New Zealand Law Society - Lawyers Complaints Service: Acting for both parties not appropriate when interests differ

Lawyers Complaints Service: Acting for both parties not appropriate when interests differ

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S was a solicitor whose firm acted for the wife in separation proceedings. A transaction in the separation involved a conveyance of a new property to the wife, but the bank required the participation of the husband as a condition of providing finance. S acted for both parties in this transaction.

A lawyers standards committee found this had breached the Rules of Conduct and Client Care and censured S.

The husband was initially represented by other solicitors in relation to an application for an occupation order of the family home made by the wife. After negotiation between the lawyers, it was agreed that one of the steps in the separation was to be a sale of the family home.

The wife wanted to purchase another property with her share of the proceeds. When she applied to the bank for finance to purchase the new property (before the sale of the family home had been completed), the bank refused to approve finance without her husband joining in the application. The husband did so without obtaining any legal advice.

Before settlement, S met with both the husband and wife to attend to disclosure of the loan agreement, to which both were to be party, and related matters. The husband’s lawyers were not involved, and did not know about the transaction. Settlement took place several days later.

When the family home finally did sell, the bank refused to release the mortgage until $7,772.98 had been paid towards the mortgage on the wife’s new property. The wife agreed to repay the husband over time.

The husband complained that, in the meeting with his wife and S, he had signed a number of papers that affected his interests without proper advice nor an indication that he should seek independent legal advice. He said he had not had time to consider all the implications of the transaction.

Rule 6.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules) provides that a lawyer must not act for more than one client on a matter where there is a “more than a negligible risk” that the lawyer may be unable to discharge the obligations to one or more of the clients.

S claimed he had received the husband’s informed consent, referring to the exception in Rule 6.1.1. This provides that, subject to Rule 6.1, a lawyer may act for more than one party in respect of the same transaction where the prior informed consent of all parties is obtained. Rules 6.1 states that a lawyer must not act for more than one client on a matter in any circumstances where there is a more than negligible risk that the lawyer may be unable to discharge the obligations owed to one or more of the clients.

S said he had advised the husband to obtain independent legal advice, but the husband said he did not wish to do so. S did not, however, have a file note to this effect, and the husband could not recall this part of the discussion.

The standards committee commented on the “clear dangers for both parties in [S] acting for them both” in the circumstances of this particular case.

S had clearly advised the wife of the risks to her in the arrangement. The standards committee said “the potential implications for [the husband]… could have been to his detriment and could not be protected satisfactorily by a practitioner who is obliged to act in the best interests of [the husband’s] former spouse.”

As a result there was “more than a negligible risk” that S was unable to discharge his obligations to one or both of the parties.

Further, the husband did not have a proper understanding of the risks for him in the transaction so he could not be seen as having given “informed consent” for S to act for him. The committee found that S had breached Rule 6.1 by acting where there were more than negligible risks for one or both parties.

The standards committee accepted that having one firm act for both parties to a separation on resulting conveyancing transactions can often be an efficient way to proceed, where the parties have a common purpose. However that is on the basis that independent legal advice is obtained to ensure that each party’s interests are adequately protected. This was not the case here.

S had also communicated with the husband directly, without communicating with the husband’s lawyers, in breach of Rule 10.2. While the occupation order application had by that time been discontinued, S made no enquiries as to whether the husband’s solicitors were still acting.

As well as censuring S, the committee ordered him to pay $1,000 costs.

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