BK of [North Island] v YM of [North Island]

 
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[2011] NZLCRO 23

LCRO 177/2010

Concerning an application for review pursuant to Section 193 of the Lawyers and Conveyancers Act 2006

And

Concerning a determination of the Whanganui Standards Committee

BETWEEN
BK

of [North Island]

Applicant
and
YM

of [North Island]

Respondent

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

Application for review of a Standards Committee (“Committee”) decision — long standing clients of the respondent (“the practitioner”) were selling a piece of land to their daughter and her husband, the applicant (“A”) — A and his wife were advised by practitioner that they were entitled to seek independent advice about the loan and security documents, but they confirmed that practitioner should act for them regardless of any potential conflict of interest — A's marriage subsequently failed and loan was called up — A lodged a complaint against practitioner regarding conflict of interest — whether Committee erred in its decision to take no further action on complaint.

DECISION
Background
1

Early in 2003 the Respondent received instructions from long-time clients Mr and Mrs YL with regard to the sale of two pieces of land owned by AAU Ltd (AAU), a company of which they were the Directors.

2

The two pieces of land were to be sold to their daughters and their respective husbands who occupied dwellings on the properties.

3

The Applicant was married to one of Mr and Mrs YL's daughters.

4

The instructions received by the Respondent were that the properties were to be sold at current market value as ascertained by independent valuations. Each couple were to pay $80,000 of the purchase price in cash, with the balance being left by way of vendor advance. In each case, the vendor loan arrangements were to be fully recorded within the Agreements for Sale and Purchase, documented in loan agreements, and secured by way of second mortgages. The instructions from Mr and Mrs YL were that those mortgages were to be held unregistered at the outset.

5

The Respondent prepared the agreements as instructed and in each case the purchasers were to apply to their respective banks for loans to provide the cash payment due to the vendor. The Respondent was not involved with the loan applications.

6

Some weeks after receiving instructions from Mr and Mrs YL on behalf of AAU, the agreements were uplifted by them for signature. It was at that stage that it became clear to the Respondent that Mr and Mrs YL were expecting that she would act for both purchasing couples.

7

On or about 6 March 2003, the Respondent received instructions from the National Bank of New Zealand as lender to the Applicant and his wife (Ms YL). The Respondent wrote to the Applicant and Ms YL requesting them to make an appointment to sign the loan and security documents required by the bank and by AAU.

8

On 10 March 2003, the Applicant and Ms YL attended at the Respondent's office for that purpose. They brought with them the Agreement for Sale and Purchase which had already been signed and dated 3 March 2003.

9

The Respondent advises that when she first met the Applicant and Ms YL she made a point of advising them that because she was acting for the vendor and the lenders, that they were entitled to seek independent advice regarding their entry into the loan and security documents. The invitation to do so was declined by the Applicant and Ms YL and they confirmed that the Respondent was to act for them notwithstanding any potential conflict of interest.

10

In December 2007 the Respondent was instructed by Mr YL to register the mortgage which had been signed by the Applicant and Ms YL, as he (Mr YL) and his wife were concerned at the precarious state of the marriage between the Applicant and Ms YL.

11

The marriage subsequently failed and in September 2008 the Respondent received instructions from Mr and Mrs YL on behalf of AAU to make demand for payment of the loan. By that time, the Applicant had instructed an alternative solicitor to act on his behalf.

12

The Applicant's solicitor objected to the Respondent acting for AAU to call up the loan, as she considered that the Respondent was conflicted. Accordingly, another firm was engaged by AAU to undertake and complete the enforcement process.

13

Family and District Court proceedings ensued between the Applicant and Ms YL, and between the Applicant and AAU. In each case the Applicant alleged that the funds provided by AAU to him and Ms YL were intended to be a gift, notwithstanding that the Agreement for Sale and Purchase, the loan agreement, and the mortgage all recorded that the funds were to be provided by way of a loan.

14

The Applicant was unsuccessful in these proceedings and the property was subsequently sold resulting in a loss by the Applicant of the funds which he had invested in the property.

15

The Respondent provided affidavit evidence in each of the Court proceedings at the request of Counsel instructed by AAU and Ms YL, in which she gave evidence as to the instructions received by her from Mr YL, and as to the form and structure of the transaction. She also deposed that the documentation reflected what she considered would have been Mr and Mrs YL's approach towards providing for their daughters and recorded comments made to her by the YLs as to the state of the relationship between the Applicant and Ms YL.

The complaint
16

Following the unsuccessful outcomes of the Court proceedings, the Applicant lodged a complaint with the Complaints Service of the New Zealand Law Society against the Respondent. He complained that:

1
    The Respondent was conflicted by reason of the fact that she acted for him and Ms YL, as well as the vendor/lender. In addition, when so acting, the Respondent was in possession of information provided to her by Mr YL which she failed to reveal to the Applicant and Ms YL; 2. The Respondent provided affidavit evidence at the behest of Counsel for Ms YL and AAU without seeking the Applicant's consent to do so, thereby breaching privilege and confidence; and 3. In making the decision to provide evidence, the Respondent took advice only from counsel for Ms YL and AAU, and did not seek the views of the Applicant or his Counsel.
Standards Committee Decision
17

The Standards Committee decision focused on the complaint relating to the provision of affidavit evidence by the Respondent. In this regard the Committee took note of rule 13.7 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client

Care Rules) 2008 (the Client Care Rules) which provides that a lawyer must not be obstructive when approached to give evidence in Court proceedings.

18

The Committee considered that the Respondent was not in breach of the Client Care Rules, did not breach the duty of confidence, or disclose privileged information.

19

Although the Committee refers to the complaint by the Applicant that the Respondent had information from Mr and Mrs YL that she should have shared with him, it does not specifically address the Respondent's conflict of interest.

20

The Committee determined that there was no evidence of unsatisfactory conduct on the part of the Respondent and resolved pursuant to s138(2) of the Lawyers and Conveyancers Act 2006 to take no further action on the complaint.

Application for review
21

In his letter accompanying the application for review, the Applicant sought an “appeal” of the Standards Committee decision.

22

He identified in a somewhat more definitive manner the nature of his complaint.

1
    That the Respondent acted for the Applicant and Ms YL in a transaction where the Respondent was also acting for the vendor / lender, i.e. in a conflicted situation. In this capacity, she also held certain adverse information as to the views of Mr and Mrs YL as to the state of his marriage to their daughter. He considers that this information should have been provided to him. 2. That the Respondent gave evidence in injunction proceedings instituted by him to prevent AAU enforcing its security and subsequently in Family Court proceedings between the Applicant and Ms YL, without his consent and without him waiving privilege. 3. That the Respondent took advice only from Counsel for AAU and Ms YL as to whether or not evidence should be provided by her, and did not seek consent from the Applicant, nor seek advice from his Counsel.
The applicable law
23

Prior to 1 August 2008, regulation of the legal profession was governed by the Law Practitioners...

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