HM v NL [2018] NZLCRO 127 (28 November 2018)

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	LCRO 240/2016
CONCERNING	an application for review pursuant to section 193 of the Lawyers and Conveyancers Act 2006
AND
CONCERNING	a determination of the [Area] Standards Committee [X]
BETWEEN	HM Applicant
AND	NL _Respondent

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

[1] Mr HM has applied to review a decision of the [Area] Standards Committee [X], in which the Committee decided to take no further action on his complaint against Ms NL.

[2] In late February 2015 Mr HM spoke to and emailed Ms NL about a house he wanted to purchase from his friend, Mr A.

[3] Mr A and his partner had separated. Mr HM told Ms NL that Mr A’s partner would not agree to Mr HM purchasing the house. He asked how he might proceed that transaction anonymously.

[4] Ms NL said that the best way to accomplish this would be for a third party to be named as the purchaser on the sale and purchase agreement, and for that person to make a nomination to Mr HM to become the purchaser once the agreement became unconditional.

[5] Mr HM emailed Ms NL later that same day and said that another friend, Ms Z, was willing to be the purchaser and that she would make a nomination to include Mr HM as a co-purchaser, once the agreement was unconditional; and that this would be a partnership or joint-venture between them. Mr HM gave Ms Z’s contact details to Ms NL.

[6] Ms NL opened a file in Ms Z’s name and sent her a letter of engagement. She also drafted an agreement for sale and purchase and sent it to Mr HM with instructions for Ms Z to sign it.1 The vendors were Mr A and his partner.

[7] Mr HM and Mr A carried out negotiations about the purchase price. During March and April 2015 Ms NL also exchanged correspondence with the vendors’ lawyers about the purchase price.

[8] During this time Mr HM and Ms NL exchanged emails and spoke on the telephone about progress with the purchase. Ms NL also spoke to Ms Z about progress.

[9] A price of $190,000 was agreed in early May 2015, and the purchase agreement was signed by the vendors. There was a due diligence condition to be satisfied by 22 May 2015.

[10] On 20 May 2015 Ms NL asked Ms Z to provide written authorisation for Ms NL to deal with Mr HM on behalf of Ms Z in respect of matters relating to the purchase. Ms Z provided that on 22 May 2015.

[11] Also on 22 May 2015, Ms Z instructed Ms NL to make the agreement unconditional, which she did. After some discussion between the parties, settlement of the purchase was agreed for 31 July 2015.

[12] Through a trust he was associated with Mr HM paid the deposit of $10,000 on

1 Ms NL’s legal executive, Ms Q, was also involved in the transaction. Ms Q sent and received correspondence and spoke on the telephone to Ms HM and Ms Z, at all times authorised and supervised by Ms NL. For ease of reference in this decision I will refer only to Ms NL.

[13] In late June 2015 both Mr HM and Ms Z asked Ms NL to prepare an agreement setting out their arrangements for the joint purchase of the property.2

[14] In early July 2015 Ms NL drafted a basic property sharing agreement and forwarded it to Mr HM and Ms Z, indicating that more detailed information was required before it could be finalised.

[15] Shortly after that, Mr HM and Ms Z fell out. On 7 July 2015 Ms Z emailed Ms NL and revoked Ms NL’s authority to deal with Mr HM in relation to the purchase. Ms Z also instructed Ms NL to cancel the purchase agreement.

[16] Ms NL cancelled the agreement and endeavoured to secure a refund of the deposit. The vendors would not agree to refund the deposit.

[17] In a complaint dated 25 August 2015, Mr HM complained to the New Zealand Law Society Complaints Service (Complaints Service) about Ms NL’s conduct. He said:

(a) On 26 February 2015, he spoke to Ms NL about purchasing a house property from Mr A and Mr A’s partner. He made it clear that his name could not be associated with the agreement as Mr A’s partner would not agree to sell to him.

(b) Ms NL’s advice was to put the agreement in the name of a third party but with provision for a nomination by that third party once the agreement became unconditional.

(d) Ms Z subsequently refused to talk to Mr HM. In early July 2015 Mr HM tried to speak to Ms NL and was told that he was no longer Ms NL’s client.

(e) Mr HM said that he was in a position to complete the purchase but Ms NL declined to assist or otherwise speak to him. She told him that he needed to instruct another lawyer.

