New Zealand Law Society - Lawyers Complaints Service: Strike off follows total failure to protect client

Lawyers Complaints Service: Strike off follows total failure to protect client

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Gerald George McKay has been struck off after he acted for a number of clients in a series of transactions involving strongly conflicted interests. One of the clients lost her home, her sole asset.

In [2014] NZLCDT 20, the New Zealand Lawyers and Conveyancers Disciplinary Tribunal found Mr McKay guilty of professional misconduct, stating that he had “let [his client] down abysmally”.

In 2007, the complainant, Ms H, had approached a mortgage broker and financial advisor, Mr I, to assist her and her partner refinance the house she had bought in June 1988.

The refinancing arrangement was to include repayment of mortgage arrears of about $2,000, and provide further funds for other creditors and to build a garage, for further fencing and for some renovations.

Mr I (who has since died) introduced Ms H to Mr McKay on 17 December 2007. Mr McKay accepted instructions to undertake the necessary work to affect the sale of her residential property to a company called JCR Developments Ltd (JCR). The company was effectively the vehicle of Mr J, who was its director.

Mr McKay had also represented Mr J in previous matters, although he was not Mr J’s primary solicitor. However he had acted for him in the entering by consent of a judgment debt against Mr J for $1.4 million.

Before the meeting with Mr McKay, Mr I obtained from Ms H two signed authorities to act as her agent in financial matters. Mr McKay later produced a document dated 17 December 2007 headed “Informed Consent” signed by Mr I as Ms H’s agent.

“This was a document never seen by Ms H, according to her, until she engaged the services of another lawyer to assist her in finding out how her home had subsequently been able to be sold,” the Tribunal noted.

It also said that it was apparent that Mr I also had an established relationship with Mr McKay.

The agreement for sale and purchase (which Mr McKay denies preparing) provided sale of the property to JCR at a fixed price of $172,500.

There was a special clause which provided that the vendor was to remain in possession of the property as a tenant and for an agreed rental to be paid. Another clause provided the vendor and her partner a right to buy back the property in two years’ time, or the first right of refusal should the purchaser wish to sell it at any time during those two years. Ms H signed the agreement.

In the meantime Mrs H and her partner were attempting to establish a savings record through Mr I’s agency in order that they may be able to refinance the purchase back of the property. They began paying $400 a week into an account Mr I controlled and Ms H’s evidence to the Tribunal was that $9,000 was paid to Mr I.

“This sum has never been traced or recovered by Ms H or her partner,” the Tribunal said.

Two days before settlement date, unknown to Ms H, Mr I signed a Variation of Agreement for Sale on behalf of Ms H which required the purchaser to only pay on settlement the amounts required to settle two mortgages on the property (totalling $47,900) and some further outstanding creditors, including rate arrears, within six months.

On 16 April 2008 the two mortgages registered against Ms H’s title were repaid from the trust account of Mr McKay’s firm and the property was transferred to JCR.

Mortgages over the property were granted by JCR, which then defaulted on its obligations and the bank sold the property at a mortgagee sale in February 2009.

“As a result of these transactions Ms H had sold her home for $47,900. She received no further credit or funds from the sale of the property,” the Tribunal said.

“To complete the picture it needs to be recorded that prior to executing the variation agreement, Mr I had also been appointed a director of JCR. Thus it can be seen that Mr McKay acted for the vendor, purchaser, the agent (who subsequently had a conflict of interest himself) and the subsequent mortgagee.”

The Tribunal said it accepted Ms H’s evidence that the conflict of interest had not been communicated to her, nor had the fact that a judgment debt has been entered against Mr J for $1.4 million.

The Tribunal said it found it “reprehensible on the practitioner’s part that he not only attempts to blame Ms H for her predicament in having lost her major life asset as well as the $9,000 paid to Mr I, but also denies having any responsibility to protect her from Mr I, who was well known to the practitioner.”

Mr McKay’s conduct, the Tribunal said, “amounts to an abuse of his position as a lawyer and a serious breach of his fiduciary duties to Ms H.

“Ms H was entitled to the practitioner’s ‘single minded loyalty’. It is abundantly clear that she did not receive this from him and as a consequence has lost an asset [that] she, as a single parent, had acquired over many years.

“She was not protected in a situation where she was clearly preyed upon and exploited by a so-called financial adviser and a (now bankrupt) businessman, possibly in a deliberately predatory manner.”

In its penalty decision, [2014] NZLCDT 57, the Tribunal said it considered Mr McKay’s misconduct was “at the high end of the scale” and that his failures to this client were “many and obvious”.

“The consequences to her of his failures were devastating. He enabled her home to be purchased by another client at a gross undervalue.”

Counsel for the lawyers standards committee “submits that this constituted a ‘total abandonment of professionalism’. He went on to submit that it demonstrated ‘a lawyer who strayed so far from the acceptable path of professionalism that he can justifiably be said to have ceased to function meaningfully as a lawyer at all …’

“We accept that submission entirely,” the Tribunal said.

As well as the strike off, the Tribunal ordered Mr McKay to pay the Law Society $70,000 standards committee costs and $14,812 Tribunal costs.

The findings of the Tribunal are currently under appeal.

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