Buried treasures: Law firm breathes easier

The last in our series on reports released in the dead zone round Christmas. By FRAN O'SULLIVAN assistant editor

There were big sighs of relief at legal giant Russell McVeagh's palatial offices when a confidential letter arrived just before Christmas announcing their former partner Paul Carran had removed himself from the lawyers' roll.

The firm - known as The Factory from the glory days when it was New Zealand's pre-eminent legal eagle - could finally put a long-running battle against the Auckland District Law Society behind it.

For nearly a decade Russell McVeagh had crossed swords with the society over allegations it knew about controversial bloodstock deals Mr Carran set up in the late 1980s.

The fight to stop the case being heard - which was conducted under tough suppression orders - went all the way to the Privy Council.

But it was killed dead in August when the law lords ruled that the society could not use documents it had obtained from the legal firm to investigate Mr Carran's activities in a broader investigation against other partners .

Those documents had been given to society investigating solicitor Stuart Ennor - since deceased - under an express agreement.

But the council also clearly put the principle of legal privilege above that of justice.

Among the legal fraternity there are many who believe justice would have been better served if the case had been heard.

Society president Raynor Asher accepts the council's decision.

But he was stung by a statement that "their lordships are not disposed to leave this case without expressing their dismay that a professional body representing solicitors, who have taken the most solemn professional obligation to honour their undertakings, should have seen fit to argue that it was free to disregard the obligations which Mr Ennor undertook on their behalf".

"The ... comments were very harsh," said Mr Asher. "We at all times had acted in very good faith trying to carry out our statutory role."

The society abandoned its investigation into the firm after the August decision. But it continued to pursue Mr Carran in an attempt to have him struck off the roll.

Russell McVeagh chief executive Gary McDiarmid indicated the firm had not been taken into the society's confidence before Mr Carran's fate was disclosed.

"We got it at the same time as practitioners," said Mr McDiarmid. "They didn't communicate to us regarding its timing and I wouldn't expect them to."

But the nine-year battle has been an expensive one.

Not just for the reputations involved: suppression orders prevent the Herald from naming the relevant players but their names are common knowledge in the Auckland legal fraternity.

Mr Asher confirmed the fight had cost $2 million to wage, including a $500,000 figure forked out to Russell McVeagh in November after the Privy Council ordered the society to pay costs.

Queen's Counsel Denese Bates was in the hot seat as convenor of the society's ethics committee in the mid-1990s.

In 1996 Ms Bates confirmed a complaint had been laid against Russell McVeagh - saying if the law society didn't want to get involved because people are big and powerful that "would leave question marks".

Yesterday she shed further light on the affair.

"The complaint had centred on [the firm] knowing whether there was a fraud committed by one of the Russell McVeagh partners. And if knowing whether there was, it should have been reported," she recalled . "I am one of the few people who's also seen the privileged documents."

They indicated it was "worthwhile" to launch an investigation.

Ms Bates left the investigating committee some years back.

But she is disappointed the action fell down at the Privy Council.

"I think it's a graphic example of why the Privy Council should not be our top court," she said.

"I think that Privy Council decision - effectively saying if New Zealand had chosen to follow Canadian law we wouldn't have had a thing to say about it - was extraordinary.

"Lawyers are traditionally extremely nervous about touching the law relating to privilege but in some jurisdictions the equivalent of the Law Practitioners Act does enable the investigators to go beyond privilege.

"I think that some sort of power like that would be appropriate."

Some players are still aggrieved at events.

Auckland barrister Chris Dickie, who was one of the original complainants to the society, maintains the society had access to other documents which were not privileged, which it could have resorted to to finalise its inquiries.

Mr Dickie and Auckland QC Anthony Molloy had represented 300 aggrieved bloodstock investors in a civil case against Russell McVeagh winning a $15 million to $20 million settlement on the day before the action was due to be heard.

"I spend hundreds of hours with the society," said Mr Dickie. "The silence since then has been deafening.

"It's caused immense grief to everyone and still the truth's not come out.

"Meanwhile the law society and Russell McVeagh have distributed to lawyers throughout Auckland little handouts in which they have patted each other on the back."

But a player close to the action said it had been a "very tough" judgment call: "On one hand Russell McVeagh felt the society went far too far and on other Chris Dickie and Tony Molloy felt they did not go far enough.

"The complaints were lodged many years after the actual events

"That made the whole task of investigation immeasurably more difficult because everything was so old, partnerships had changed and people had moved on."

The source defended the independent investigating committee headed by former Justice Robert Smellie. It has been peopled largely by lawyers giving of their time pro bono.

"One of the hard things in all of this is the toll that it has undoubtedly taken because they have had to work so hard."

Ms Bates observed that as time dragged on the privileged document also became the society's focus.

"But by the time all the money and effort had been spent on that there was little appetite to look beyond it. People would just as rather forget it."

Why the fight took so long

Auckland District Law Society President Raynor Asher points to three key factors that caused its legal fight with Russell McVeagh to drag on for nearly a decade.

First, events were "so old" before they even went to the law society. Second, the issues were complicated and, third, difficult legal issues had to be addressed as part of the way forward.

"That greatly delayed the matter," he said.

Initial complaints against Russell McVeagh were laid in the early 1990s and pursued through many rounds until the society's case fell apart last August when the Privy Council said privileged documents belonging to the law firm must be handed back.

The final chapter in the affair came on December 18 when the society announced it was no longer pursuing a former Russell McVeagh partner, Paul Carran, to have him struck off for misconduct in relation to a string of failed bloodstock investments.

Mr Carran had gone voluntarily.

Asked whether the affair - which was fought all the way to the Privy Council - had simply been a "war of attrition", Mr Asher replied: "No comment."

A former member of the society's investigating committee said it spent a huge amount of money and did everything it could to make sure everything was done correctly.

"On the other hand, Russell McVeagh fought hard as they were entitled to do and took every point."

There was no attempt to bury the issue - it had "just taken a bloody long time".

Russell McVeagh's Gary McDiarmid, who inherited the case when he took over as CEO well after the legal saga began, is hugely relieved it is over.

Mr McDiarmid said that overall "we're very pleased with the outcome".