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Fined for not inquiring before filing caveats

11 December 2018

Names used in this summary are fictitious.

A lawyer has been fined $8,500 for failing to inquire whether there were “caveatable interests” before filing caveats on land titles.

When imposing the fine, a lawyers standards committee noted that it appeared that the lawyer, Boythorn, had “no basis to lodge the caveats other than the assertions in his client’s instructions”.

Boythorn acted for a development company (company A) and company A’s new directors.

Company A’s directors asserted that the company’s agents – director Mr Gradgrind and silent director Ms Veller – improperly used company funds to purchase properties and to make mortgage payments for their own personal benefit but not for the benefit of the company.

The new directors claimed an interest in those properties and Boythorn lodged caveats on behalf of company A and its current directors.

Lodging caveats simply on the basis of client instructions was against the purpose of rule 2.3 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, the committee said.

Rule 2.3 says a lawyer may not use legal processes for an improper purpose. A footnote to the rule includes some examples of how a lawyer may breach the rule. Those examples include: “registering a caveat on a title to land knowing that (or failing to inquire whether) there is not a ‘caveatable interest’ on the part of the client to be protected”.

In this context, rule 2.3 “is to prevent lawyers from assisting clients to improperly interfere with the property rights of the registered proprietor of a property,” the committee said.

The committee noted that in order to discharge his duties under rule 2.3, Boythorn was not required to establish that his client had caveatable interests.

“What [Boythorn] has to show is that he had an honest belief based on reasonable grounds that his client had caveatable interests in the affected properties. The part of this test (honest belief) is subjective, but the second part (reasonable grounds) is objective.”

“In relation to the reasonable grounds element, the [standards committee] considers that Boythorn failed to make proper inquiries as to whether his client [company A] (and its new directors) had caveatable interests in the properties affected.”

Boythorn said that he had lodged the caveat on the basis of his client’s instructions, stating: “I have no ground to believe anything to the contrary”.

“This falls well short of the reasonable inquiries expected of a solicitor in the position [Boythorn] found himself in,” the committee said.

“For example, the [standards committee] would have expected [Boythorn] to have tested the veracity of his client’s instructions by requesting his client to substantiate, with documentary evidence such as bank statements, the allegation Mr [Gradgrind] and Ms [Veller] misused [company A] funds to purchase properties for their own personal benefit.”

In breaching rule 2.3, Boythorn ‘s conduct was unsatisfactory, the committee found.

As well as the $8,500 fine, the committee ordered Boythorn to pay $1,500 costs and to undergo practical training at his own cost by undertaking a New Zealand Law Society Continuing Legal Education course dealing with e-dealings and, preferably, addressing caveats in particular.

The committee also ordered that a copy of its determination be provided to the Registrar-General of Land.

Last updated on the 11th December 2018