A lawyer, C, has been censured and fined $10,000 by a lawyers standards committee for acting where there was a conflict of interest and for not disclosing his full interest in the matter.

Mr and Mrs F engaged C to advise them in respect of their purchase of shares in a business, H Ltd.

C drafted a shareholders agreement, witnessed the execution of documents, and advised Mr and Mrs F on some of the legal risks associated with their investment in the company.

However, C did not tell them that he was an independent trustee of a trust that owned shares in the other shareholder of H Ltd. C’s co-trustee was also the current director of H Ltd.

Mr and Mrs F said they were not aware of C’s ongoing professional relationship with the director of H Ltd.

Mr and Mrs F complained to the Law Society that C had:

• acted as solicitor to both parties in the transaction;
• failed to advise them independently;
• failed to advise them to get separate legal advice;
• failed to advise them of his position as trustee and of his association with the other main person in the business;
• failed to protect their interests and give them clear information;
• failed to advise them as to the most advantageous structure for the purchase; and
• failed to advise them that he knew about the background to the company, which was relevant information.

Mr and Mrs F said that if C had been properly protecting their interests, he would have advised them of other options in respect of the arrangement that might have better protected their position. They alleged they had suffered significant loss as a result of C’s breaches. In his response to the complaints C said:

• he had told his co-trustee, with whom he had had a long association, that he could not act for him on this matter;
• the complainants knew he had acted for the co-trustee in the past;
• he had received the shareholders agreement once its terms had already been agreed;
• he had not been instrumental in bringing the parties together to do the deal;
• the complainants had not relied upon him for the advice as to the structure of the purchase, and had relied upon their accountant for advice; and
• the complainants had not sought advice on the commercial aspects of H Ltd, and were in fact in a much better position in any event to determine this for themselves, as experts in this line of business.

C acknowledged shortcomings in that he did not obtain written confirmation where he acted for his co-trustee and related companies, and he omitted to advise of his trusteeship and consequent shareholding.

He also acknowledged that although he endeavoured to act in Mr and Mrs F’s best interests, with hindsight, certain aspects of the agreement could have been drafted differently.

The standards committee found that he had effectively acted for both parties in circumstances where there was more than a negligible risk he could not discharge his duties to either or both. This breached Rule 6.1.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008.

The committee found that C’s admission that he had not disclosed his full interest in the matter was a breach of Rule 5.4.1. It also found that C had breached Rule 7, in that he had not disclosed all information relevant to the matter to Mr and Mrs F.

The standards committee considered C’s actions to be a serious breach of the rules, and was unsatisfactory conduct. As well as the censure and fine, C was ordered to pay the Law Society $2,000 in costs.

The committee decided it was not appropriate in the circumstances to award compensation to the complainants where there was conflicting evidence and potential contributory negligence issues to be resolved. The committee said it was more appropriate for a Court, rather than a standards committee, to determine whether any compensation was payable in this case.