2 This has been variously described as a joint venture agreement, a partnership agreement and a property sharing agreement. For convenience, I will use the expression “property sharing agreement”.

(f) He was “at a complete loss for words as to how [he] could personally take a deal to a lawyer and then not only be removed from the deal but also lose all control over it.”

(a) Although Mr HM made initial contact with Ms NL, because he did not want to be identified as a potential purchaser Ms Z was her client. She sent a letter of engagement to Ms Z in February 2015.

(c) On 22 May 2015 Ms NL obtained Ms Z’s authority for Ms NL to speak to and take instructions from Mr HM on Ms Z’s behalf. Mr HM was told that Ms Z was Ms NL’s client.

(d) Also on that date Ms Z instructed Ms NL to declare the agreement unconditional.

(e) The intention was for Ms Z to make a nomination to Mr HM as a co- purchaser and sign a Deed of Nomination to that effect.

(f) In late June 2015 Mr HM and Ms Z asked Ms NL to prepare a property sharing agreement recording their arrangements about the purchase. She did so and sent it to them requesting further information.

(g) On 8 July 2015 Ms Z contacted Ms NL and withdrew her authority for Ms NL to deal with Mr HM because of concerns she had about his honesty. She also instructed Ms NL to cancel the purchase agreement.

interests of Ms Z and Mr HM were no longer aligned. (i) She declined to speak to or deal further with Mr HM. (j) The vendors would not agree to return the deposit.

(l) Mr HM could have taken steps after 8 July to try and complete the purchase. [19] Ms NL’s submissions were later supplemented by those of her counsel, Ms AL.

(a) It was important to distinguish between Ms NL’s retainer to act in the purchase, and the “proposed joint venture between Mr HM and [Ms Z].”

(b) It was clear that in relation to the purchase, Ms NL’s client was Ms Z. This is confirmed by Ms Z’s authority to Ms NL to deal with Mr HM once the purchase agreement had become unconditional. This made Mr HM an agent for Ms Z, but not Ms NL’s client.

(c) Both Mr HM and Ms Z informed Ms NL that once the agreement had become unconditional Ms Z would make the nomination to include Mr HM as a joint purchaser. However, before that could occur Mr HM and Ms Z had to agree the terms on which they would own the land together.

(d) Ms Z instructed Ms NL to prepare a property sharing agreement. Mr HM provided Ms NL with some basic terms for the property sharing agreement. Ms NL drafted the agreement but indicated that further information was required.

(e) Because a dispute arose between Ms Z and Mr HM, Ms NL approached the matter “as it there was a conflict of interest” and advised Mr HM to seek independent advice.

[20] The Standards Committee delivered its decision on 12 September 2016. It identified the following issues arising from Mr HM’s complaint:

(a) Who was Ms NL acting for in relation to the proposed joint venture? (b) Who was Ms NL acting for in relation to the property purchase?

3 The Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008.

(d) If Ms NL was able to discharge her obligations to both parties and act for both, did she do so with their prior informed consent as required by Rule

(e) If Ms NL was acting for Mr HM, did Ms NL provide incompetent or inadequate advice to Mr HM, which resulted in the loss of his investment and estimated $60,000 profit?;

(f) Did Ms NL breach any or all of rule 8, 8.1, 8.7 in sending the letter to [AB Law] dated 17 July 2015 which disclosed confidential information acquired during the professional relationship with Mr HM?

[21] The Committee determined, pursuant to s. 152(2)(c) of the Lawyers and Conveyancers Act 2006 (the Act) that further action on the complaint was unnecessary. It determined that:4

(a) There were two separate retainers; a retainer to purchase and a retainer for a future joint-venture.

(b) The Committee agreed with the submissions for Ms NL that she was acting solely for Ms Z in respect of the purchase. The file was opened in Ms Z’s name and terms of engagement were sent to Ms Z. Ms Z was the named purchaser.

(e) Because the joint venture never materialised, Ms NL cannot be said to have given incompetent or inadequate advice to Mr HM.

(f) There was no breach of confidentiality by Ms NL in relation to Mr HM. He was not her client. Her client, Ms Z, authorised her to disclose the information in question.

(a) Contrary to the Committee’s finding that there were two retainers, the intention from the outset was that there would be only one retainer which was to act on the joint purchase of the house.

