New Zealand Law Society - Acting against a former client

Acting against a former client

A couple (Mr and Mrs Z) used the services of a law firm for personal, business and trust related matters over a period of 20 years. When the couple separated the firm accepted instructions from Mr Z to act in a relationship property dispute with Mrs Z. However, the firm continued to act for family trusts of which Mrs Z was a trustee. Mrs Z went from being a client of the firm, in her trustee capacity, to now also being an adversary of the firm, in her personal capacity.

The Standards Committee noted that in agreeing to act for Mr Z in his personal capacity, the firm had an obligation to protect and promote his interests to the exclusion of third parties. The firm’s duty to Mr Z personally was very obviously incompatible with its continuing fiduciary obligations to Mrs Z, as a client in her trustee capacity.

The Committee accepted that, theoretically at least, the trusts and Mr and Mrs Z were separate legal entities. However, it considered that for all practical purposes they were one and the same. The Committee concluded that Mrs Z was a former client, in respect of work done for her in her personal capacity, and a current client, in her capacity as a trustee.

Rule 8.7.1 of the Conduct and Client Care Rules sets out the circumstances in which a lawyer is prohibited from acting against a client. A key focus of the rule is the protection of a client’s confidential information. This includes preventing situations where that information might be used against the client, for the advantage of another person. The Committee noted that the firm would have acquired knowledge about Mrs Z over the twenty years it acted for her which would have been advantageous to Mr Z in their relationship property dispute.

The Committee considered that it was inevitable that members of the firm would have discussed Mr Z’s instructions and the couple’s affairs more generally and that there was a risk that confidential information about Mrs Z would have been disclosed during these discussions.

The firm, in its defence, submitted that Mrs Z initially did not object to the firm acting for Mr Z. The Committee did not consider that this excused the conduct of the firm. “It was not for [Mrs Z] to remind [the firm] of their professional obligations.”

The Committee was satisfied that all four of the cumulative elements set out in rule 8.7.1 were present. The firm ought never to have accepted instructions from Mr Z. By doing so, and by acting against Mrs Z, the firm had breached rule 8.7.1. This constituted unsatisfactory conduct in terms of section 12(c) of the Act.

The Standards Committee imposed a fine of $1,000 and costs, also of $1,000.