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Acting for both parties in a transaction

02 August 2019

A lawyer has been censured and fined $5,000 because he acted for two parties where there was a more than negligible risk he was unable to discharge his obligations to one or more of the clients.

The lawyer’s conduct amounted to a “serious breach of his professional obligations” and “warranted a strong sanction”, the lawyers standards committee dealing with the complaint said.

Background

A brother and sister (Mr B and Ms B) entered into an ‘initial agreement’ with a property development company in relation to purchasing a section on which the developer would construct a house for the Bs.

A lawyer, L, was instructed to act on the sale and purchase of a section. L also acted for the property development company, which was an existing client.

L had the Bs sign a waiver of independent legal advice.

The Bs then entered into an agreement to sell part of the section to the Ds, as envisaged in the initial agreement for the sale and purchase of the section.

The property development company provided the Bs with a “Master Agreement”, which specified a total purchase price of $550,000 for the purchase of the section and construction of a house.

The Bs refused to sign the Master Agreement and did not accept that it accurately reflected the terms that were agreed as part of the initial agreement between the parties.

L, acting on the instruction of the property development company, placed a caveat on the property on behalf of the Ds.

“At present it appears that the subdivision of the section envisaged by the initial agreement has not taken place, and that no work has been completed on the construction of the house for [the Bs],” the standards committee noted.

"Ms [B] says that a total of $422,000 has now been paid to [the property development company’s principal], for very little benefit.”

Professional duty

Although L had been approached to undertake a simple conveyancing transaction, he was “professionally obliged to make additional inquiries on behalf of the [B]s in order to ensure that he discharged his duty to act in their interests,” the standards committee said.

Furthermore, the very nature of the conveyancing itself “should have put [L] on notice of the potential complexity of the transaction."

“The standards committee was of the view that any transaction arising in the context of a property development is inherently complex, and that there are myriad issues that can eventuate from such a situation.

“For example, it would not be uncommon for a lawyer acting for both a developer and a purchaser to be privy to information relevant to the purchaser that he or she may not be able to disclose without the developer’s consent.”

The Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 “impose strict obligations on any lawyer who acts for more than one party on a transaction”.

L had breached rule 6.1, which states: “A lawyer must not act for more than 1 client on a matter in any circumstances where there is a more than negligible risk that the lawyer may be unable to discharge the obligations owed to 1 or more of the clients”.

That constituted unsatisfactory conduct.

The committee quoted the Legal Complaints Review Officer, who said – in LCRO 290/2013 – “where parties are negotiating a contract to buy and sell a property, and particularly a property which is to result from a subdivision, I consider that there is more than a negligible risk that a lawyer would be unable to discharge obligations to both parties”.

When ordering publication of the facts, the committee said it “would provide a good example of when it is inappropriate for a lawyer to rely on a waiver”.

Last updated on the 2nd August 2019