(b) He provided the deposit from a trust with which he was associated. Ms NL knew this, and this establishes a lawyer/client relationship with corresponding fiduciary duties.

(d) The first time that Ms NL sought Ms Z’s authority to deal directly with Mr HM, was on 22 May 2015. Prior to that Ms NL had dealt directly and extensively with Mr HM for 85 days.

(e) Ms NL was aware from the outset that the purchase arrangement between Mr HM and Ms Z was a joint venture between them, and that Mr HM was financing the purchase.

(f) Ms NL advised Mr HM to structure the purchase using someone unconnected with him.

(g) Ms NL never advised Mr HM that he could lose the deposit or other funds invested in the property.

(i) Ms NL breached her fiduciary obligations and duties of care to Mr HM. [23] Mr HM sought, amongst other orders, compensation from Ms NL.

[24] Through her counsel Ms AL, Ms NL responded to the application for review as follows:

(a) Mr HM was only ever an agent acting on behalf of Ms Z. All of his communications with Ms NL were in that capacity.

(c) Initial instructions were to prepare a purchase agreement with Ms Z as the sole purchaser. Instructions to draft a property sharing agreement arose later.

(d) Instructions to prepare the property sharing agreement were given by Ms Z. Any instructions about that agreement from Mr HM, were given in his capacity as Ms Z’s agent.

(e) Ms NL has not done or omitted to do anything which has given rise to any loss that Mr HM may have suffered as a result of the purchase agreement being cancelled by Ms Z.

[26] The nature and scope of a review have been discussed by the High Court, which said of the process of review under the Act:5

... the power of review conferred upon Review Officers is not appropriately equated with a general appeal. The obligations and powers of the Review Officer as described in the Act create a very particular statutory process.

The Review Officer has broad powers to conduct his or her own investigations including the power to exercise for that purpose all the powers of a Standards Committee or an investigator and seek and receive evidence. These powers extend to “any review” ...

... the power of review is much broader than an appeal. It gives the Review Officer discretion as to the approach to be taken on any particular review as to the extent of the investigations necessary to conduct that review, and therefore clearly contemplates the Review Officer reaching his or her own view on the evidence before her. Nevertheless, as the Guidelines properly recognise, where the review is of the exercise of a discretion, it is appropriate for the Review Officer to exercise some particular caution before substituting his or her own judgment without good reason.

[30] More recently, the High Court has described a review by this Office in the following way:6

A review by the LCRO is neither a judicial review nor an appeal. Those seeking a review of a Committee determination are entitled to a review based on the LCRO’s own opinion rather than on deference to the view of the Committee. A review by the LCRO is informal, inquisitorial and robust. It involves the LCRO coming to his or her own view of the fairness of the substance and process of a Committee’s determination.

[31] Given those directions, the approach on this review, based on my own view of the fairness of the substance and process of the Committee’s determination, has been to:

[32] As the Officer with responsibility for deciding this application for review, I appointed Mr Robert Hesketh as my statutory delegate to assist me in that task.7 As part of that delegation, on 1 October 2018 at [City], Mr Hesketh conducted a hearing at which Mr HM appeared, as well as Ms NL and her counsel Ms SC.

[33] The process by which a Review Officer may delegate functions and powers to a duly appointed delegate was explained to the parties and Ms SC by Mr Hesketh. They each indicated that they understood that process and they took no issue with it.

[34] Mr Hesketh and I have conferred about the complaint, the application for review, the hearing and my decision. There are no additional issues or questions in my mind that necessitate any further submissions from either party.

[35] The singular feature of this transaction was, from the very outset, that it was to be structured in a way which concealed Mr HM’s involvement from one of two parties who were negotiating and settling their relationship property. Ms Z was to be the front person for this arrangement.

[36] That singular feature ought to have put Ms NL on notice from day one about the need for particular care in representing the interests of her client – selected by Ms NL as being Ms Z.

[37] It presents as surprising that Ms NL did not, at the very beginning of this retainer, personally meet and make enquiry of her client (as she saw her) Ms Z, and ascertain her understanding of and expectations about the retainer, the purchase, including her relationship with Mr HM and the financial arrangements between them.

[38] That fact that Ms Z was identified as the client rather than Ms Z initiating the instructions, should have alerted Ms NL to the need to ensure that she was totally satisfied that her client was comfortable with, and alert to the implications of, being the “front person”. More was required than simple indication that Ms Z was happy to assist.

