A Standards Committee found that a lawyer had conflicting duties, thereby breaching rule 6.1 of the Conduct and Client Care Rules, where the lawyer acted for a couple in the purchase of a property, and their interests conflicted due to last minute changes to their borrowing and security arrangements.
While the Committee took no further action because of mitigating circumstances, it wished to emphasise the importance of lawyers evaluating the risk of conflicting duties as early as possible.
The couple (Mr A and Ms B) entered an agreement to purchase a property. Between themselves, they agreed their respective trusts would contribute equally to the price. Their funding arrangements were somewhat complex, with the parties using their own separate trust and company structures.
The lawyer acted for the couple in the property purchase, having previously acted for Mr A to establish his trust.
Prior to settlement, when the couple were overseas and uncontactable, their mortgage broker contacted the lawyer to advise a change in the borrowing structure and that Ms B’s trust would need to borrow a sum from Mr A’s trust, in order to maintain ‘equal’ contributions. Further, when the lawyer received the mortgage documents from the bank the day before settlement, they were inconsistent with previous instructions. The lawyer’s understanding was that there would be two separate company mortgages, but the documents included a loan (for much of Mr A’s trust’s contribution) expressed as being to Mr A’s and Ms B’s companies in partnership. The loan was to be secured by a mortgage over the new property and guaranteed by the couple’s respective trusts. A meeting was arranged urgently, on the morning of settlement, to discuss the borrowing arrangements. That meeting was attended by the lawyer, the couple and their accountant.
Years later the couple separated. Around that time, Ms B complained about the lawyer. Among other complaints, Ms B was unhappy with the arrangements put in place at the time of the purchase, particularly what she described as the “joint mortgage”, saying she had not been informed of it.
One of the issues considered by the Committee was whether the lawyer had conflicting duties in acting on the purchase.
While the Committee commented on a lack of clarity in the materials (including the file) as to who exactly the client was, it concluded the lawyer had acted for both Mr A and Ms B. Further, the Committee considered there had been a more than negligible risk of the lawyer being unable to discharge the obligations he owed to them both. It concluded that was a breach of rule 6.1.
The Committee said the lawyer should not have acted for both parties “where it became apparent that their interests were not identical”.
However, the Committee described the breach as a “technical” and because of the particular circumstances, it did not consider the conduct warranted a finding of unsatisfactory conduct.
The Committee acknowledged that the lawyer had been placed in “an extremely difficult position” by the actions of the clients who were overseas and uncontactable in the period leading up to settlement. During that time, the lawyer was advised of changes to the borrowing structure by the mortgage broker. The day before settlement, the lawyer received loan documentation that was inconsistent with previous instructions. He was unable to discuss these things with his clients until the urgent meeting on the morning of settlement day.
In the circumstances, the Committee was satisfied that “when the mortgage broker contacted him and the conflicting interests became apparent, that [the lawyer] took practicable steps in response to that new information”.
The Committee said it hoped the complaint had been “a salutary lesson” for the lawyer “regarding the importance of the identification of and exclusivity of client interests”. The Committee directed publication of the facts of this complaint, as it considered that it highlighted the importance of properly identifying the client(s) at the beginning of a retainer, as well as evaluating the associated risks of conflicting client interests as early as possible.