New Zealand Law Society - Censure and fine for conflict of interest

Censure and fine for conflict of interest

All names used are fictitious.

A lawyer who acted for the vendor and purchaser of a company, and for the company, has been censured and fined $3,000 for acting where there was a conflict of interest.

Mr Q agreed to sell Mr R his 42% shareholding and to exit the company they were both directors of.

The purchase price for the shares was to be repaid by monthly instalments over three years.

Mr Q was also to receive repayment for his current account advances to the company by monthly instalments over three years, and be released from a personal guarantee to the bank and supporting mortgage security he had given for company borrowings, within one year of the sale of his shares.

Six months after the agreements were signed, Mr R and the company stopped making the monthly payments. Mr Q was still owed a substantial amount of money and also remained liable for a bank guarantee.

Mr Q complained to the Law Society that the lawyer, Wrexham, who acted for both him and Mr R on the Agreement for Sale and Purchase of Shares and the Exit Agreement failed to adequately advise him or protect his interests.

However, Wrexham asserted that he had only acted for the company, and not for Mr Q or Mr R in a personal capacity.

Upon review of the material before it, a lawyers standards committee noted that Wrexham had met with both Mr Q and Mr R, copied Mr Q into a number of emails sent to Mr R, and provided advice directly to Mr Q in relation to a query about tax.

Breached rules 6.1 and 7

The committee found that by acting for Mr Q, Mr R and the company, Wrexham had contravened rule 6.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008.

Rule 6.1 prohibits a lawyer from acting for more than one client in circumstances “where there is more than negligible risk that the lawyer may be unable to discharge the obligations owed to one or more of the clients”.

The committee said that as “primary parties” to the agreements, Mr Q’s and Mr R’s “respective interests were different and created a conflict”. The interests were also “competing” and “needed to be protected”.

Mr Q was “incapable of giving informed consent” for [Wrexham] to act for more than one party because Mr Q had no “proper appreciation” of the conflicts or their implications.

The committee also found that Wrexham breached rule 7 by not disclosing to Mr Q all the information in his possession that was relevant to the matter.

The share sale agreement provided for a three-year repayment term and the exit agreement required Mr Q’s personal guarantee and mortgage to the bank to support the company borrowings for a year beyond Mr Q’s departure from the company.

Those factors ought to have raised doubts for Wrexham about the financial positions of the company and Mr R, and the prospect of default by Mr R.

Wrexham did not advise Mr Q about these issues “or the need to include provisions in the agreement that might provide [Mr Q] with some protection,” the committee said.

Contravened rule 8.7

The committee also decided that by using the company’s confidential information for Mr R’s benefit, Wrexham had contravened rule 8.7.

Information important for Mr Q to have received at that time was that if he transferred his shares to Mr R before Mr R paid for them, Mr Q would be an unsecured creditor of Mr R and of the company in the event of a default by Mr R.

That information, confidential to the company, was ultimately used “for the benefit of [Mr R] and to [Mr Q’s] disadvantage.”

As well as the censure and fine, the committee ordered Wrexham to pay $2,000 costs and ordered a summary of the decision to be published without any details that might lead to the identification of any parties.

On review, the Legal Complaints Review Officer (LCRO) – in LCRO 74/2017 – confirmed the committee’s determination that Wrexham had breached rules 6.1, 7 and 8.7, which constituted unsatisfactory conduct.

The LCRO also confirmed the censure, the $3,000 fine, the $2,000 costs order and the committee’s publication decision. However, the LCRO reversed the committee’s determination that Wrexham had also breached rule 8.7.1.

Allegations of intimate relationship unfounded

All names used are fictitious.

A lawyers standards committee has taken no further action in relation to what it considered to be an unfounded allegation that a lawyer had entered into an intimate personal relationship with her client.

The lawyer, Humberside, represented Mr M in proceedings under the Care of Children Act 2004. The Family Court made an interim parenting order and a temporary protection order against Mr M’s former partner, Ms T, in favour of Mr M.

Ms T subsequently complained to the Lawyers Complaints Service, alleging that Humberside had entered into an intimate personal relationship with Mr M. Humberside denied the allegation.

After considering the submissions of both Ms T and Humberside, the standards committee considered that Ms T had failed to adduce any evidence whatsoever which would support her claim against Humberside.