[39] It was Ms NL who had suggested the arrangement to conceal Mr HM’s involvement, and I note that Mr HM came back to Ms NL on the same day, confirming that he had a friend who was prepared to be the purchaser. Ms NL was well aware that it was Mr HM who was driving the transaction.

[40] The element of concealment and client introduction rather than client approach heightened the importance of the need for caution, clear advice and equally clear lines of demarcation.

[41] A competent and diligent lawyer acting in the best interests of their client, to the exclusion of the interests of third parties, and in circumstances where that client was put forward and asked to be a nominal purchaser, should take those steps.

[42] Had Ms NL approached her retainer with Ms Z with the degree of care I have identified, any confusion about Mr HM’s position might have been avoided altogether.

(e) If Ms NL did not act for Mr HM, did she nevertheless breach any professional duties to him?

(b) that there was to be a partnership between Mr HM and Ms Z in relation to the purchase and that Ms Z and Mr HM would agree terms on which they would be co-purchasers;8

[46] The transaction to purchase the house from Mr A and his partner gave rise to four discrete pieces of legal work:

(a) Pre-contractual, execution of the purchase agreement by the parties and declaring it unconditional.

[47] In her letter of engagement to Ms Z, Ms NL described the scope of her retainer as being “advice in regard to [the house purchase] together with the preparation and execution of any documents required and all associated work.”

[48] I am satisfied that in describing the scope of her retainer in that way, Ms NL was referring to the four separate pieces of work described by me above at [46]. This is because when she sent her letter of engagement, Ms NL knew from her discussion with Mr HM and his follow-up email, what the proposed arrangements were – albeit in general terms.

[49] Ms NL could clearly act for Ms Z in relation to all four pieces of work and it seems clear that Ms NL anticipated doing so.

[51] I do not agree with the Committee’s conclusions that this transaction gave rise

_{to two retainers; one in relation to the purchase and the other
in relation to the}

8 In her response to Mr HM's complaint, Ms NL said that "Mr HM approached [me] with a proposal for a joint venture – he and his friend were to purchase a property, "do it up" and then rent it for a profit."

partnership. The whole basis of the purchase was a partnership between Mr HM and

Ms Z, to be formalised once the agreement became unconditional. [52] I now address who Ms NL’s clients were.

[53] Mr HM’s argument is that Ms NL acted for him and Ms Z for the house purchase, despite only Ms Z’s name being on that agreement. In relation to the proposed property sharing agreement, Mr HM considers that he was Ms NL’s only client.

(a) He had dealings with Ms NL in late 2014 about matters unrelated to the house purchase. These were largely confined to witnessing documents. Legal advice was neither sought nor provided, and fees were not charged. However, there was a history between them.

(b) In late-2014 Mr HM asked Ms NL if she would be interested in acting in a house purchase. He did not go into any detail, but he was referring to Mr A’s and his partner’s house. Ms NL gave Mr HM her business card and said that she would be happy to assist.

(c) On 26 February 2015, he had a lengthy telephone discussion with Ms NL about the house purchase, including stressing the need for his anonymity. Ms NL gave him advice as to how to achieve that.

(e) He followed that up with an email in which he provided more detail about the proposed purchase, including providing Ms Z’s name and contact details as the purchaser. He indicated an eventual nomination to them both.

(f) Ms NL sent Mr HM a purchase agreement for Ms Z to sign and in the covering email said: “please check the chattels list to ensure that the chattels are as you expect.”

(g) Ms NL knew or ought to have known that he was providing at least the deposit for the house purchase.

(k) For those reasons, and because Ms NL never specifically told him that she was not acting for him (until instructed by Ms Z not to deal with him in early July 2015), Mr HM reasonably believed that he was at all times Ms NL’s client, and that she owed him duties of care including to ensure that he suffered no losses as a result of Ms Z endeavouring to cancel the purchase agreement.

[55] Ms NL submits that her client was Ms Z, and that Mr HM would only have become her client if and when Ms Z made a nomination to Mr HM as a joint purchaser with her, and a Deed of Nomination signed to this effect. She said that in that event both Ms Z and Mr HM would have been her clients for the purposes of concluding settlement of the purchase.

