New Zealand Law Society - Lawyers Complaints Service: Lawyer reprimanded for lack of insight when acting for her family's trust

Lawyers Complaints Service: Lawyer reprimanded for lack of insight when acting for her family's trust

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A lawyer, M, has been reprimanded and fined $10,000 by a lawyers standards committee for a series of rule breaches, including acting while there was a “clear conflict of interest” and breaches of the Trust Account Regulations.

The committee’s decision came after the Lawyers Complaints Service received a complaint from M’s former husband, H.

Their relationship property agreement covered some residential properties and a beach property, owned by a network of family trusts.

A provision of the agreement was that when a specified residential property was sold, the net proceeds were to be applied to discharge a mortgage and some other bank loans.

Another law firm acted on the majority of the transactions, but M’s firm was to act on behalf of the trust that owned the specified residential property. Settlement was to occur in two tranches. The second sum was paid into M’s trust account.

H complained that M had failed to repay the mortgage and other loans in accordance with the agreement. M did not pay the amounts until she received a letter from a Queen’s Counsel H retained. H claimed that interest had been incurred as well as penalty payments while the amounts remained unpaid.

H also complained that M had not provided proper accounting records to the trust, and disputed a payment from M’s trust account in connection with the beach property.

In reply, M said that the final payment could not have been made earlier because issues of depreciation were outstanding. She also claimed that H refused to agree to property management provisions which were required to be agreed to complete the relationship property agreement.

M noted that she had not charged legal fees, and that H was not her client, and thus that there was no professional relationship between her firm and H. She said that H had been free to instruct another lawyer at any time, but he had not done so. She claimed she had kept their mutual accountant fully informed, and that H had had access to the accounts.

H replied that he was complaining as trustee of the relevant family trust, not in his personal capacity. He also said that it was a clear term of the relationship property agreement that the mortgage and other bank loans would be discharged, and that M’s delay had been a breach of this straightforward term. He disputed the relevance of the depreciation issue. He claimed that M had, in effect, treated the money in her trust account as her own and used it without input from the trustees of the relevant trust and without heed to the clear terms of the relationship property agreement.

The committee considered whether M had maintained proper standards of professionalism, as required by Rule 10 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (RCCC).

The committee determined that M failed to recognise that she acted for the trust, of which H was a trustee. The committee said this was “a lack of insight.” The committee determined that she had failed to promote and maintain a proper standard of professionalism in relation to acting for the trust.

The committee also considered whether the Lawyers and Conveyancers Act (Trust Account) Regulations 2008 had been complied with.

There was no evidence that M had obtained written authority for payments made from her trust account, and the committee determined this was a breach of Regulation 12(6). The committee also determined on the facts that M had not provided adequate statements as required by Regulation 12(7).

The committee then considered the application of Rule 5 of the RCCC, in respect of M’s obligation of independence and to not act if her interests conflicted with those of her client. The committee said that there was a clear conflict in this case between M’s interests and the interests of the client trust.

The standards committee determined there had been unsatisfactory conduct on M’s part.

As well as the reprimand and fine, M was ordered to rectify her omission to provide proper financial statements relating to the trust. She was also ordered to pay $1,000 costs.

A subsequent hearing on compensation to H determined that as the losses were to the trust, and not to H personally, no compensation order would be made.

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