Mr Johnson acted for client and friend of some 20 years in respect of two loan transactions.  The transactions involved money being loaned by Mr Johnson in his personal capacity to two different companies of which his friend was the sole director and shareholder.  The first loan was guaranteed by a trust of which Mr Johnson was a trustee.  Mr Johnson acted for the trust in respect of the loan and other matters.  For the second loan, Mr Johnson provided a personal guarantee.  

The Tribunal found that by participating and acting on the transactions, Mr Johnson failed in his responsibility to be independent (r 5) and breached his obligation not to act if there is a conflict or risk of conflict between the interests of the lawyer and the interests of the client (r 5.4).  Mr Johnson also breached his obligation not to enter into a financial transaction with a client if there is a possibility of the relationship of confidence and trust being compromised (r 5.4.3) as well as his obligation not to act for more than one client when there was a more than negligible risk of being unable to discharge his obligations to a client (r 6.1).

Mr Johnson accepted that there was a conflict of interest but said this had been discussed with the borrower at the time, who had provided a waiver.  The Tribunal noted this was insufficient as rules 5.4 and 5.4.3 are mandatory.  As Mr Johnson had turned his mind to rules surrounding conflict but acted anyway, the Tribunal found his breaches of the rules were reckless and amounted to misconducr.  The Tribunal noted that Mr Johnson’s own evidence was that he was a very experienced lawyer who was aware of the rules around conflict of interest.  It further noted that Mr Johnson was engaged in unrelated disciplinary proceedings at the time of the loan agreements and therefore should have been diligent about checking his obligations.  The Tribunal was not persuaded that the only person at risk if the transactions went awry was Mr Johnson, noting that the borrower would have lost his lawyer of 20 years and would have to find other representation.

Mr Johnson was also charged in relation to errors with his trust accounting.  The Tribunal found that these errors were largely de minimis.  All of the errors had been addressed and, where necessary, rectified.  The Tribunal regarded these as trust account breaches simplicter and recorded a finding of unsatisfactory conduct.

At a separate penalty hearing, the Tribunal suspended Mr Johnson for three months in relation to the misconduct charge.  The Tribunal noted that while there was a clear conflict of interest, the client was an experienced businessman and the agreements were on proper commercial terms.  Mr Johnson had previously been suspended for other matters.  While this offending preceded the offending for which he was later suspended, the Tribunal held he was not entitled to credit for a clean disciplinary record as he had already had the benefit of that.  He was given credit for not returning to practice following his suspension however.  No further penalty was imposed in relation to the unsatisfactory conduct charge.

Read the decision on the Tribunal’s website