ideology and the ideological idea of the level playing field but without any real recognition of the practical reality of it so we do raise those issues for consideration. 
I note—and I do this quite deliberately—another issue raised by United Future members who are not speaking tonight. I raise the issue because it was raised about the profession broadly—and maybe some of my colleagues will speak on it as well. It was the issue of the use of the money in existing Law Society funds for Law Society purposes. A lot of lawyers were deeply upset about that—I know that because they made representations to me personally about it. I know that in the profession it became a highly contested issue. Again it became part of the deal. That part however was rather reluctantly agreed to. It is certainly there and I think it is only proper to record it as an issue that was raised—in particular by a member for United Future who is no longer in the House; by an ACT member who also is no longer in the House; and by a New Zealand First member who also is no longer in the House. I just make the point that it is a highly contentious issue and it is a matter that needs to be put on the record.