New Zealand Law Society - Delay and inadequate advice amounts to unsatisfactory conduct

Delay and inadequate advice amounts to unsatisfactory conduct

A Standards Committee (Committee) has determined that a lawyer (Mr D) engaged in unsatisfactory conduct after he delayed acting on a client’s instructions and provided inadequate advice. 

Mr D provided services to a client in relation to a Trust. The firm was approached by the client (settlor of a trust) seeking to remove two Trustees and replace them with someone else. After some preparation, the firm could not locate the Trust documentation, meaning the changes to the Trustees could not be made. The firm believed that the client had uplifted the Trust documentation.  

Eight months later, the Trust documentation was found and had been in the firm’s possession the entire time. However, by the time the Trust documentation was located, the client lacked legal capacity and her desired changes to the Trustees could no longer be effected. Despite there being no change to the Trustees, Mr D’s firm invoiced $640 for the work carried out. 

The client then passed away. She left behind the house she had lived in as Trust Property. Mr C, one of the client’s sons appointed trustee under her will, approached Mr D for advice on the Trust. Mr D sent an email with a number of options for Mr C. Mr C opted to alter the title of the Trust so that he and the other remaining beneficiary, Mr F, would become Trustees. All other Trustees would retire. Mr C chose this course of action with the understanding that it would not be “blocking” other options in the future and would require “minimum effort.” The relevant documents were prepared and Mr C was advised that they had been sent to Mr F for signing.  Mr C was subsequently invoiced $1,517. 

Mr C then noticed a clause in the Trust Deed referring to a “restricted period” which would come into effect if two or more of the discretionary beneficiaries happened to be the only Trustees. Mr C queried this with the firm who confirmed that a third independent Trustee would need to be appointed if the course of action agreed upon was carried out. If not, the Trust would enter a restricted period (affecting the ability to make distributions). 

Following this, Mr D gave further advice that the Committee said “did not correct the original omission to address the specific provisions of the Trust Deed”.   

The follow -up advice caused Mr C concern and the implementation of altering the title of the Trust was halted. Mr C ultimately decided to instruct another solicitor to advise him on the matter.  

The Committee considered Mr D’s initial delay in acting on the client’s instructions to replace the existing Trustees. It noted that clients are entitled to “efficient action of their instructions.” In this case, the delay meant that the requested change could no longer occur due to the client’s incapacity. The Committee was of the view that the delay was in all circumstances unacceptable incompetence and concluded that this constituted a failure to act competently and in a timely manner. It considered the delay to be a breach of rules 3, 3.2 and 6. However, on review the LCRO modified the Committee’s decision by reversing the finding of breach of rules 3.2 and 6.  

The Committee then considered whether Mr D had acted appropriately in relation to the alleged misplacing of the original Trust documentation. An issue of significant concern to the Committee was that Mr D had erroneously accused the client of uplifting the Trust documents when they had been with the firm the entire time. The Committee concluded that this was a breach of rules 3, 3.2, 3.3 and 6 of the RCCC. This finding was reversed by  the LCRO. It was explained that the firm had merged with another firm while in possession of the Trust documentation. Consequently, the Trust documentation would need to have been physically relocated or entered into a new system. The LCRO considered that this was the responsibility of the firm’s administrative staff and could not be laid at the door of Mr D.  

Regarding the advice given to Mr C about the Trust property, the Committee considered that this was inadequate and did not take into account the relevant provisions of the Trust deed. It stated that “thorough consideration of the provisions should have been the first step in any advice regarding the Trust property.” The further advice provided to Mr C after he discovered the restricted period provision was found to be lacking in competence and would have exacerbated the problems.  The Committee concluded that this amounted to a breach of rules 3 and 6. On review from the LCRO, the decision was modified to a breach of rule 3 only.  

The Committee determined that Mr D had engaged in unsatisfactory conduct pursuant to ss12(a) and 152(2)(b) of the Act. Mr D was ordered by the Committee to: 

  1. Apologise to Mr C under s156(1)(c) of the Act 
  1. Refund the sum of $640 to Mr C charged in relation to the intended change in Trustees, under s 156(1)(g) of the Act 
  1. Pay a fine of $3000 to the New Zealand Law Society Te Kāhui Ture o Aotearoa under s156(1)(i) of the Act 
  1. Pay costs to the New Zealand Law Society of $2,500 under s156(1)(n) of the Act.  

On application to the LCRO, Mr C argued that he should not have been charged for the work that was undertaken to appoint himself and Mr F as Trustees because it was a result of the inadequate advice provided by Mr D. The LCRO added to the penalties by cancelling the second invoice of $1,517.30. All other penalty orders were confirmed.