Unsatisfactory conduct. Acting for two parties in a transaction
This is a summary of a decision by a Lawyers Standards Committee under the Lawyers and Conveyancers Act 2006. This summary was published in LawTalk 761, 1 November 2010.
A lawyer was ordered to apologise and pay compensation to a complainant after acting for both her and her attorney in the same property transaction. The lawyer was also censured and ordered to pay costs.
The complaint centred around an April 2006 agreement to buy a lot in a building development. The lawyer was acting for a contact of the complainant, Mr A, who signed the agreement under a limited power of attorney given to him by the complainant to buy the lot on her behalf. The agreement recorded that the buyer was the complainant “or Nominee” and that the lawyer was acting for the buyer.
Mr A’s intention had been to use various friends and relatives, the complainant included, to sign sale-and-purchase agreements, which would later be transferred to and completed by Mr A’s building company as the nominee. Apparently the lawyer and Mr A both thought, incorrectly, that the power of attorney would authorise Mr A to become the complainant’s nominee for the purchase; in fact, a deed of nomination was necessary.
The complainant told the Standards Committee that the lawyer had also acted for her at different times, on both personal and business matters: he had prepared her will in 2004, and he also acted for her company on two property transactions between 2004 and 2007. Her complaint was that at the time of the April 2006 agreement he was her lawyer under an ongoing retainer, and that in this capacity he had received a sale-and-purchase agreement in her name, but he had not informed her that he was acting for Mr A.
In 2008 the vendor sought to enforce the contract against the complainant. In September it wrote to the lawyer that the complainant was under an obligation to buy the lot in question, and referred to her as “your client”. A week later the vendor sent him a settlement notice for the complainant to settle the purchase. However, the lawyer failed to forward that letter and the settlement notice to the complainant, and at no time did he inform the vendor's lawyers she was not his client. The Standards Committee noted the distress the complainant must have felt when she belatedly learned that she was liable under the contract.
In response to the complaint, the lawyer denied he was ever acting for the complainant on this matter. The only previous personal instruction from her was to prepare her will in 2004, and she had not sought his advice leading up to the agreement to purchase, nor about the power of attorney she had given Mr A. All communications about the purchase had been from Mr A, whose company had also paid the deposit. When it became apparent that the vendor would pursue the complainant, the lawyer told his client, Mr A, that Mr A should let her know.
The Standards Committee said the lawyer’s response to the complaint failed to take account of the power of attorney, which the lawyer had seen. On a proper interpretation of that document and the April 2006 agreement, which named the complainant as the buyer, a reasonably competent lawyer would have assumed that he or she was acting for the complainant. Clearly Mr A’s instructions to the lawyer were given on the complainant’s behalf as her attorney. When Mr A purported to nominate himself as buyer, that should have alerted the lawyer to the conflict between initially acting for the complainant as recorded on the documents and then acting for Mr A as nominee.
The lawyer further breached his professional obligations when the vendor sought to enforce the contract against the complainant personally. The lawyer should have immediately informed her of this, even if his understanding was that she was not his client. A reasonably competent lawyer would not rely on a client (Mr A) to notify the the complainant when such serious legal consequences could result. The lawyer had also failed to actively confirm with Mr A whether he had notified her.
The lawyer had therefore breached Rule 6 of the Conduct and Client Care Rules. However, the Standards Committee noted that this had been a one-off error which the lawyer now appreciated with hindsight. There was no suggestion he had been dishonest or intended to benefit one client over the other.
The Standards Committee found the lawyer guilty of unsatisfactory conduct and censured him. It ordered him to apologise to the complainant and to compensate her for her legal expenses – approximately $1,400 – in defending the action against her (which the vendor had later withdrawn). The lawyer was also ordered to pay $500 in costs to the New Zealand Law Society.