New Zealand Law Society - Failed to protect client's interests

Failed to protect client's interests

Published on 12 June 2020

[All names used are fictitious.]

A lawyer and a legal executive have each been fined for failing to protect the interests of a client who bought an apartment subject to the Unit Titles Act 2010.

A lawyers standards committee fined the lawyer, Bertram, $3,000 and the legal executive, Lavache, $1,000 and ordered each to pay $500 costs.

With Bertram’s assistance, Mr A entered into an agreement for sale and purchase of the apartment. The agreement was conditional on Mr A undertaking a due diligence investigation.

The Unit Titles Act requires that a pre-contract disclosure statement must be provided to a purchaser. However, Mr A was not provided with such a statement before he entered into the agreement. It was provided some five days later.

The disclosure statement included the following: “The body corporate has identified a problem with roof deflection and is currently working through a remedial solution. Proceedings have been issued against liable parties pending the extent of remedial works being clarified.”

The disclosure statement was provided to Mr A along with a letter containing very general advice. There was no specific mention in the letter about the roof deflection issue identified. Nor did the letter provide much in the way of guidance, commentary or advice relating specifically to the apartment.

A year after Mr A became the apartment’s registered proprietor it became apparent that the apartment complex was subject to significant defects that would be costly for the body corporate and, ultimately, the owners of the apartments to repair.

Mr A then complained that Bertram and Lavache were negligent in that they failed to advise him of the issues identified in the pre-contract disclosure statement and had they done so he would not have completed the apartment purchase.

Failure was unsatisfactory conduct

The standards committee found that Bertram failed to raise with Mr A the significance of a pre-contract disclosure statement and to adequately ensure systems were in place to ensure the matters a pre-contract disclosure statement would disclose would subsequently be identified and brought to the attention of his client. That failure was unsatisfactory conduct.

In response to the complaint, Bertram said that Mr A was an experienced and sophisticated property investor who wished to, and was capable of, carrying out suitable due diligence investigation on his own.

Bertram submitted that including a due diligence condition in the agreement for sale and purchase adequately protected Mr A’s interests.

The committee was provided with a summary of matters where Bertram’s firm had provided services to Mr A, going back some 12 years. That summary “fails to substantiate that Mr [A] was either sophisticated or experienced in conducting due diligence investigations in relation to property transactions,” the committee said.

The committee found that Lavache failed to bring adverse information contained in both the pre-contract disclosure statement and pre-settlement disclosure statement to Mr A’s attention, and that was unsatisfactory conduct.

As part of his submissions, Bertram put before the committee an email from a real estate agent as “evidence of” the “trend as it relates to pre-contract disclosure statements”.

The committee said it was aware of some property professionals failing to properly advise their clients on compliance with the Unit Titles Act, but it did not accept there was a “trend” of non-compliance.

“In any event, it is difficult to see how any such ‘trend’ could somehow absolve a lawyer of their duties to their client,” the committee said.