New Zealand Law Society - Acted for clients when conflicted

Acted for clients when conflicted

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Names used in this article are fictitious

A lawyer who acted for clients when he was conflicted has been censured and fined $5,000 by a lawyers standards committee.

Mr Jingle and Ms Mannette instructed the lawyer, Peggotty, to act for them on the purchase of a residential property. Peggotty informed Mr Jingle and Ms Mannette that he also acted for the vendor.

Sometime after the property sale was completed, the local district council informed Ms Mannette that the property required substantial work before a code of compliance certificate could be issued.

The committee considering Ms Mannette’s subsequent complaint found that Peggotty had breached Rules 6.1 and 6.1.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, and that his conduct in doing so amounted to unsatisfactory conduct.

Rule 6.1 provides that a lawyer must not act for more than one client on a matter 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.

However, pursuant to Rule 6.1.1, a lawyer may act for more than one client in respect of the same transaction if the lawyer obtains the prior informed consent of all parties.

The committee noted that, at the time of the property sale, Mr Jingle and Ms Mannette were living in the property and were aware that the property did not have a code compliance certificate.

“[Peggotty] nevertheless had a professional duty to ensure that Mr [Jingle] and Ms [Mannette] were properly informed of the risks associated with the purchase of this particular property,” the committee said.

“Whilst [Peggotty] was aware of Mr [Jingle] and Ms [Mannette]’s previous property investment and management experience, the committee is not satisfied that circumstance removed or reduced [Peggotty]’s responsibilities to his clients.”

Any competent lawyer acting for purchasers in such circumstances would draft “stringent clauses either binding the vendors to obtain a code compliance certificate or alternatively providing for the ability to retain a significant portion of the purchase price in escrow, reflecting the expected building costs once the extent of the potential work was ascertained.”

“Indeed, a clause permitting the purchasers to terminate the contract once the extent of rectification and upgrading work to secure compliance was available or termination if established that no compliance certificate could readily be obtained, would have been prudent.”

“It appears that none of these matters were raised to any meaningful extent with Mr [Jingle] and Ms [Mannette], and accordingly they cannot be said to have given informed consent,” the committee said.

Ms Mannette sought compensation for substantial losses claimed. Noting that standards committee compensation awards are limited to $25,000 and that Ms Mannette had civil remedies available to her, the committee declined to make an order for compensation. In addition to the fine, Peggotty was ordered to pay $1,500 costs.

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