While the committee considered that Humberside’s correspondence illustrated “that she has at all times treated Ms T in a respectful manner”, it was concerned about both the tone and content of Ms T’s email correspondence with Humberside.

The committee readily acknowledged that Family Court proceedings are stressful for the parties, particularly when there are children involved. It did not accept however, “that Ms T was entitled to make [Humberside] the target of her personal frustrations with Mr M.”

“Mr M is entitled to legal representation and to exercise his legal rights, whether by bringing proceedings or by some other means,” the committee said.

While Ms T may have been disappointed that Mr M had not accepted her offers to resolve the proceedings outside of court, Ms T did not have a right to take out her disappointment on Humberside.

“There is no place for such conduct in Family Court proceedings. All parties, whether or not they are lawyers, must conduct themselves appropriately,” the committee said.

The committee was satisfied on the material before it that Humberside had done nothing more than act on Mr M’s instructions and protect and promote her client’s interests in accordance with her professional obligations under the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008.

The committee also noted that if a lawyer is sufficiently concerned by the conduct of a party to a Family Court proceeding, “they should not hesitate to raise the conduct with the Family Court Judge presiding over the matter”.

Lawyer misused court process

All names used are fictitious.

A lawyer has been fined $4,000 for filing an application for a parenting order on a without notice basis in circumstances where she could not have been satisfied the application complied with the requirements of the Family Court Act 1980 and the Family Court Rules 2002.

When imposing the fine, a lawyers standards committee said it considered the level of fine was “modest when considering the gravity of the conduct, relating as it did to the misuse of a court process”.

The committee also noted that the lawyer, Berkshire, had been the subject of a number of previous disciplinary findings.

Ms A and Mr B were parents of a young child. After they separated, Ms A moved to another city, with Mr B’s approval, while he did not move.

Ms A then instructed Berkshire for legal advice on her separation. On Ms A’s behalf, Berkshire filed a without notice application under the Care of Children Act 2004 for an interim parenting order.

In the application, Ms A expressed a fear that Mr B would “retain” the child during or after an impending visit to the city where she now lived to have contact with the child.

Interim without notice parenting order declined

The Family Court Judge declined to make an interim parenting order on a without notice basis and directed that the application proceed on notice. The Judge referred the parties to Family Dispute Resolution (FDR).

Ms A and Mr B attended FDR and reached an agreement about contact arrangements for the next two years. The mediator documented what he understood to be the agreed parenting arrangements.

Ms A considered the mediator’s report did not fully and accurately reflect her understanding of what had been agreed at FDR. Berkshire then prepared a consent memorandum, setting out Ms A’s position on contact, and sent it to Mr B.

Meanwhile Ms A and Mr B agreed between themselves that Ms A would travel with the child to the city where Mr B lived so that he could have contact around the time of his birthday.

Berkshire then indicated that unless a written agreement was in place, unsupervised contact – including the planned contact in Mr B’s location – could not occur.

Mr B signed the consent memorandum but said he had done it under duress because of “the written threat that he signs the memorandum or is outright denied further contact” with the child.

Berkshire was unwilling to accept the consent memorandum on the grounds that Mr B considered he had signed it under duress.

Mr B had concerns about the professional conduct of Berkshire and made a formal complaint to the Lawyers Complaints Service.

“Clear abuse” of without notice process

When considering the complaint, the standards committee noted that the Family Court Judge said the without notice application “represents a clear abuse of the without notice process”.

“The strongest aspect of the application,” the Judge said, “is the applicant’s statement that she is ‘concerned he may try and retain the child’. There is not a skerrick of evidence that the respondent will retain the child or has made any statements that he would attempt to do that.”

The committee said it wished to reassure Berkshire that it did not consider it was bound by the Judge’s views but would reach its own conclusion after considering the evidence before it.

A parenting order can only be made without notice, the committee said, where the risk of making an order on notice might entail serious injury or undue hardship, or risk to the personal safety of the applicant, or any child of the applicant’s family, or both.

“There are onerous obligations on lawyers providing a certificate in connection with a without notice application.”

The committee said it considered it “significant” that Mr B had consented to the child moving cities with Ms A and to the child being enrolled in day care.

“Facebook messages exchanged by Ms [A] and Mr [B] suggest that they were on relatively amicable terms during the period following Ms [A]’s relocation.

