New Zealand Law Society - Lawyer erred significantly in family transaction

Lawyer erred significantly in family transaction

Published on 6 March 2020

[All names used in this article are fictitious.]

A lawyer “significantly erred” when acting for both a father and a daughter in a property transaction, a lawyers standards committee has found.

The lawyer, Lincolnshire, acted for all parties in the sale and purchase of a property.

Mr A sold the property to his daughter, Ms B, and her partner. The $100,000 deposit for the purchase was provided by a trust, of which Mr A was a trustee.

When Ms B sought to sell the property some years later, she faced difficulties because of access. The physical access differed from the legal access, which was partially blocked by a neighbouring building.

Ms B complained that she was not made aware of the access issues at the time of purchase, and that the $100,000 provided by the trust was intended as a gift, not a loan as Mr A contended.

Ms B issued proceedings against Mr A, Lincolnshire and others, and these proceedings were later settled.

She also lodged a complaint about Lincolnshire with the Law Society, Te Kāhui Ture.

The standards committee found that aspects of the transaction created a “significant risk” that Lincolnshire would be unable to discharge all of his obligations.

Power imbalance

The committee noted a large power imbalance between Mr A, an experienced property developer, and Ms B, a first home buyer.

“There was therefore a risk that Ms [B] might lack some awareness of the technical aspects of the arrangement.

“In such circumstances, where an agreement is essentially being ‘driven’ by one party, lawyers should recognise that they may be called upon to provide advice which does not accord with the interests of one of their clients,” the committee said.

Also, issues with access ought to have alerted Lincolnshire to the fact that the interests of his clients might not be aligned in all respects.

Ms B was buying a property with a defective title, and although the parties had already agreed on the transaction, there was an “undoubted risk of conflict”.

Had he been acting solely for Ms B, “it was likely that [Lincolnshire] would have provided advice as to remedying the defective title in order to best protect her interests.”

A prudent lawyer would have recognised the existence of a risk of conflict and would have either refused to act or insisted that his clients seek and receive independent legal advice.

“At the very least, [Lincolnshire] ought to have had his clients sign a waiver setting out the potential issues and confirming his instructions to act for both sides.

“That [Lincolnshire] took none of these steps and continued to act in spite of the clear red flags, was of concern to the standards committee,” the committee said.

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

The committee ordered Lincolnshire to apologise to Ms B and to pay $500 costs.

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