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Fined for acting while conflicted

02 August 2019

A lawyer has been fined $1,000 by the Legal Complaints Review Officer (LCRO) for continuing to act after it became clear he would no longer be able to discharge the obligations he owed two clients.

In LCRO 136/2016, the LCRO found unsatisfactory conduct on the part of M, a lawyer, and W, a legal executive employed by the firm which also employed M.

Twin sales

Ms X and her sister Ms Z owned a residential property in New Zealand. Ms X and her husband (the Xs) and Ms Z and her husband (the Zs) owned a residential property in Australia.

The Xs and the Zs resolved they would sell the Australian property and that Ms X would sell her interest in the New Zealand property to the Zs.

The Zs instructed M to act for them on those transactions. M, and after M left the firm W, also acted for Ms X “in the registration aspect” of the sale of her interest in the New Zealand property to the Zs.

An Australian lawyer, Ms E, acted for the Xs on the sale of the Australian property.

The Xs requested the Zs to enter into a Deed of Arrangement which would provide, among other things, for the contemporaneous settlement of both transactions and for the distribution of the sale proceeds of the Australian property.

With the Deed of Arrangement not yet in an agreed form, Ms X instructed M not to register the transfer of the New Zealand property until she had “physically received” the transfer documents of the Australian property signed by the Zs.

After M left the firm, W registered the transfer of the New Zealand property to the Zs. Three months later Ms E informed W that the purchaser of the Australian property was unable to obtain finance and that the property would be placed on the market again. In the meantime, she stated that Ms Z “should not transfer the New Zealand [property] into [her] sole [name] as settlement of the Australian property has not yet taken place”.

Complaint

Ms X complained to the New Zealand Law Society. Her complaint was that:

  • due to their delay, M and W did not send the transfer of the Australian property to Ms E in sufficient time so that the purchaser’s finance approval lapsed, and the sale of the property fell through; and
  • despite having instructed M that she did not want the transfer of the New Zealand property to proceed until she had received the transfer of the Australian property, W had nonetheless transferred Ms X’s interest in the New Zealand property to the Zs.

The lawyers standards committee hearing the complaint decided that no further action was necessary or appropriate.

The committee considered that Ms X’s email instructing M not to register the transfer of the New Zealand property was superseded by subsequent events including W sending the transfer of the Australian property to Ms E.

Review

Ms X sought a review by the LCRO. She disagreed with the committee’s view that her instructions not to register the transfer were superseded. She asserted that overlooked the requirement in the Deed of Arrangement that the settlement of both transactions “are independent and shall be effected contemporaneously”.

The LCRO found unsatisfactory conduct by W for failing to inform Ms X of the “contemporaneous” settlement requirement and to consult with her about that before registering the transfer.

In doing so, W had breached rules 7 and 7.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (Rules).

Rules 7 and 7.1 require lawyers to disclose to their clients all relevant information, to keep clients informed, and to consult the client about the steps to be taken to implement the client’s instructions.

Acting for both parties

Rule 6.1 of the RCCC provides that a lawyer must not act for more than one client in a matter in circumstances where there is a more than negligible risk that the lawyer may be unable to discharge the obligations owed to one or more of the clients.

At the early stage of Ms X’s limited scope retainer there was minimal risk to M not being able to discharge his professional obligations to both Ms X and the Zs, the LCRO said.

“However, Ms [X]’s later instructions of 26 June 2015 were not limited to a withdrawal of her permission to settle the sale of the New Zealand property.

“She stated that she gave her instructions ‘despite Ms [E], on her behalf, having sent a copy of the signed Deed of Agreement to [M]’. She stated that ‘ignoring the request’ would lead to legal proceedings against [M].

“In conclusion, she stated that it was for the [Z]s to choose whether they signed the transfer of the Australian property ‘… but the main point is I do not give permission to settle the [New Zealand] property’.”

On receipt of those instructions, M should have informed the other client, the Zs, and terminated both retainers.

“I find that by continuing to act for the parties after receiving Ms [X]’s instructions of 26 June 2015 [M] contravened rule 6.1.2 of the Rules.” That constituted unsatisfactory conduct.

Although the LCRO fined M, he determined the unsatisfactory conduct finding relating to W was sufficient. The LCRO ordered M and W to each pay $600 costs.

Last updated on the 2nd August 2019