New Zealand Law Society - Duty to promptly disclose information to clients

Duty to promptly disclose information to clients

The conduct of a lawyer trustee was found to be unsatisfactory when he failed to promptly inform his co-trustees, who were also his clients, that the trust owed GST in relation to a property resettlement that had occurred several years earlier.   A finding of unsatisfactory conduct was made, without any fine imposed.

The lawyer was a trustee of two trusts along with his clients, the complainant and her husband.   

A decision was made to resettle the property belonging to one of the trusts to the other trust.  At that time, the lawyer and one of the other trustees sought advice from the trusts’ accountant in respect of the GST status of the transaction.  The accountant’s advice was that GST would be payable, unless the transferee trust became registered for GST so the transaction could be zero-rated.

The resettlement was delayed for two years.  When it took place, the transferee trust was not registered for GST, yet the transferor trust did not pay any GST.  This appeared to be an oversight.

During another transaction several years later, the lawyer became aware of the GST oversight.  However, he did not draw this to his co-trustees’ (and clients’) attention until approximately 6 months later. When he did inform his co-trustee clients, he proposed a strategy to avoid the GST by declaring the settlement invalid.  The clients disagreed with the strategy.

The Standards Committee concluded that the lawyer had breached rules 7 and 7.1 of the Conduct and Client Care Rules.  Rule 7.1 provides that a lawyer must “promptly disclose” to a client “all information the lawyer has or acquires that is relevant to the matter in respect of which the lawyer is engaged by the client”.  The Committee determined that such a breach amounted to unsatisfactory conduct.

On review, the Legal Complaints Review Officer confirmed the Committee’s finding of unsatisfactory conduct and order that the lawyer pay costs of $3,000 to the New Zealand Law Society | Te Kāhui Ture o Aotearoa.

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