New Zealand Law Society - Failing to make enquiries to ensure that client had sole authority to sell a business leads to unsatisfactory conduct finding

Failing to make enquiries to ensure that client had sole authority to sell a business leads to unsatisfactory conduct finding

The New Zealand Lawyers and Conveyancers Disciplinary Tribunal (the Tribunal) found a former Auckland lawyer, Benjamin Bong, guilty of unsatisfactory conduct for his failure to make enquiries to ensure that his client had sole authority to sell a jointly owned business.  The Tribunal noted Mr Bong’s long career and his lack of previous disciplinary findings were relevant mitigating factors and imposed a fine, an award of compensation and ordered costs.

The conduct at issue related to the sale of a business. The business had been purchased in 2008 by Mr W and Ms W, who were married at the time but then separated. Ms W owned the land on which the business was situated in her sole name.  In 2016, Ms W instructed Mr Bong in relation to the sale of the business. Mr Y, a lawyer acting for the purchaser, asked Mr Bong to confirm that Ms W “has sole authority to sell the business”. Mr Bong’s response was “I think we should not think too far ahead. Let me have the draft and I will take instructions”. Mr Bong did not at any stage confirm to Mr Y that Ms W had sole authority to sell the business. A search of the title confirmed that Ms W was the sole registered proprietor and Mr Bong did not make any further inquiries to confirm that she was the sole owner of the business. The Tribunal noted that the query about the authority to sell the business should have put Mr Bong on notice that there may be a second owner. A further red flag appeared when discharging the financial statement for the business, as both Mr W and Ms W’s names appeared on the statement. However, Mr Bong was on leave when the discharge was done and it was completed by his legal executive. The Tribunal noted that it was unfortunate that the work was split this way, as it meant Mr Bong did not make a connection between the names on the financing statement and the previous query about sole authority to sell.

In determining liability, the Tribunal said that while Mr Bong’s failure was one with serious consequences for Mr W, it had been “an honest mistake”.  It did not regard the failure as amounting to misconduct or negligence. The Tribunal noted two factors which reduced Mr Bong’s level of culpability. The first was that his client owned the land that the business was located on in her sole name and therefore when he searched the title to prepare a lease for the business to be purchased, there was nothing to put him on notice that his client might not be the sole owner of the business. The second was that Mr Bong was away when the financial statement was discharged, depriving him of the opportunity to reinvestigate the situation. The Tribunal instead found Mr Bong’s conduct to be unsatisfactory conduct as it fell short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer.

In determining the penalty for the unsatisfactory conduct, the Tribunal found no aggravating features and noted Mr Bong’s long period of practice without any previous adverse disciplinary findings. It noted it was unfortunate that Mr Bong had chosen not to participate in the hearing as it deprived him and the Tribunal of the opportunity of exploring mitigating factors. The Tribunal considered that a small award of compensation for Mr W was appropriate, given he had visited the business in question in 2019 and been removed by the Police as a trespasser, and that must have been humiliating for him. In addition, Mr Bong failed to respond to any of Mr W’s questions about the sale, which meant that Mr W had to go to the trouble of seeking assistance from the Privacy Commissioner. However, the Tribunal accepted that Mr Bong was bound by client confidentiality and was not in a position to release information to Mr W.

For these reasons, the Tribunal ordered that Mr Bong be fined $5,000, and pay compensation of $3,000 to Mr W. Mr Bong was also ordered to pay costs.