Jonathan Charles Heaphy has been censured by the New Zealand Lawyers and Conveyancers Disciplinary Tribunal after he failed to exercise judgement when making an investment.
In [2014] NZLCDT 61, the Tribunal found Mr Heaphy guilty of two charges of misconduct. The charges arose after one of Mr Heaphy’s clients, Mr F, was “raided” by the fraud division of Immigration New Zealand.
Soon after the raid, when it became apparent that his client may face serious charges Mr Heaphy sought to urgently protect his client from possible attack on his assets.
Mr Heaphy proposed a scheme that Mr F sell his share in a property owned by his family to his siblings, freeing up $130,000. Mr Heaphy then set about looking for an overseas investment for his client.
“It was at this point that the lawyer’s conduct, by his own admission, went seriously awry,” the Tribunal said.
Mr Heaphy had another client, Mr A, who had proposed a business venture and Mr Heaphy indicated he had a client wishing to make an overseas investment.
“There was a clear conflict of interest created by the investment in which Mr Heaphy represented the two clients, as lender and borrower, in which neither received independent advice. This is conceded by the practitioner,” the Tribunal said.
The business was a failure and the funds totalling $130,000 were lost. Mr F complained about Mr Heaphy, saying that he had not authorised the investment.
The Tribunal said it accepted that Mr F gave Mr Heaphy a general authority to invest $130,000 and to transfer those funds from the trust account to implement a suitable investment.
“Whilst we accept this, we are of the view that the authority given to Mr Heaphy was given on the basis that Mr Heaphy would exercise skill and care and his own personal professional judgement in making the investment. Mr Heaphy failed to do this.”
The authorisation required Mr Heaphy to exercise personal judgement as to the investment’s viability, to have some appropriate form of documentation of the investment and to ensure the investment was actually made.
“Because Mr Heaphy failed to do any of these things, the actual investment that was made was not an investment of the type and quality that [Mr F] authorised Mr Heaphy to make. In essence, it was an unauthorised investment.”
The Tribunal noted that the consequences for his client had been “disastrous despite the lawyer’s best intentions”.
Accordingly, the Tribunal found the charge of misconduct proved.
On the second charge, the conflict of interests was admitted. Neither client received proper disclosure, nor independent advice, nor waived it. The Tribunal found that Mr Heaphy’s culpability reached the standard of misconduct.
Mr Heaphy, the Tribunal said, had failed in his duty to Mr F by not disclosing the fact of the conflict of interest, the identity of Mr A and the historical problems with Mr A’s creditworthiness.
As conceded by Mr Heaphy in his evidence, the conflict was a “glaring and obvious one, against which both clients deserved to be protected, but in particular the investing client, Mr F”.
In its penalty decision, [2014] NZLCDT 78, the Tribunal said it had determined “by a fine margin” not to suspend Mr Heaphy from practice. Among the reasons the Tribunal gave to censure, rather than suspend Mr Heaphy, were the fact that there was no question of dishonesty or personal gain, that until this offending Mr Heaphy had a long and unblemished career of almost 26 years, and that Mr Heaphy had accepted responsibility and expressed remorse.
The Tribunal also noted that Mr Heaphy had offered to provide undertakings not to be involved in investment advice until March 2016, nor to be a principal in a firm until that date.
As well as the censure, the Tribunal ordered Mr Heaphy to provide the New Zealand Law Society the undertakings described above, and to pay the Law Society $21,000 standards committee costs and half the Tribunal costs of $18,025.