New Zealand Law Society - Lawyers Complaints Service: Fined for acting while conflicted

Lawyers Complaints Service: Fined for acting while conflicted

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The New Zealand Lawyers and Conveyancers Disciplinary Tribunal has censured and fined a lawyer, B, $3,000 for acting where he was conflicted and unable to discharge his obligations owed to each of three clients.

B denied the charge in [2015] NZLCDT 44. The Tribunal found B guilty of unsatisfactory conduct.

B had acted for D for a number of years regarding purchases of properties and sales and in respect of his business. He also acted for him and his wife on property purchases and sales.

D is the executor and trustee of the estate of his uncle who died on 5 June 2010. The estate owned a property at C which was registered in the D’s name.

In November 2012, D and his wife entered into an agreement to purchase a property for themselves at J. B acted for the respective trusts of D and his wife on the purchase of that property. B was the sole director and shareholder of an independent trustee company which was a trustee of each of the family trusts of D and his wife.

A bank was providing mortgage finance to the trusts to enable them to complete the purchase of the J property. B acted for the bank in that respect.

Bank’s instructions

The bank’s initial instructions to B were to take a mortgage security over the J property. The bank gave B additional instructions that it required a mortgage over the C property which it recorded was “owned” by D alone.

B considered there was a conflict of interest in that D was the registered proprietor of the C property in his capacity as trustee of the estate of his uncle. He referred D to another solicitor for independent advice.

That solicitor advised D not to proceed with providing the requested security over the C property. D declined to accept the advice given. The independent solicitor then attended to the completion of the securities. He also attended to the registration of the mortgage documents over the C property and sent the documents to B rather than the bank.

B attended to the settlement of the J property and provided a solicitor’s certificate to the bank in which he undertook that the bank had valid and enforceable securities.

Neither the independent solicitor nor B advised the bank at any time that the C property was not owned by D in his personal capacity but rather as the trustee of his uncle’s estate.

The facts giving rise to this matter are not disputed, the Tribunal noted.

Conflict identified

The thrust of B’s defence is that he identified a conflict of interest and sent D in his capacity as trustee of his uncle’s estate to an independent lawyer. It was therefore wrong to find against him when the trustee, D, had strong independent legal advice which he rejected.

The Tribunal found that B was acting for more than one client where he was conflicted and that was unsatisfactory conduct.

He had instructions from the trustees of the trusts of D and his wife respectively, the Tribunal said. In respect of those instructions it can be said that B was also acting for himself for the reason that one of the trustees of each of the trusts was an independent trustee company of which B was the sole director. Additionally he held instructions from D in his capacity as executor of his uncle’s estate. Finally, he had two sets of instructions from the bank to first attend to the completion of a mortgage security over the J property being purchased by the trusts and secondly a collateral security over the estate’s C property.

“The Tribunal finds that the answer lies in the letter of instructions that the bank sent to the practitioner,” the decision says.

“Paragraph [2] of the standard letter of instructions advises the instructed solicitor: ‘If you consider that you cannot act for us, then you must advise us immediately. We may then choose to instruct another solicitor’.

“The practitioner did not do so. Rather, he referred that to an independent solicitor. By accepting instructions from the bank he placed himself in a position where he had a conflict of interest.

“In continuing to act in the way he did, he overlooked his duties to the bank and his other clients. He had the option of seeking the informed consent of all parties or terminating the retainers with all clients regardless of the consequences to the transactions involved,” the decision says.

“Practitioner, the Tribunal has found that your conduct in respect of the transactions on which you had received instructions was unsatisfactory,” the censure states. “You faced a series of conflicts of interest. You failed to recognise the full extent of that conflict especially in relation to the bank and accordingly failed to protect those interests to the exclusion of others.”

As well as the censure and fine, B was ordered to pay standards committee costs of $7,500 and Tribunal costs of $6,126.

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