New Zealand Law Society - Independent legal advice was needed

Independent legal advice was needed

Published on 5 April 2019

[Names used in this summary are fictitious]

A lawyer, Lightwood, who drafted a trust deed under which she was a beneficiary should have required her parents to take independent legal advice, a lawyers standards committee has said.

Lightwood’s parents established a trust to protect the proceeds of the intended sale of a property they owned.

Lightwood prepared the trust deed. Lightwood, one of her parents and an accountancy firm’s trustee company were appointed as trustees. Lightwood, her parents and Lightwood’s siblings were named as discretionary beneficiaries.

Lightwood’s mother subsequently complained to the Law Society that Lightwood had a conflict of interest in relation to the trust, because she had prepared a trust deed from which she derived a direct benefit.

The committee considered that Lightwood had breached rules 5.4 and 5.10 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008.

Rule 5.4 states that “a lawyer must not act or continue to act if there is a conflict or a risk of a conflict between the interest of the lawyer and the interests of a client for whom the lawyer is acting or proposing to act”.

With reference to Ethics, Professional Responsibility and the Lawyer (3rd ed, LexisNexis, Wellington, 2016) by Duncan Webb, Kathryn Dalziel and Kerry Cook, the committee noted that where a lawyer with a conflicting interest wishes to act for a client “the obligation [on the lawyer] to disclose fully the interest held is onerous”. The lawyer must “show that the transaction was at arm’s length and the client was fully informed”.

Lightwood submitted that while no independent legal advice was provided, her parents were independently advised by their accountant, “a trusted professional, familiar with trust and estate planning”.

However, the committee considered that in the absence of independent legal advice, Lightwood had not discharged the onerous burden of showing that her parents were fully informed of the effects of the trust and that she had therefore breached rule 5.4.

In the committee’s view it was unlikely that without independent legal advice Lightwood’s parents would have understood the effect that the trust had on Lightwood’s position.

Rule 5.10 states that: “a lawyer must not draft or assist in drafting a provision of a will or other instrument under which the lawyer may take a benefit other than a benefit normally attached to acting in a professional capacity in respect of the will or instrument unless before the execution of the will or instrument, the person concerned has taken independent legal advice”.

Although Lightwood had breached both rules, the committee considered the breaches were neither wilful nor reckless. Lightwood had expected that the advice her parents had received from their accountant would have been sufficient to allow her to proceed. Because the breaches were “minor” and there was no issue of public protection, the committee determined the breaches did not amount to unsatisfactory conduct.