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Censure and fine for conflict of interest

29 March 2016

A lawyers standards committee has censured and fined a lawyer $1,500 for both acting where there was a conflict of interest and inadequate record keeping.

The committee conducted an own-motion investigation after a District Court Judge wrote to the Law Society and forwarded a copy of his judgment for its consideration.

The Judgment was in the matter of Mr E and Ms F v the lawyer and others. The proceedings related to a payment of $50,000 by Mr H to Mr E and Ms F which was used as a deposit to buy a residential property. The lawyer facilitated the payment.

Mr H is a former client of the lawyer, G. Mr H subsequently died and G is an executor of his estate and also a minor beneficiary.

G acted for Mr E and Ms F in the property purchase and also acted for a bank on the mortgage advanced to pay for the property.

G subsequently acted for Mr H when he lodged a caveat against the property, following Mr E and Ms F’s failure to repay the $50,000 to Mr H when it was demanded.

Obvious conflicts

The main issue in the proceedings was whether the $50,000 Mr H advanced was a loan or a gift. G was required to give evidence in the proceedings and the District Court Judge was critical of G’s actions – in particular his failure to keep adequate notes and his management of the potential conflicts of interest.

The committee noted that the Judge had raised concerns about G’s decision to act despite a risk of a conflict of interest. G’s position, the Judge said, “is also compromised to a degree by the various interests he is serving” and that “there are obvious conflicts of interest which, when combined with the lack of file notes, suggest his evidence should be the subject of careful scrutiny”.

G denied any mismanagement of the potential conflicts of interest. He said the caveat was registered five years after the purchase of the property and that he had not acted for Mr E and Ms F since they purchased the property.

Determinations

The committee determined that:

  • it was satisfied G held confidential information regarding Mr E and the circumstances in which he received the $50,000 from Mr H;
  • it was satisfied that this information would be likely to affect Mr E and Ms F’s interests in relation to the caveat that G lodged on Mr H’s behalf;
  • there was a more than negligible risk that the information could be disclosed in relation to the caveat and that this would undermine the fiduciary obligations that G owed Mr E and Ms F; and
  • there was a significant risk that G may be required to give evidence about the circumstances in which the $50,000 payment was made, in relation to the caveat and any proceedings that may have arisen in relation to it.

The committee said it was not satisfied that the lapse in time was sufficient to resolve the existence of the conflict and the issues raised as bullet pointed above. It therefore found that G’s conduct had been unsatisfactory.

Astounded

In his judgment, the District Court Judge said: “What is his explanation for the absence of any file notes? [G] says ‘he does not believe in them’ and that ‘they can be easily concocted after the event’. I am astounded by his evidence on this point and his self-justification for his practice.”

G told the committee he did not recall stating that he did not believe in file notes. He said that he did not need file notes to recall matters and that there were other, more cogent forms of evidence.

The committee said it could find no record in G’s files relating to the property transaction or any record of whether the $50,000 was a gift or a loan.

“The standards committee was concerned that [G] continued to express a belief that file notes were unnecessary.

“It found that, had [G] kept notes in this matter, then Court proceedings may have been unlikely to have occurred. It was also satisfied that contemporaneous records would have greatly assisted the Court in the proceedings.”

G’s standard of record keeping was “inadequate and he had not maintained proper professional standards in this regard,” the committee said in making a finding of unsatisfactory conduct.

As well as the censure and fine, G was ordered to take professional advice and make his practice available for inspection by the advisor. He was also ordered to pay $1,000 costs.

The LCRO on review found that G had not breached rules 8.7.1 and 13.5.1 of the RCCC, but upheld the determination of unsatisfactory conduct under s 12(a) of the Lawyers and Conveyancers Act 2006.

Last updated on the 29th March 2016