Unsatisfactory conduct: Elderly client’s interests not protected
This is a summary of a decision by a Lawyers Standards Committee under the Lawyers and Conveyancers Act 2006. This summary was published in LawTalk 784, 4 November 2011.
Two Auckland lawyers were found guilty of unsatisfactory conduct by a Lawyers Standards Committee after they failed to protect the interests of an elderly client when she sold her home to her daughter’s family trust. The standards committee held a hearing in person with both lawyers present, one represented by counsel. The complainant chose not to attend the hearing.
The Tokelauan client was 74 when the transaction took place in 2002. She spoke both Tokelauan and Samoan but had only a limited understanding of English. In 2010, after the trust had on-sold the property, another family member complained on the client’s behalf that the lawyers had not advised her competently and that there had also been a conflict of interest.
In 1999, the client had guaranteed a bank loan taken out by two of her sons. As security she had granted the bank a mortgage over her home. When the loan fell into arrears, her daughter and son-in-law proposed that their family trust would buy the mother’s house to enable her to repay the loan. The mother was promised a life interest in the property.
The purchase price was agreed at $332,053, but most of this was to consist of a debt back to the mother. The house had been recently valued at $475,000. To arrive at the purchase price, the sum of $142,695 was credited to the daughter’s family trust for various contributions said to have been made by the daughter and the son-in-law. One of the contributions, for $61,321, was recorded as being the daughter’s “share” (presumably her expected inheritance under her mother’s will).
Lawyer A had acted for the family trust previously. In this new transaction he apparently acted for the mother as well as the family trust. He told the committee that because he had no knowledge of Tokelauan or Samoan he had referred the mother to lawyer B, as lawyer B was fluent in Samoan. Lawyer B had acted for the mother before, advising her on the mortgage granted for the two sons’ loan.
The terms of the referral weren’t clearly documented. There was a brief handwritten fax from lawyer A to lawyer B, which said “Need agreement signed” and briefly explained the arrangement and its purpose. Relevant correspondence and key financial details were attached. Lawyer B replied several weeks later, attaching a signed agreement for sale and purchase of the house.
After the sale took place, the family trust gave a first mortgage over the property to a bank to secure a loan of $540,000 to the family trust, but there was no security in favour of the mother for the family trust’s debt to her. It wasn’t until December 2006, four years after the sale, that lawyer A completed a deed of acknowledgement of debt for $249,500, the unpaid portion of the purchase price. The deed was signed by the trustees of the family trust, but the mother’s new lawyers told the committee that she wasn’t aware of and hadn’t signed this deed. A deed of family arrangement was never prepared, nor was the mother’s promised life interest ever documented.
In May 2010, the family trust sold the property for $1.015 million, and the mother was told to leave. There was apparently a falling-out among the family around this time. The mother’s new lawyers registered a caveat against the title in March 2010, but it was withdrawn after the mother was paid $332,491, covering the debt of $249,500, the deduction for the daughter’s expected inheritance, and various expenses and other items.
The complainant alleged that the mother would have received considerably more from the sale if the two lawyers had protected her interests, and that she should have received independent advice both in 2002 and in 2006. The complainant also alleged that lawyer A had not been impartial and had acted for both sides when their interests diverged or had the potential to do so.
The complainant said both lawyers knew they were dealing with an elderly woman with limited English and a limited understanding of land ownership and financial matters.
However, each lawyer disclaimed responsibility for advising the mother on the transaction.
Lawyer A said he had not advised the mother of the commercial aspects of the transaction and emphasised that the family were all agreed on the course of action. He said that he had referred the mother to lawyer B and assumed lawyer B would provide independent advice.
Lawyer B had a different recollection of the referral. She told the committee she hadn’t been formally instructed and she had understood that her role was merely to witness the transaction and to explain it to the mother in Samoan.
Both lawyers told the committee the mother had been fully aware of the circumstances and potential consequences of her actions and trusted her daughter in the matter.
On the four-year delay in preparing a deed of acknowledgement of debt, lawyer A conceded that this had been an essential part of the arrangement and that he had allowed matters “to slide”.
The committee said neither practitioner had taken the steps a prudent lawyer would have taken in this case. A deed of acknowledgement of debt should have been prepared when the property was transferred in 2002, along with a deed of family arrangement recording all the agreed matters. The lawyers should also have ensured that the mother’s promised life interest was documented and that her will was reviewed after the daughter’s expected inheritance was used to reduce the purchase price.
As well as finding each lawyer guilty of unsatisfactory conduct, each lawyer was censured, fined $1,000 and ordered to pay $500 costs to the Law Society.
The complainant sought compensation for the mother for the loss of her home, for loss of money from the sale of the property below value, and for the stress she had suffered.
The committee decided compensation wasn’t appropriate, as recent adjustments to the transaction had resulted in a more appropriate distribution of funds between the family members.