An v ZL

 
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[2011] NZLCRO 9

LCRO 111/2010

CONCERNING: An application for review pursuant to Section 193 of the Lawyers and Conveyancers Act 2006

and

CONCERNING: a determination of the Auckland Standards Committee 3

BETWEEN
AN

on behalf of AAK of Auckland

Applicant
and
ZL

of Auckland

Respondent
counsel:

AN on behalf of AAK as the Applicant

ZL as the Respondent

The Auckland Standards Committee 3

The New Zealand Law Society

The names and identifying details of the parties in this decision have been changed.

Application for review under s193 Lawyers and Conveyancers Act 2006(right of review) - Standards Committee declined to uphold a complaint against respondent concerning alleged conflict of interest - applicant was brother of existing client of respondent - brother engaged respondent to act in preparing supply agreement on behalf of his company and the purchaser of the applicant's business - respondent concerned that applicant's instructions conflicted with brother's interests - whether respondent was acting for the applicant or his brother - whether fact that applicant was paying respondent's invoice meanthe was the client' whether respondent should have disclosed he was acting for the brother.

Held: The issues were: whether the practitioner had been acting for the applicant or for AO; whether the fact that the applicant was paying the practitioner's invoice meant he was the client; whether the practitioner should have disclosed he was acting for AO and whether the fees charged were excessive.

There had been no reason for the practitioner to consider that he had been instructed by AAK to act on its behalf withthe sale, but rather that he been instructed by the applicant on behalf of AAL, in the absence of AO. Those instructions had already been instituted by AOprior to his departure. The practitioner had not known that the applicant had been unaware of that. It was extremely unusual for a third party(AAK) to negotiate the terms of an agreement which would be binding on the parties, neither of which was AAK.

The practitioner had rendered his account to AAL. AO had instructed him to redirect it to AAK, which was meeting the costs of the agreement. The fact that AAK met the costs, when taken on its own, was not a determinative factor of a solicitor/client relationship.

Because the practitioner was not acting for AAK there had been no conflict of interest. There was no duty of care owed to AAK, and even if there had been undue delay, there were not any professional standards consequences that arose. As the practitioner was not acting for AAK, there was also nothing to disclose.

The fees charged had been fair and reasonable.

Decision of the Committee confirmed.

DECISION
Background
1

The Applicant is one of five shareholders in, and directors of, AAL (AAL).

2

He is also one of four shareholders in, and directors of, AAK (AAK).

3

The Managing Director of AAL is AO(AO) the Applicant's brother.

4

AO was neither a shareholder in, or director of, AAK. That company was regarded as the Applicant's company.

5

The other shareholders and directors of the two companies were the parents of the Applicant and AO, and their uncle. These persons did not play a large part in the management of the two companies.

6

The Respondent was introduced to AO some time in 2008, by the accountant for AAL. He was subsequently visited by AO who introduced himself as the Managing Director of AAL.

7

Up until the events giving rise to this complaint, the Respondent had only ever communicated with, and been instructed by, AO, on behalf of AAL. His client in each case had been AAL.

8

In January 2010, the Respondent was contacted by AO, who advised him that his brother, the Applicant, wished to sell the supermarket operated by AAK, and wanted to have a supply agreement between AAL and the purchaser put in place.

9

At the request of AO, the Respondent arranged for a copy of an existing supply agreement that had previously been prepared by the Respondent for AAL in respect of another outlet, to be forwarded to the Applicant.

10

On 18 January 2010, the Respondent received further instructions from AO as to the terms of the proposed agreement.

11

These amendments were made by the Respondent and emailed to AO.

12

On 20 January 2010, the Respondent received a telephone call from the Applicant requesting him to make some amendments to the draft agreement.

13

The Respondent's time sheets show further attendances on AO with regard to the proposed agreement, on 26 and 27 January.

14

On 27 January, AO advised the Respondent that he was going to be overseas for the next week, and instructed him to deal directly with the Applicant. He also instructed that if there were to be major changes to the document, then the costs relating to those should be borne by AAK as any attendances relating to those changes were for the benefit of AAK.

15

The Respondent met with the Applicant on 28 January. The business card provided by the Applicant at that meeting referred to the Applicant as a director of AAL.

16

At that meeting the terms of the agreement were reviewed in detail. Although the Respondent was shown a copy of the Agreement for the sale of the business, he was not provided with a copy, nor instructed to act generally in respect of the sale. He noted that another firm was recorded as being the vendor's solicitor.

17

The Applicant states that he was unaware of the previous communications between the Respondent and AO in respect of this matter, and that on 28 January, he met with the Respondent for the purpose of introducing himself and instructing the Respondent to act for AAK to complete the supply agreement.

18

He states that the Respondent was happy to assist in the matter and at no time advised the Applicant that he was actingfor AAL. He says he left the meeting under the impression that the Respondent was acting for AAK and would act in the company's best interests.

19

In the week that followed the Applicant requested a number of material changes to the form of the agreement, which the Respondent knew were in conflict with what was required by AO. He was concerned that concessions were being made to the form of the agreement which were not in the interests of AAL. He copied AO into the various emails between the Applicant and himself, in which he recorded his view to this effect.

20

AO shared the Respondent's concerns and instructed the Respondent to cease action pending his return from overseas.

21

The Applicant objected to the steps taken by the Respondent and insisted that the Respondent should act on his instructions.

22

Ultimately, the Respondent advised the Applicant that he needed an appropriate resolution to be passed by the company to authorise him to act on the instructions of the Applicant alone.

23

The Applicant then produced a letter signed by three directors of AAL(which did not include AO) by which the Applicant was authorised to provide instructions on behalf of AAL in respect of the proposed supply agreement.

24

The Respondent formed the view, that although this was not strictly in accordance with the requirements of the company's constitution, he would nevertheless proceed on this basis, but continued to keep AO advised of his instructions.

25

The precautionary steps taken by the Respondent in the face of the conflicting instructions from AO and the Applicant, inevitably caused some delays to the completion of the agreement, to the extent that the Applicant alleges that such delays presented the purchaser with an opportunity to terminate the agreement.

26

It is not evident from the material in my possession whether the agreement proceeded to settlement or was indeed terminated. Nevertheless, I do note that as at

20

January 2010, the agreement remained conditional on matters other than finalisation of the supply agreement.

27

On 28 February 2010 the Respondent rendered his account to AAK for

$6,120.00. The Applicant has requested this account to be reviewed.

28

The Applicant lodged his complaint with the Complaints Service of the New Zealand Law Society on 22 February 2010. The matters complained of are summarised in the submissions from the Respondent as follows:–

  • (a) The Applicant alleges that the Respondent failed to disclose that he was acting for [AAL] when undertaking work for [AAK].

  • (b) He alleges that the Respondent acted in a conflict of interest situation.

  • (c) He alleges that the conflict of interest caused delay in the finalisation of the supply agreement to the detriment of AAK.

  • (d) He alleges that the sale of the business was jeopardised by the conduct of the Respondent.

  • (e) The alleged conflict of interest resulted in additional cost to AAK.

Standards Committee Decision
29

In its decision of 16 June 2010, the Committee resolved, pursuant to s152(2)(c) of the Lawyers and Conveyancers Act 2006(the Act) to take no further action in connection with the complaint.

30

The Committee formed the view that at all times...

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