New Zealand Law Society - Failed to address a conflict

Failed to address a conflict

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Names used in this article are fictitious

A lawyer who failed to address a conflict of interest in a timely manner has been censured and fined $3,000 by a lawyers standards committee.

The lawyer, Dombey, acted for Mr Jeddler and Ms Swidger, who had begun a personal relationship, on their purchase of a bare block of land in their joint names.

Mr Jeddler met the entire purchase price of the property from funds provided from the sale of his own property. Ms Swidger made no financial contribution to the purchase.

The same month as settlement of the property purchase, Ms Swidger, who owned her own business, sought to borrow money from a bank. Dombey’s firm sent the bank a loan agreement, signed by Ms Swidger, and a personal guarantee, signed by Mr Jeddler.

During the following year, it became apparent that Ms Swidger was in financial difficulty, and she went into voluntary bankruptcy. Her interest in the property she and Mr Jeddler owned was vested in the Official Assignee.

Mr Jeddler became liable for some of her indebtedness as result of the guarantee he had given and ultimately settled that liability. He also entered into a settlement with the Official Assignee to acquire Ms Swidger’s interest in the property by a payment of $60,000. In addition, Mr Jeddler paid $18,000 to Inland Revenue in respect of Ms Swidger’s debt from false GST returns.

Mr Jeddler subsequently complained to the Law Society, focusing on the application of rules 6.1 and 6.1.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008.

Rule 6.1 provides that a lawyer must not act for more than one client where there is a more than negligible risk that the lawyer may be unable to discharge the obligations owed to one or more of the clients. Rule 6.1.1 provides that subject to rule 6.1, a lawyer may act for more than one party in respect of the same transaction where the prior informed consent of all parties concerned is obtained.

The committee noted that the entire purchase price for the property Mr Jeddler and Ms Swidger owned was met by Mr Jeddler and that Ms Swidger made no financial contribution to the purchase.

Mr Jeddler and Ms Swidger had commenced a relationship only a few months before Mr Jeddler instructed Dombey’s firm about selling his own property. At the time of the sale, the sale proceeds were Mr Jeddler’s separate property under the Property (Relationships) Act 1976.

“There was therefore a more than negligible risk that [Dombey] might not be able to discharge his obligations to both parties,” the committee said.

“The risks to Mr [Jeddler] from using his own monies to purchase the … property in joint names must have been apparent to [Dombey] at the time he received Mr [Jeddler]’s instructions.

“[Dombey] clearly was under a responsibility at that point (if he intended to act for both on the purchase) to warn of the risks as part of the advice and information to both parties, particularly Mr [Jeddler].

“The information should have been provided at an early stage, in order for Mr [Jeddler] to give prior informed consent to enable [Dombey] to continue to act on the purchase.

“There is no evidence that [Dombey] provided Mr [Jeddler] any advice, whether verbal or written, as to the potential consequences of Mr [Jeddler] providing all of the funds to acquire the … property and registering that property in joint names.”

That failure constituted unsatisfactory conduct, the committee determined.

As well as the censure and fine, the committee ordered Dombey to pay $1,000 costs.

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