Background 

Ms H represented two clients, Mr J and Ms K, in an agreement to sell a property owned by Ms K. The clients were seeking to purchase a property together, with the sale and purchase arranged to settle on the same day.  

The clients’ purchase of the new property was reliant on securing finance. Their finance agreement involved the proceedings from the sale of Ms K’s property being used to discharge the mortgage.  

The purchaser of Ms K's property did not pay the deposit on the agreed date. This information was not relayed to Ms H and she did not take any active steps to confirm whether the deposit was paid. She became aware of the issue a week later via an email from the real estate agent.  

The clients were required to confirm whether the finance condition had been met for the property they sought to purchase. Ms H took instructions but did not tell the clients about the deposit. She then informed the seller’s solicitors that the clients waived the finance condition. 

The deposit remained unpaid the next day. A brief phone call was made to Ms K to tell her about the non-payment. Ms H then confirmed to the seller’s solicitors that the sale and purchase agreement was unconditional. Ms H then sought to resolve matters herself by: 

• attempting to find another purchaser, 
• hiring a private investigator to establish the purchaser’s whereabouts, 
• sending a notice of demand for payment of the deposit, and 
• sending a notice of cancellation of the agreement due to non-payment of the deposit.  
• There was no record on her files to show she had instructions to do so.  

The sale of the Ms K’s property was not completed. The clients were contractually obliged to complete their purchase of the remaining property.  

The clients sought compensation from Ms H, which was settled outside of the complaints process.  

Duty to make positive inquiries about payment of deposit and associated risks 

The Committee considered whether Ms H had breached rule 3 of the RCCC, to act in a competent and timely manner, and looked to the New Zealand Law Society Te Kāhui Ture o Aotearoa’s Property Law Section Guidelines. The guidelines state that a lawyer acting for a vendor should “ensure the agent or vendor collects the deposit on time.”  

The Committee concluded that Ms H failed to make necessary checks regarding the payment of the deposit and that she ought to have taken positive steps to confirm whether it had been paid. It was not acceptable to wait for the real estate agent to let her know.  

Once Ms H became aware of the non-payment of the deposit, the Committee considered that she had an obligation to make comprehensive inquiries about the purchaser’s financial situation to establish any risks that may affect the clients, which she did not do.  

Accordingly, the Committee determined Ms H breached rule 3 of the RCCC and that this was unsatisfactory conduct.  

Duty to notify clients about non-payment of deposit  

Ms H did not immediately tell either client about the deposit not being paid, despite being in contact with them over the phone on the same day. She explained that she did not tell them about the issue because she did not think it was necessarily a cause for concern and wanted to understand the position before bringing it to their attention.  

Rule 7 of the RCCC provides that a lawyer must promptly disclose to a client all information that a lawyer has or acquires that is relevant to the matter in respect of which the lawyer is engaged by the client.  

The Committee considered Ms H breached her duty to promptly inform the clients of relevant information under rule 7. The deposit was clearly a relevant matter to them as they needed the funds to complete their purchase of the other property and Ms H was not justified in withholding this information.  

Duty to provide competent and timely legal advice and keep clients informed 

Ms H recognised in hindsight that she should have alerted the clients about the non-payment of the deposit. However, she firmly believed that they would have proceeded to declare the agreement as unconditional in any event.  

The Committee did not consider that this belief was relevant and noted that no further information about the deposit was provided to the clients for multiple days. Ms H instead tried to remedy the situation herself by attempting to line up another buyer. The Committee considered that she had a duty under rule 3 of the RCCC to give her clients full and clear advice about the associated risks of the deposit before declaring that the finance condition was satisfied.  

The Committee also considered that Ms H had an obligation to keep the clients informed about the matters relating to the non-payment of the deposit, and she failed to meet the standard provided for under rules 7 and 7.1. of the RCCC.  

The combination of breaches of rules 3, 7 and 7.1 were determined to be unsatisfactory conduct.  

Duty to seek instructions 

A further aspect of the complaint was that Ms H did not seek instructions before issuing a notice of demand for payment of the deposit and a notice of cancellation of contract due to the non-payment.  

Ms H explained that she took instructions from “authorised representatives” as Ms K was ill. There was no record of this on file, and Ms K confirmed she was not so incapacitated that she could not provide instructions. The Committee was satisfied that Ms H had failed to obtain instructions and did not provide advice before issuing the notices. This was a further breach of rules 3, 7 and 7.1 of the RCCC and amounted to unsatisfactory conduct.

Failure to advise clients of potential claim 

Rule 5.11 of the RCCC provides that a lawyer must immediately advise a client to seek independent advice once they become aware of a potential claim against them. Ms H argued that she was not aware at any stage that the clients may have had a claim against her, so rule 5.11 did not apply.  

The Committee was aware that Ms H had gone to great lengths to remedy the problem of the clients proceeding with an unconditional purchase without having received the deposit for the sale of their property, including hiring a private investigator to try to locate the purchaser. These steps strongly indicated to the Committee that Ms H was aware that her conduct was an issue.  

The Committee determined that Ms H had breached rule 5.11 by failing to inform the clients when a conflict arose and that this was unsatisfactory conduct.  

Penalty 

The Committee was disappointed that Ms H did not acknowledge the inappropriateness of her actions in the matter, demonstrating a “concerning lack of insight.” 

Ms H was ordered to pay a fine of $2,500 and costs of $1,000. No orders were made for compensation, as the Committee was satisfied that this was adequately settled outside of the complaints process.