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Acting for both parties breached professional standards

A lawyer, A, has been censured by a lawyers standards committee for unsatisfactory conduct in acting for both an elderly woman and her grandson in circumstances giving rise to a conflict of interest.

The standards committee ordered A to pay a fine of $12,500, and damages to the elderly woman (via the Public Trust) of $25,000.

Mrs D was in her eighties and suffered from dementia. Until 2009 she owned her own home. Her grandson, Mr E, instructed A to act for him in the purchase of his grandmother’s house. Mr E also instructed A to act for Mrs D. Mr E instructed A to form a trust for Mrs D to hold the proceeds of sale. A accepted these instructions and agreed to act as a trustee.

When the sale took place, there was a shortfall of $74,000. Despite this, A proceeded to settle the purchase. It was intended that Mrs D would live at the property with Mr E, but she was evicted after one year.

Later, in 2012, A drafted an Enduring Power of Attorney (EPA) for Mrs D, appointing Mr E as Attorney.

A took some steps to determine whether Mrs D had capacity to execute the EPA but did not seek medical advice. A also certified as a witness to Mrs D’s execution of the document, writing on the document that he was independent of Mr E.

When problems with the operation of the trust arose, A resigned as trustee and the new trustees dissipated the trust’s funds, leaving Mrs D without money.

In late 2013, after a Family Court hearing, another lawyer was appointed as Mrs D’s lawyer and the Public Trust were appointed as Mrs D’s property managers. The new lawyer complained on Mrs D’s behalf to the Law Society about A’s actions.

The standards committee investigated the complaint. The committee considered whether A’s actions during the 2009 transaction and in relation to the 2012 EPA documentation were breaches of professional standards, and the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules). The committee applied Rule 6, (acting for more than one party to a transaction), and Rule 2, (requirements of certification).

The committee also considered whether A had acted in Mrs D’s best interests.

In acting for both Mrs D and Mr E in the 2009 transaction, the committee found that A had breached Rule 6. Rule 6.1 relates to conflicting duties and provides that a lawyer may not act for more than one party in a transaction if there is more than a negligible risk that the lawyer may be unable to discharge the obligations owed to one or more parties. In the absence of a negligible risk it may be acceptable for a lawyer to act for more than one party to a transaction provided the informed consent of all parties is obtained .

The committee said there was a “clear and obvious” conflict and that A could not have discharged his obligations to both parties in compliance with Rule 6, even with informed consent. Further Mrs D had not had independent advice.

In finding that A had breached Rule 6, the committee acknowledged that A may have intended to act in Mrs D’s best interests and that he may not have acted out of any sinister intention or motive.

When A settled the property purchase in 2009, there was a $74,000 shortfall from the purchaser Mr E. A failed to ensure that the full purchase price was paid or even to discuss it with Mrs D, and settled the transaction. The committee found this was a breach of the duties he owed to Mrs D.

When A certified on the EPA document that he was independent of Mr E, he knew this was not so. This was a breach of Rule 2.5, which requires certification by any lawyer to be given only if the lawyer believes the matter certified is true, following any appropriate enquiries.

At the time that the EPA was executed A did give some consideration to whether Mrs D had capacity to execute the document. However he did not seek medical advice. This would have revealed a doctor’s report from the previous month stating that Mrs D lacked capacity to appoint or execute an EPA.

The committee also found that A had not acted in Mrs D’s best interests in setting up and operating the trust. The committee said the trust had probably been unnecessary in 2009. A’s conduct in subsequently resigning as trustee, and failing to substitute new trustees without any safeguards to protect Mrs D’s interests led to the funds being dissipated to Mrs D’s detriment by 2012.

A was censured and fined $12,500. He was ordered to pay compensation of $25,000 to the Public Trust for Mrs D’s benefit. He was also ordered to pay $1,500 costs to the Law Society and $1,880 costs to the Public Trust.

Last updated on the 3rd June 2015