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Fined for failing to follow standard post-earthquake conveyancing practice

10 November 2014

A Christchurch lawyer, C, acted for a purchaser of a residential property in 2013. The client, Mrs D, complained that C had confirmed the sale and purchase agreement as unconditional without advising her on, or adequately dealing with, an earthquake insurance clause in the sale and purchase agreement. As a consequence, the purchaser said she had suffered loss.

A standards committee has held that this was unsatisfactory conduct on C’s part. The committee censured C, fined him $4,000, and ordered that he refund 50% of the fees charged to Mrs D. C was also ordered to pay $1,000 costs.

The property Mrs D was buying had been affected by the recent earthquakes. The Agreement for Sale and Purchase contained the following clause (clause 20): “This Agreement is conditional upon the solicitors for each of the purchaser and the vendor agreeing, within (10) TEN working days of the date of this Agreement, on the terms in which insurance claim(s) including earthquake commission claim(s) relating to the property are to be dealt with.”

When C received the instructions, he wrote to Mrs D setting out matters on which the contract was conditional, including finance, a satisfactory builder’s report and other matters. However C made no mention of the earthquake insurance clause.

About 10 days later C confirmed all the conditions were satisfied, except for one relatively minor matter in respect of the builder’s report.

The committee said it had reviewed C’s file and was “concerned with the lack of any evidence on [C]’s file as to any discussions or correspondence with the complainant in respect of approval of the conditions”. The committee noted that neither Mrs D nor C had given any indication that the issue of EQC insurance was discussed before confirmation.

Two weeks later the vendor’s solicitor requested a Deed of Assignment of Insurance Claims from C, who provided it the next day. The vendor’s solicitor confirmed that an insurance payout had been made for which a credit would be provided. The vendor’s solicitor also advised one EQC claim would be assigned.

“It appears to the committee that [C] failed to appreciate the requirements of clause 20 of the Agreement for Sale and Purchase. He failed to raise the issue of how the EQC/Insurance claims would be dealt with until after confirmation when, on 4 April 2013, the vendor’s solicitor requested a Deed of Assignment be sent,” the committee said.

“Standard practice with conveyancing in Canterbury, most certainly by February 2013, has purchasers’ solicitors requesting vendors’ solicitors to provide a copy of any Scope of Works the vendor has in relation to EQC claims and to advise whether the vendor has lodged a claim with their insurer. Common practice also involves a request for the vendor’s solicitor to advise if the vendor has been paid out any funds from EQC or the insurer.

“Prudent practice notes the EQC claim numbers recorded in the Agreement (not the case here) and requests confirmation that these are the only claims for the property, advice as to the current status of the claims and confirmation that the vendor has provided all of the necessary documentation to the purchasers via the agent.

“Here, [C] has done none of this. By confirming the Agreement as unconditional on 22 March 2013, [C] has committed Mrs [D] to purchasing the property, without addressing the EQC/Insurance issues,” the committee said.

There were, in fact, three outstanding EQC claims, and the vendors only assigned one to Mrs D. Had the vendor disclosed, at that point, that two of the EQC claims would not be assigned to the purchaser, Mrs D could have made an informed decision whether or not to proceed with the Agreement, cancel the Agreement or seek to negotiate a variation to the Agreement, most likely relating to the purchase price.

C asserted that the vendor’s failure to advise that two claims were not being assigned was fraudulent, and was the cause of Mrs D’s loss, rather than his actions. That did not mitigate C’s shortcomings in failing to adequately deal with the earthquake insurance provisions of clause 20 of the Agreement for Sale and Purchase, the committee said.

The committee decided not to order C to pay compensation to Mrs D. “The committee considers that there are too many factual uncertainties in connection with the extent to which [C]’s negligence has caused Mrs [D] to suffer loss for the committee to be comfortable that an award of compensation is appropriate,” it said.

Mrs D also had an alternative course available by way of a civil claim for negligence. The committee also noted that the vendor now appeared willing to complete a Deed of Assignment for the previously unassigned EQC claims, meaning compensation in that regard may not be necessary.

Last updated on the 3rd June 2015