[56] Ms NL said that Mr HM was merely Ms Z’s agent, liaising between her and Ms

9 There is some doubt about whether Ms Z received the letter of engagement. Ms NL sent it to the address that Mr HM had provided and it was not returned undelivered. Ms Z never discussed the letter of engagement with Mr HM; nor, it seems, with Ms NL. However, Mr HM does not dispute that Ms NL sent Ms Z a letter of engagement on 27 February 2015, and that Ms NL did not send one to him.

February 2015, she said “if [Ms Z] has any concerns or questions, please ask her to call us before she signs.”

(e) On 8 May 2015 Ms Z and the vendors reached agreement about price and the vendors executed the purchase agreement. A few days after that Ms NL gave Ms Z advice about the terms of the agreement and on

(f) Ms NL said that she chose this point in time to obtain that authority because once the agreement had been executed it was binding and each party (Ms Z and the vendors) had legal obligations under the purchase agreement. Prior to execution of the agreement on 8 May

(g) She also informed Mr HM on 22 May 2015 that Ms Z was her client until a nomination had been formalised.

(i) On 29 June 2015 Ms NL spoke to Mr HM by telephone and informed him (again) that Ms Z was her client. This was in response to concerns expressed by him that Ms NL had been dealing directly with Ms Z and not with him.

(j) When instructed to do so by Ms Z, Ms NL ceased to have any dealings with Mr HM, advised him why, and told him to obtain independent legal advice because she (Ms NL) had “a conflict of interest”.

(k) Had Ms Z and Mr HM not fallen out and instead signed a property sharing agreement, once the Deed of Nomination had been signed adding Mr HM as a co-purchaser Ms NL would have opened a fresh conveyancing file and sent each a separate letter of engagement.

[57] Rule 3.4 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules) requires a lawyer to “... in advance, provide in writing to a client information on the principal aspects of client service...” This is generally referred to as either (or both) a letter or terms of engagement.

[58] A lawyer who fails to provide that written information to their client may be disciplined.

[59] The rationale for this requirement includes ensuring that a client is fully informed about the retainer with their lawyer. As well as that rationale, written terms of engagement also provide evidence of a lawyer/client relationship.

[60] Because he did not receive written terms of engagement Mr HM argues that there is an implied oral retainer between himself and Ms NL.

[61] Dealing with implied retainers, in Lawyers’ Professional Responsibility, the learned author says:10

[R]etainers can be inferred or implied from the circumstances, by reference to the intentions of the parties, objectively ascertained. In this context it is the existence of the retainer that is implied, not its terms. The onus rests on the person who alleges the existence of a retainer to prove this and, where this is material to the claim, to prove its terms. ... The alleged client may bear the onus if he or she wishes to make the lawyer accountable for breaching a duty, whether legal or equitable, which the retainer would attract...

An implied retainer rests on proof of facts and circumstances sufficient to establish a tacit agreement to provide legal services. Its existence is determined by inference from objective facts, not merely from the lawyer’s belief as to which clients he or she was acting for. The reasonable expectations of the alleged client carry significant weight here, as the lawyer may always take steps to dissuade a belief that the lawyer acts for a person.

... Aspects that may impact upon a client’s reasonable expectations of a retainer include the capacity in which the lawyer acted (say, giving advice on a non-legal capacity), who instructed the lawyer, who is liable for the lawyer’s charges, and whether a contractual relationship existed with the claimant in the past (as the court, in this event, may be readier to assume that the parties intended to resume that relationship).

where both parties to a transaction consult the same solicitor and together give him the information needed to prepare the documents in which their respective rights and obligations are to be set out and the solicitor accepts responsibility to prepare the documents without any indication that he cannot fully discharge his professional duties to them both there is a strong bias towards finding that the solicitor tacitly agrees to act for both parties and to undertake the usual professional responsibilities to them both ... In the absence of a clear indication by the solicitor that the solicitor does not accept one of the parties as his client it is natural in such a case to assume both are relying on him for professional advice and assistance. This follows from the mere fact that both have consulted him.

10 Lawyers’ Professional Responsibility, GE Dal Pont, Lawbook Co, 6th edn at [3.35].

A lawyer should take reasonable measures to ascertain a client’s identity as soon as practicable before accepting instructions to act. In the simple scenario, the parties are likely to be clearly identified. ... Challenges arise where multiple persons ostensibly instruct the lawyer. Particularly where there may be a conflict between the interests of those persons, the lawyer should make it clear at the outset for whom he or she acts, and actively dispel any assumption of a retainer with any other person in the matter.

