New Zealand Law Society - Acted for more than one client

Acted for more than one client

Published on 8 February 2019

[All names used in this article are fictitious.]

A lawyer has been fined $2,000 for acting for more than one client where there was more than a negligible risk that he was unable to discharge the obligations owed to all clients.

As well as imposing the fine, a lawyers standards committee ordered the lawyer, Banton, to pay $1,000 costs.

Banton acted for two companies on a transaction where company A sold a parcel of leasehold land to company B.

The principals of company A were existing clients of Banton. Those principals were also shareholders (via a trust) of company B, as were Mr and Mrs Slate and Mr and Mrs Bounderby.

Banton prepared a Shareholders Agreement for company B. This confirmed, among other things, that company B was incorporated to purchase the land and develop the property into 14 residential sections.

The agreement also provided that the Slates and Bounderbys were to jointly contribute to the purchase price for the land by a loan to the company. Funds required for development were to be advanced by the shareholders pro rata to the parties’ shareholding.

The Slates held 25% of the shares, the Bounderbys 25% and the trust for the other shareholders 50%.

Following the transaction the parties in company B fell out, according to Mr Slate who complained about Banton to the Law Society. That was as a result of the other parties (those in the trust) disclosing that they had no funds to contribute to the venture.

Mr Slate also told the committee that there was a provision in the lease for the land (the property was leased from a Māori Incorporation) restricting further subdivision of the land – restricting the ability to subdivide it into 14 separate lots.

The committee determined that Banton has breached rule 6.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, and that was unsatisfactory conduct.

Rule 6.1 states that “a lawyer must not act for more than one 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 one or more of the clients”.

In this case, the risk of the interests of Banton’s historical clients (the principals of company A) being advanced at the expense of the proposed purchaser client (company B) “was, in the view of the committee, more than negligible”.

There was a more than negligible risk that there was a “significant disparity in the knowledge of the [company A] directors in that [Banton] did not know whether or not the directors of the purchaser company were fully appraised of all information relevant to the transaction and proposed development,” the committee said.

“Even if they were aware of all the information, was [Banton] able to discharge his obligations to [company B] given he acted for [company A] as well?”

In relation to such situations, it has been observed (in LCRO 290/2013 at para [30]) that: “A lawyer has training and experience to recognise issues that have not been addressed by a client or to recognise unexpected consequences flowing from instructions given by a client. In those cases a lawyer must be proactive in offering advice rather than merely implementing a client’s instructions without further inquiry”.

In this case, Banton was not assisted by Mr Slate’s seeming reluctance to obtain independent legal advice despite numerous requests to do so.

“However, even if Mr [Slate] had obtained independent advice and elected to proceed that would not have overcome the fundamental barrier to [Banton] acting for both vendor and purchaser companies where the lawyer’s professional obligations of loyalty and confidence to all clients are unable to be discharged,” the committee said.

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