Unsatisfactory conduct: Conflict of interest
This is a summary of a decision by a Lawyers Standards Committee under the transitional provisions of the Lawyers and Conveyancers Act 2006. This summary was published in LawTalk 764, 28 January 2011.
A lawyer who acted for both his brother and his brother’s partner was censured and fined after the partner complained that the lawyer had failed to protect her interests.
The Standards Committee found that on several occasions, both before and after the couple split up, the lawyer had acted despite a conflict of interest.
One occasion involved the couple’s purchase of a property. The complainant had provided the full purchase price when funds from the brother’s matrimonial settlement had not arrived as planned, and the couple agreed, after discussions with the lawyer, to register the property in the complainant’s sole name. The understanding was that it would be placed in joint ownership once the brother’s funds became available, but the brother instructed the lawyer to set up a trust for his separate property and to place those funds in the trust.
The lawyer told the Standards Committee he had no reason to doubt that the funds settled on the trust were separate property. However, the Committee said the lawyer knew the complainant expected those funds to be put into the house; he should have been alerted to a conflict of interest and the need for her to receive independent advice. The complainant said it was never explained to her that property held in her sole name could later be subject to a relationship property claim.
The Standards Committee found the complainant should also have received independent advice when she provided a property owned by her as security for a partial release of a joint mortgage. The security had covered the brother’s liability and was for his benefit also.
The complainant claimed further that the lawyer acted for his brother against her in relationship property matters after the couple separated. The lawyer denied this. However, the committee noted that a relationship property file had been opened for the brother at the lawyer’s firm, that correspondence had been sent from the firm referring to the brother as its client, and that the firm was noted as the instructing solicitors. The Committee said that once again the lawyer had acted in a position of conflict.
The Standards Committee rejected the lawyer’s view that the case turned on disputed facts and issues of credibility. It said he clearly did not understand that he had been in a conflicted position even when it had been his firm acting, rather than him personally. He had also not recognised the close inter-relationship – now emphasised in continuing legal education – between property, relationship property and trusts. The case illustrated, the Committee said, the perils of acting for family members and their spouses or partners.
The Committee also rejected the lawyer’s submission that his bills of costs had set out the terms of his retainer when he had acted for the couple. It said any limits on a retainer must be set out at the beginning of a transaction.
The Standards Committee found the lawyer guilty of unsatisfactory conduct. Because the conduct occurred before 1 August 2008, the penalty provisions of the Law Practitioners Act 1982 applied. The committee Censured the lawyer, fined him $2,000 (the maximum fine available), and ordered him to pay $1,000 in costs to the Law Society.