Challenges may also arise where instructions are received from an agent on behalf of a principal client, in which case it is important for the lawyer to take reasonable measures to ascertain the principal’s identity before accepting instructions. ...

Client identity, to this end, is critical for the lawyer knowing from whom he or she may take instructions. In the case of joint clients, a lawyer must ensure that their authority to act represents the joint will of clients.

[63] I deal first with whether Ms Z was Ms NL’s client. Both Ms NL and Mr HM agree that Ms Z was Ms NL’s client. Ms Z’s views about this are not known, so it is appropriate for me to formally consider the question.

February 2015. On 27 February she sent a letter of engagement to Ms Z. The letter of engagement, amongst other things, noted that fees would be charged and that Ms Z was bound to pay them. Ms NL took those steps despite not speaking to Ms Z beforehand.

[65] The letter of engagement noted that Ms Z would be bound by its terms if she verbally confirmed their acceptance or instructed Ms NL “to proceed to act” for her. That being said, it appears that Ms Z never received the letter of engagement.

[66] Ms NL spoke to Ms Z about progress with negotiating the purchase agreement, in the following weeks. From 8 May on, Ms Z gave Ms NL instructions to:

(b) make the purchase agreement unconditional; (c) prepare a property sharing agreement;

12 Lawyers’ Professional Responsibility, GE Dal Pont, Lawbook Co, 6th edn at [3.35].

(d) withdraw her authority for Ms NL to deal with Mr HM; (e) cancel the purchase agreement.

[67] It does not appear that Ms Z has at any time challenged that she was Ms NL’s client. She has acted in a way which is consistent with a client giving their lawyer instructions to act.

[68] I am satisfied that Ms Z was Ms NL’s client and that the retainer was to be for:

(a) the purchase of Mr A’s and his partner’s house property in which she was the nominal purchaser;

[69] I approach the question of whether Mr HM was Ms NL’s client by bearing in mind the various observations in Lawyers’ Professional Responsibility set out by me above at [61] & [62]. In particular, the need for a “clear indication” that Ms NL did not accept Mr HM as her client, or that she made it “clear at the outset for whom she [acted] and actively [dispelled] any assumption of a retainer with [Mr HM].”

[70] It is important to note that in his discussion with Ms NL on 26 February 2015, Mr HM asked Ms NL for advice as to how he could purchase the property without Mr A’s partner knowing this. Mr HM suggested that either a trust in which he was a trustee could act as purchaser, or a company in which he was a director.

[71] Ms NL’s advice was that either would identify Mr HM as the purchaser, and that the most effective way to mask Mr HM’s involvement was to have a purchaser with no connection to him, and for provision for a nomination by that purchaser at a later date.

[72] There is no doubt that this was legal advice, solicited by Mr HM and given by Ms NL. On that basis alone it was reasonable for Mr HM to believe that Ms NL was his lawyer.

[73] From 26 February 2015 to approximately 8 May 2015 Ms NL dealt with both Mr HM and Ms Z whilst Mr HM and Mr A were negotiating the purchase price for the house. Ms NL also corresponded with the lawyers acting for the vendors. On 8 May

[74] Without putting it in quite this way, Ms NL’s position is that until the agreement was signed by both parties, matters were pre-contractual and informal and to that extent it was not necessary for there to be formal boundaries in her dealings with Mr HM, as she always cleared matters with Ms Z. She simply regarded Mr HM as being Ms Z’s agent, in the same way that a real estate agent might liaise between her and her client.

[75] Ms NL regarded it as important to create formal boundaries once the purchase agreement was signed by both parties, and on 20 May 2015 she sought Ms Z’s instructions to be able to deal with Mr HM as Ms Z’s agent. Those instructions were given to Ms NL by Ms Z, in writing, on 22 May 2015.

[76] Ms NL said that on 22 May 2015 she also informed Mr HM that she could not take instructions from him without Ms Z’s consent. In fact, Mr HM prompted Ms Z to provide that to Ms NL, which she did on the same day.

