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Fined for failure to advise adequately

23 October 2014

Conflicting covenants on a title for a parcel of bare land created a legal situation that prevented the purchaser of the land from being able to build there. The purchaser complained to the Law Society about the advice he had received from his lawyer, E, and a lawyers standards committee upheld the complaint.

The committee said a fundamental element of any conveyancing transaction is the completion of due diligence before the purchaser commits to the purchase. This was required in the complainant’s case and the agreement to purchase a parcel of bare land was conditional upon the purchaser’s approval of the title.

Two covenants had an impact on the land, together with a Resource Consent. The standards committee observed that the covenant documents were “relatively standard documents for legal practitioners to review”.

E provided copies of the documents to the purchaser, advising him that the purchaser needed to carefully read the detail.

E provided some explanation of aspects of the covenants, but he did not summarise their combined effect, nor did he explain the significance of the references to the Resource Consent in the second covenant. The covenants were in conflict, and resolving or fixing that conflict would have cost implications.

Another relevant document was an Environment Court Consent Order. E told the standards committee that the purchaser had been provided with a copy of this document by the real estate agent. The Consent Order qualified some of the matters referred to in the covenants, and in the Resource Consent.

After the purchase had been settled, it became clear that the combined effect of the documents was that it would be difficult to build a dwelling or structure of any kind on the property, unless one or both of the covenants was to be either breached or varied. Variation of the covenants may have been difficult if, as proved to be the case, the owners of neighbouring properties would not readily agree to variations.

The standards committee said that it was not reasonable to expect the purchaser, a non-lawyer, to be able to understand the implications of the documents without legal analysis. This was particularly so regarding the significance of the lengthy and complex Resource Consent, and the Consent Order.

The committee said that E did not provide the required legal analysis and, in the circumstances, he should have because the client was clearly relying upon him to do so.

It was not sufficient for E to have advised the purchaser to read the documentation carefully, without explaining it fully, and advising on the implications.

The committee considered E’s advice was inadequate, and was a fundamental breach of the agreed retainer.

In the committee’s view this fell short of the standard of diligence and competence that a member of the public is entitled to expect of a reasonably competent lawyer.

The committee considered the question of penalty and compensation in some detail.

The purchaser claimed significant losses had been incurred by E’s actions. These included E’s fees, charges made by other lawyers advising the purchaser of the correct position, significant claims of financial loss for development expenses, damages for loss in value, and compensation for stress.

The committee censured E, fined him $2,500, and ordered him to pay $400 costs. The committee also ordered that E cancel his fees totalling $1,750, and pay compensation of about $7,600, representing the legal costs the complainant incurred with another law firm.

Other claimed losses, which were well in excess of the maximum $25,000 able to awarded by the committee, were not ordered to be paid. The committee said the purchaser had the ability to make a claim in negligence against E and the amounts sought were not sufficiently clear to enable the committee to make the orders sought.

Last updated on the 3rd June 2015