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Continuing to act after potential conflict arose

06 October 2017

Note: All names used in this article are fictitious.

A lawyer who continued acting for a client after a potential conflict arose, and who did not keep the client informed, has been found guilty of unsatisfactory conduct.

The lawyers standards committee ordered the lawyer, Mr Rutland, to apologise in writing to the client and to pay $1,000 costs.

Mr Rutland was acting for Mr Southwell and his partner Mr Marcus in the sale of a property. Mr Southwell left New Zealand in 2003 after separating from Mr Marcus. Before leaving New Zealand, Mr Southwell appointed Mr Marcus as his attorney for property matters.

In July 2014, Mr Marcus decided to sell the property the two men jointly owned. Mr Rutland met with Mr Marcus on 3 July 2014, and Mr Marcus signed settlement documents including an authority to transfer funds. That authority specified that all net proceeds of the sale were to be transferred to Mr Marcus’s sole account.

At the meeting, the lawyer expressed concern regarding the power of attorney due to the time since it was granted (about 11 years) and the fact the couple were separated.

Mr Rutland’s file note of the meeting indicated that Mr Marcus seemed aggrieved by her questioning of his authority under the power of attorney and that Mr Rutland wanted to contact Mr Southwell to confirm his instructions regarding the sale aligned with Mr Marcus’s.

Mr Rutland’s file note also indicated that Mr Marcus said he would contact Mr Southwell and ask him to email confirmation.

Mr Southwell emailed Mr Rutland’s supervising partner stating: “I am writing to confirm that the power of attorney that was set up between [Mr Southwell] and [Mr Marcus] which allowed him to act on my behalf is still relevant and I continue to support fully that [Mr Marcus] can act for me. If anything more is required please do not hesitate contacting me.”

Settlement took place on 21 July 2104, with net sale proceeds transferred to Mr Marcus’s account.

Mr Southwell later complained that Mr Rutland did not communicate with him throughout the transaction and he questioned the lawyer’s ability to act as they did in regard to the Power of Attorney.

The standards committee found that Mr Rutland breached rule 6.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 in acting for both Mr Southwell and Mr Marcus in selling the property when there was more than a negligible risk that Mr Rutland may have been unable to discharge the obligations owed to one or more of the clients. That was unsatisfactory conduct.

The committee noted that it was sympathetic to the lawyer’s position, and that Mr Rutland had “rightly raised concerns” at the meeting with Mr Marcus on 3 July 2014 and subsequently with his supervising partner.

“While Mr Rutland rightly identified the issues, the committee’s view is that [Rutland] did not take the matter far enough, which would have required seeking specific instructions from Mr [Southwell] as to disbursements of funds to Mr [Marcus].

“Mr [Marcus]’s strong resistance to any direct contact with Mr [Southwell] should have raised red flags,” the committee said.

“It is apparent that Mr [Rutland] did not obtain informed consent from Mr [Southwell] to continue to act when the potential conflict arose, at the time Mr [Marcus] requested that full net sale proceeds be paid to his sole account.”

“While it is correct that it is not necessary (for legal efficacy) to verify instructions of a donor … the committee considers that in this case it was necessary to do so properly to protect the interests of Mr [Rutland]’s clients.”

The committee also found that the lawyer breached RCCC rule 7.1 by failing to keep Mr Southwell informed about progress of the retainer. That was unsatisfactory conduct.

Last updated on the 6th October 2017