[2013] NZLCRO 3

LCRO 220/2011

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


Concerning a determination of the Canterbury-Westland Standards Committee 1


Application for review of Standards Committee determination to take no further action in respect of complaint against practitioner — applicant considered practitioner's conduct had allowed fellow director and shareholder (“P”) to dismiss him as a director and unilaterally sell the company — shareholding in company was divided into voting and non–voting shares, with voting shares being held by shareholders who were qualified persons in terms of the Real Estate Agents Act 1976 — applicant was not at that time a qualified person — when relationship between applicant and P deteriorated, P was advised by practitioner that constitution allowed for resolutions to be passed in writing without the need for a meeting — P instructed practitioner to prepare necessary resolution to remove applicant as director — P then sold the assets of the company — whether Committee erred in finding practitioner's conduct did not amount to unsatisfactory conduct — whether practitioner had a conflict of interest and/or breached a duty of care to applicant.

At issue was whether the Committee erred in its finding K's conduct did not amount to unsatisfactory conduct and, in particular, whether K had a conflict of interest and/or breached a duty of care to N.

Held: A conflict of interest would arise only if a lawyer acted for one party against the interests of another. The general obligation to protect and promote the interests of a client did not mean that merely because a lawyer had acted for a client in an unrelated matter, he or she thereby automatically became aligned with that client's position on all matters thereafter. In the present instance, the fact that K had acted for P and her company in respect of unrelated matters did not necessarily mean that K was promoting her position against N with regard to the issues relating to the company.

Both P and N had been separately advised and represented throughout their disagreements and negotiations. K's services were utilised in an independent capacity in an attempt to facilitate agreement between them. It could be difficult to determine what constituted personal advice and what constituted advice given to the company. In this instance, K was not providing advice to the Board or acting on the instruction of the Board. However, if P had called for a meeting, then the Board was bound to act. Similarly, whoever P instructed to prepare the resolution and given notice thereof was immaterial as the constitution provided that a valid resolution could be passed on that basis.

It was a reasonable conclusion that on balance, K was not actively promoting P's interests over those of N. Both parties consulted K at separate times with regard to the difficulties between them, but he had always endeavoured to maintain neutrality in advising them as individuals and providing impartial advice as to their rights and duties as members of the company. K was in a difficult position, but ultimately maintained the necessary degree of impartiality such that he could not be said to have acted to promote P's interests to the detriment of N.

K acted for the company. His primary duty of care was to the company. If a lawyer acted for a company, they had to be careful to ensure not to assume instructions from one member of the company against the interests of other members of the company and ensure that instructions carried out on behalf of the company did not unfairly advantage one member over another. In this regard, N did have some justification for complaining that K did not advise him to seek independent advice in 2004 when the current company constitution was adopted. When K prepared the constitution in 2004, he continued the arrangement that had been in place since 1994 to satisfy the REINZ requirement that effective control of the company was exercised by those who were qualified persons. N was fully aware of the reasons why this arrangement was in force. N was concerned all shareholders were considered to have an equal say in the running of the company. To have documented this tacit agreement would have defeated the purpose of the division of shares into voting and non-voting shares and placed the company in breach of the requirements of the REINZ.

Although it could be suggested that the lack of an agreement which required all shareholders to cooperate in converting a shareholder's shares to voting shares when that shareholder qualified (and was therefore able to hold voting shares), presented something of a gap in shareholder rights, it could not be said that this constituted negligence or incompetence of such a degree as to reflect on K's fitness to practice. That was the degree of negligence required by the Law Practitioners Act 1982 in force at the time before a lawyer could be subject to disciplinary action.

N did not advise K that he had qualified and it was asking too much of K that he should have realised N had qualified and therefore acted independently to protect N's position. N was aware that he had qualified and the primary obligation to instigate the share variation lay with him. In addition, K was aware that N had instructed another lawyer to take action on his behalf to appoint him as a director, and it was reasonable for K to assume that the lawyer would have dealt with everything required to protect N's interests at that time. In the circumstances, K acted in as neutral way as he could have. It was incorrect for N to suggest K facilitated the sale of the business against his best interests.

Committee's determination confirmed.

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


TN has applied for a review of the determination pursuant to section 152(2)(c) of the Lawyers and Conveyancers Act 2006 by the Standards Committee to take no further action in respect of his complaint. He considers that NK's conduct had allowed his fellow director and shareholder to dismiss him as a director and unilaterally sell the company.


TN and TP were directors and shareholders in a real estate agency called CCE Limited.


NK's first involvement with the company was in 1993/1994 when an issue arose in connection with renewal of the Real Estate Agent's licence held by the company. As a result, the shareholding of the company was divided into voting and non-voting shares, with the voting shares being held by shareholder(s) who were qualified persons in terms of the Real Estate Agents Act 1976.


Ultimately TP and TN became the holders of an equal number of shares in the company. At that time TN was not a qualified person, but other than voting rights, the shares held by TN had all of the same rights as those held by TP.


In February 2007 the company arranged a term loan of $50,000 from ASB Bank and in August of that year it arranged a revolving credit facility of $20,000. This borrowing was guaranteed by TP, TN and his wife, and CCF Ltd which was a company owned by TN and TQ. The loans were secured over properties owned by TN and TQ and CCF Ltd but NK did not act for the company or the guarantors with regard to this borrowing.


By this time TP was operating the company's office in [town, West Coast region, South Island], while TN was operating in the office in [small town, Waimakariri District]. By October 2007 the relationship between TN and TP had deteriorated and the company was unable to pay its accounts. An injection of funding was required from the shareholders and the parties entered into negotiation.


In these negotiations both TN and TP were separately represented. Efforts to resolve matters were unsuccessful and came to a head in mid-2009 when TN paid an account due to the company's accountant out of the company funds to prevent him from proceeding to wind up the company.


On 3 July 2009 TP telephoned NK and advised him that she owned all of the voting shares in the company and wished to call a meeting to remove TN as a director of the company. NK reviewed the company's constitution and advised TP verbally that the constitution allowed for resolutions to be passed in writing without the need for a meeting.


TP then instructed NK to prepare the necessary resolution to remove TN as a director. NK attended to this and the resolution was signed by TP. A copy of the resolution was provided by NK to TN as required by the company's constitution.


Subsequently, TP sold the assets of the company and it is understood that accounting for the sale proceeds remains an issue between the parties.


TN's complaints arise out of these events.

TN's complaints

In his letter of complaint sent in December 2010 to the New Zealand Law Society Complaints Service, TN complained that NK's actions had not been in the best interests of the company and breached a duty of care to TN. He considered that TP had been able to sell the company as a result of NK's conduct and that he had thereby been severely disadvantaged.


He also alleged that NK had a conflict of interest when TN sought assistance to resolve the differences between himself and TP in that he had previously acted for TP and her company.


After receiving the notice of the resolution terminating his appointment as director, TN contacted NK to request him to...

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