[78] It seems to me that there is very little, if any, dispute between Mr HM and Ms NL about the facts. Both agree about how matters began; both agree that Mr HM spoke to Ms NL on many occasions up to 20 May 2015 without any requirement for Ms Z to approve that and both agree about the way in which the purchase was to evolve.

[79] The point of difference is whether Mr HM was, at any time and for any of these purposes, Ms NL’s client as well as Ms Z.

[80] I remind myself of the test set out in Pegrum v Fatharly, referred to in Lawyers’

[81] Applying the “clear indications” and “actively dispelling assumptions” tests, Ms NL would need to show, on the balance of probabilities, that from the beginning she informed Mr HM that he was not her client.

[83] Ms NL could have done so by the simple expedient of an email replying to Mr HM’s of 26 February 2015 explaining how she proposed managing the transaction, including that she would be acting for Ms Z and would deal with Mr HM not as a client, but as Ms Z’s agent.

[84] Ms NL’s position, which is that the file was opened in Ms Z’s name, a letter of engagement was sent to Ms Z and she also dealt directly with Ms Z, and that this is conclusive evidence that her only client was Ms Z. Indeed, the Committee relied upon those factors when it made its finding that Ms NL’s only client was Ms Z.13

[85] However, these were facts known only to Ms NL and Ms Z. Ms NL cannot rely on those facts to rebut Mr HM’s assertion that he was her client. In a sense also, these are matters more of form than substance, because Ms NL continued to deal directly with Mr HM and without Ms Z’s authority to do so, until 22 May 2015.

[86] I disagree with the Committee’s conclusion that Ms NL only ever acted for Ms

Z. I am persuaded that Mr HM was Ms NL’s client for work carried out by her from 26

February 2015. There is no evidence from Ms NL to rebut Mr HM’s basic position that he believed he was Ms NL’s client. In the circumstances, it was reasonable for Mr HM to come to this conclusion.

[87] Although Mr HM does not dispute that he was told on 22 May that Ms NL could not take any instructions from him without Ms Z’s consent, it is not entirely clear to me that he understood the significance of that because five weeks later, on 29 June

2015, Mr HM spoke to again to Ms NL and expressed concern that she had been dealing directly with Ms Z, and not with him. During this phone call Ms NL informed Mr HM that Ms Z was her client, and not Mr HM.

[88] It follows from my finding in paragraph [86], that Ms NL was in breach of rule

and Ms Z in relation to any of the four pieces of work in this transaction. Because the

_{Committee concluded that Ms NL only acted for Ms Z, it did not consider
this issue.}15

14 _{I observe that strictly Ms NL should have
opened a file in Mr HM’s name and acted for him,}

as he had sought the advice about how to structure the purchase so that Mr A’s partner did not know he was involved. Having done so, Ms NL ought to have then referred Ms Z to another lawyer to act; this, after having carried out the analysis of competing interests required by rule

6.1 A lawyer must not act for more than 1 client on a matter in any circumstances where there is a more than negligible risk that the lawyer may be unable to discharge the obligations owed to 1 or more of the clients.

6.1.1 Subject to the above, a lawyer may act for more than one party in respect of the same transaction or matter where the prior informed consent of all parties concerned is obtained.

[91] Amongst the core obligations that a lawyer owes their client are the following:16

(b) disclosure to a client of all information acquired by the lawyer that is relevant to the matter;

[92] To act for more than one client in a matter, a lawyer must be satisfied that the interests of those clients are aligned so that the lawyer can discharge the obligations referred to above (amongst others), to each client equally. This would mean, for example, that whatever the lawyer learns from client A about the matter, the lawyer must be able to tell client B (and vice versa). It would mean that both clients were on an equal footing in a transaction.

[93] Ms NL did not turn her mind to the requirements of rule 6.1 because she did not consider that she was acting for Mr HM. Given my finding that she was indeed acting for Mr HM as well as for Ms Z, it is necessary for me to consider whether rule 6.1 permitted her to do so.

[94] Applying the rule, before Ms NL could act for both Mr HM and Ms Z in this transaction she needed to ask herself whether there was a more than negligible risk that she could not discharge her obligations to them both. This meant satisfying herself before acting for them both, that their interests were aligned. If there was a more than negligible risk that those interests did not align, then rule 6.1 makes it clear that Ms NL could not act for them both because she would be unable to discharge her obligations

February 2015 and his follow-up email that same day, Ms NL would have been aware of the following:

[96] Ms NL made no enquiry of Mr HM (or Ms Z for that matter) as to who was providing the deposit, how the purchase was being funded, how Mr HM and Ms Z intended to own the property (joint tenants or tenants in common) or their proposals on any sale of the property.

