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Censured and fined for a series of breaches

08 December 2014

A lawyer, E, who was acting for a family in the sale of the family’s business has been censured and fined $7,500 for a series of breaches of the rules of conduct and client care, including acting while conflicted.

The managing director of the family company died unexpectedly, and without a will. His widow and children inherited the company but they knew little about the business and wanted to sell it.

It was submitted for E that the company was in financial trouble and might well have been insolvent. It was recommended that the business be sold, however there was very little purchaser interest.

E introduced a potential purchaser to the family. The buyer lacked cash to pay the full purchase price.

According to the family, E arranged for $85,000 of the purchase price to be paid by way of the buyer handing over an Aston Martin, with an estimated value of $85,000 to E, who would then provide the cash value to the company (the transaction was to be implemented through E’s wife’s family trust).

It appeared that E had prepared the agreement and the settlement statement for the transaction on the basis that the value of the Aston Martin was $85,000, but then arranged that his wife’s family trust only pay $50,000, leaving a shortfall.

The family repeatedly asked E for the remaining $35,000, but E did not pay the money. E claimed that he had only agreed to pay $50,000 and the remainder was due from the purchaser to the family.

For E, it was submitted that had he not been prepared to provide the $50,000 cash to buy the Aston Martin, the agreement would not have proceeded. The purchaser had no other way of buying the business and would have walked away. The inevitable outcome would be that the company would collapse and receivers would be appointed. Time was of the essence.

The family’s new lawyer lodged a complaint on the family’s behalf with the Law Society. The family alleged, among other things, that E had conflicts of interest, particularly in respect of his own interests in purchasing the car for himself, and the family’s interests in selling the business.

The standards committee considered that this was a complex complaint and was “potentially very serious”. It appointed an investigator to consider the matter further.

The investigator informed the committee that he had been advised that a settlement of the civil proceedings had been negotiated between E and the clients.

The settlement agreement showed that the parties had agreed that a settlement sum of $37,000 would be paid to the company in full and final settlement of any claim the complainant may have against one of the other parties.

One of the terms of the settlement was that the complaint to the Lawyers Complaints Service was to be withdrawn. The settlement was also conditional upon the Lawyers Complaints Service not initiating and pursuing its own complaint against E arising out of the subject matter of the original complaint.

The committee observed that it had the jurisdiction to proceed, and said that it had a duty to do so. The investigator identified a series of issues that he considered needed addressing. The standards committee considered all the matters specified by the investigator and found there was unsatisfactory conduct on E’s part in relation to eight issues. These were that E had:

  • acted or continued to act after a conflict of interest between his own interests and that of the company has arisen;
  • acted for the company in transactions in which he had an interest;
  • entered into a financial, business or property transaction with the company while there was a possibility of the relationship of confidence and trust between him and the company being compromised;
  • not advised the company – after entering into a financial, business or property transaction – of the right to receive independent advice on the matter, and that he had not explained to the company that should a conflict of interest arise, that he would have to cease to act for them;
  • failed to document some of the transaction relating to the Aston Martin;
  • failed to provide the company with a letter of engagement;
  • acted for more than one client in circumstances where there was more than a negligible risk that he might not be able to discharge his obligations, had failed to obtain the clients’ consent to act in such a manner and had subsequently failed to terminate the retainers with the clients; and
  • failed to promptly disclose and communicate to the company all of the information that he had acquired that was relevant to the matter.

The committee decided not to take further action on some of the allegations. They did not accept that E had been discourteous. The committee did not find any evidence that E had had a prior relationship with the purchaser, nor that he had failed to disclose knowledge of the purchaser’s credit circumstances to the complainants.

The committee accepted, as did the complainants, that there was no dishonesty or fraud on E’s part.

As well as the censure and fine, the committee ordered E to apologise to the clients in writing. E was ordered to pay the Law Society $8,294.28 costs, which included the full cost of the investigator.

The committee noted that it was highly inappropriate for E to have concluded an agreement with the family that made a settlement conditional upon the complaint being withdrawn, or the committee not commencing an own motion investigation. The committee said this was, in its view, “an abuse of the system”, and was an aggravating feature which contributed to E being censured.

The committee ordered that the terms of the agreed settlement were to have effect as part of the final determination, so that E was required to pay the complainants $37,000.

Last updated on the 3rd June 2015