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.

At issue was whether the Committee had erred in its determination that there was no evidence of unsatisfactory conduct on the part of the practitioner and no further action should be taken.

Held: A finding of serious misconduct under s112 Law Practitioners Act 1982 (“LPA”) (powers of NZ Disciplinary Tribunal in respect of charge against practitioner) involved finding a serious failure of professional standards. The Committee's decision did not address A's complaint relating to the conflict of interest and non-disclosure of information held by the practitioner.

Although the practitioner had alerted A and L to the possibility of conflict and their entitlement to seek independent advice, in circumstances such as this the opportunity to take independent advice sometimes presented an illusory option, and a party might feel pressured not to delay matters by exercising the option presented even if they wished to. A lawyer needed to be alert to signs that a party might be a reluctant participant, even though a lawyer could not be expected to know all the family dynamics at play. It would have been preferable for the practitioner to refuse to act for A and L.

Since the practitioner did not refuse it was relevant that:

• the agreement for sale and purchase had already been signed by A and Ms L when they attended at the practitioner's office so the contract was already legally enforceable;

• the practitioner raised the possibility of independent advice, which was declined; and

• it would be unreasonable to hold that a lawyer had an obligation to raise the possibility of the parties finding themselves in a situation such as happened.

A practitioner did need to be extremely cautious when considering requests to act for more than one party in a transaction, but the practitioner's failure to decline to act for A did not reach the threshold of conduct unbecoming (s112(b) LPA.

The practitioner did not breach the provisions of the Client Care Rules in respect of providing the affidavit evidence. The practitioner had an obligation to provide evidence to the Court. The information pertained to what the YL's had told the practitioner about their view of A's relationship with L. The information in any event was confidential information provided by and belonging to the YL's. It was from the YL's that the practitioner needed to seek consent or waiver of privilege. Further, comments in her affidavit that expressed a views as to what a client would have done based on her knowledge of them acquired over a long period of time did not attract privilege. There was no obligation to seek consent from A in expressing these opinions.

The practitioner had no duty or obligation to consult with any other person about whether or not she could provide evidence. Although she considered that she was able to rely on the opinion of a senior and highly regarded barrister (who was counsel for the opposing parties) in this regard, it was her decision alone as to whom she sought and took advice from. This decision was not incorrect and had it been so, critical comment from the Family and District Court judges who heard the matter would have been expected.

Committee decision confirmed.

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...

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