“Mr [B] had even consented to Ms [A] travelling to Australia with [the child]. Mr [B] appears to have been accommodating with Ms [A].”

No suggestion of intention to retain child

The committee also noted that “there was no suggestion, in the amicable messages the pair exchanged, that Mr [B] or Mr [B]’s family intended to ‘retain’ [the child]”.

The application “ought never to have been made on a without notice basis. [Berkshire] should have encouraged Ms [A] to engage in negotiations with Mr [B], and if those failed, to participate in FDR.”

In providing a certificate for the without notice application, Berkshire had effectively misled the court. Her conduct was “very concerning from a professional standards perspective”.

The conduct breached Berkshire’s professional obligations under rules 2, 2.1, 2.3, 13, 13.1 and 13.2 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008. It was unsatisfactory conduct.

Mr B also alleged that Berkshire threatened that Ms A would not participate in a planned contact unless he signed the memorandum agreement. Even after he signed the agreement, Mr B said, the planned contact did not take place.

The committee said it rejected Berkshire’s submission that it was not unusual in COCA matters which were subject to negotiations for no contact to occur until there is an agreement.

The stance Berkshire adopted towards contact was “troubling from a professional standards perspective”, the committee said.

Berkshire had acted in an “unnecessarily adversarial and inflammatory manner” by suggesting an order was necessary for the planned contact to occur. However, the committee acknowledged that this was a “finely balanced case” and concluded that no useful disciplinary purpose would be served by making a further finding against Berkshire as concerns withholding contact.

As well as the $4,000 fine, the committee ordered Berkshire to apologise to Mr B in writing and to pay $1,000 costs.

Charged more than a ‘fair and reasonable fee’

All names used are fictitious.

A lawyers standards committee has made a finding of unsatisfactory conduct against a lawyer who charged more than twice what a cost assessor considered a fair and reasonable fee.

The committee fined the lawyer, Edinburgh, $8,000 and ordered her to pay $1,000 costs.

The conduct was, in its view, at the “upper end of unsatisfactory conduct”, the committee said.

Mr and Mrs N controlled a farming company. After a crop was sprayed and subsequently died, the company instructed Edinburgh to pursue a claim against the spraying company.

The firm Edinburgh works for billed approximately $73,000 plus GST and disbursements for the spraying claim, which was advanced to the point of sending a letter of demand to the spraying company.

The firm also provided advice in relation to insurance and earthquake claims for two properties; invoices for that work and the spraying claim totalled approximately $90,500.

The standards committee considering the complaint appointed a costs assessor.

The cost assessor noted that Edinburgh’s hourly rate was $700 plus GST and an hourly rate of $200 plus GST for a junior lawyer working on the file.

The costs assessor considered a reasonable charge-out rate for Edinburgh’s work was $500 an hour. That was based on an assessment of what other senior litigation practitioners in the local area, and national law firms, applied as their hourly charge-out rate.

Charge-out rate not disclosed from outset

In addition, it was also “most unfortunate” that Edinburgh’s charge-out rate of $700 was not disclosed to Mr and Mrs N from the outset and well before the bills became disputed, the costs assessor said.

Noting that the junior lawyer had done the bulk of the work, the costs assessor observed that all the time recorded by the junior lawyer had been charged without any reduction made whatsoever.

“Any senior lawyer who employs junior lawyers to assist them, must supervise their work in a competent fashion and carefully scrutinise any time recorded against the value of the work undertaken and what is proposed to be charged,” the committee said.

“A useful yardstick is to calculate the time that an experienced practitioner would have taken to complete the work required and then contrast that with the time recorded and the work actually undertaken.”

As the cost assessor noted in his report, it was “quite extraordinary” to have charged such a fee for a case where proceedings had not been issued and no hearing (interlocutory or otherwise) had occurred, the committee said.

The costs assessor assessed a reasonable fee as being approximately $37,500.

A lawyer responding on behalf of the firm Edinburgh works for accepted that in all the circumstances, the fees rendered could not stand.

“It is to the significant credit of [Edinburgh and her firm] that they have accepted the recommendations and conclusions in the costs assessor’s report and taken affirmative action,” the committee said.

“They have written off all of the unbilled work, provided credit notes and reduced the accounts rendered by approximately $28,500.”

The total fees have been reduced to approximately $37,500 and the firm has sent Mr and Mrs N a cheque for approximately $28,500.

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