[97] In the absence of any information about those matters, it was simply not possible for Ms NL to make any informed assessment of the type required by rule 6.1. It may have been the case that one of them was providing all the deposit and the purchase price. It may have been that one of them was providing less than 50% of the purchase funds. Without that information, it had to be presumed that there was a more than negligible risk that Mr HM’s and Ms Z’s interests did not align.

[98] Ms NL might argue that no issue arose about whether the interests of Mr HM and Ms Z were aligned because price had not been agreed with the vendors when she began to act in February 2015 (and was not agreed until 8 May 2015). Once price was agreed, she might argue, she recognised that Ms Z’s and Mr HM’s interests did not align and that her role was to protect Ms Z’s interests (as her client), which is why she sought Ms Z’s instructions to deal further with Mr HM.

[99] However, the instructions received by Ms NL on 26 February 2015, both on the telephone and in Mr HM’s email to her, were to act on the purchase, not simply to act in pre-contractual negotiations. Mr HM provided Ms NL with details about how the purchase was to be structured (Ms Z as purchaser) and that ultimately the two of them would own the property in partnership.

[100] The reference to a partnership ought immediately to have triggered enquiry by Ms NL. Was this a business partnership? Was this a de facto partnership? What contributions were each making to the partnership (whatever its nature)?

[101] Ms NL describes Mr HM as merely being Ms Z’s agent, and she argues that this arrangement was no different from any other where an agent is involved. She gives the example of a real estate agent acting as a broker for either vendor or purchaser, which she said was a common feature of her practice. She said that in dealing with a real estate agent who liaises between her and her client, there is no suggestion that the agent becomes her client as well.

[102] The stark difference between the usual agency arrangement relied on by Ms NL and the present matter, is that Ms NL was providing Mr HM with advice. Mr HM told Ms NL that he and Ms Z would be co-owing the property in partnership. This had clear implications for the rights, duties and interests of each of them which clearly transcended the simple agency arrangement argued for by Ms NL.

[103] Because of the nature of Mr HM’s description of the purchase to Ms NL, I consider that she was obliged by rule 6.1 to consider whether there was a more than negligible risk that she may not be able to discharge her obligations to them both. On being told that ownership would be as partners, the presumption would inevitably have been that there was a more than negligible risk that their interests did not align.

[104] I conclude that in acting for both Mr HM and Ms Z in circumstances where Ms

NL had failed to sufficiently establish Ms Z’s circumstances, Ms NL has breached rule

[105] On 8 May 2015 Ms Z and the vendors agreed on a price for the purchase. Conditions were to be satisfied by 22 May 2015, with settlement ultimately to take place on 31 July 2015.17

[106] Once she received the signed agreement from the vendors’ lawyers, Ms NL gave Ms Z written advice about the steps towards the agreement becoming unconditional, and advice about settlement.

[107] From Mr HM’s and Ms Z’s perspective, once the agreement became unconditional their partnership arrangement had to be formalised, a nomination made and formalised in a Deed of Nomination.

[108] On 22 May 2015 Ms Z instructed Ms NL to declare the agreement unconditional. She did so directly and not through Mr HM.

17 The agreement executed by the parties provided for settlement on 3 July 2015 but this was extended by agreement until 31 July 2015. Nothing of significance arises from this.

[109] On that date, Ms Z also formally authorised Mr HM “to act on [her] behalf in relation to [the purchase]”, and emailed that authorisation to Ms NL. Ms NL had required this, and told Mr HM on 22 May that she could not deal with him directly without that authorisation.

[110] Without apparently questioning the need for it, Mr HM arranged for Ms Z to prepare and send the authorisation to Ms NL.

[111] I consider that from 22 May 2015 Mr HM was on notice that, at the very least, Ms NL may not be, or was no longer, his lawyer.

[112] Having told Mr HM on 22 May 2015 that he was not her client and that Ms Z was, Ms NL then proceeded to muddy the waters when, in late June 2015, Mr HM and Ms Z gave her instructions to prepare a property sharing agreement.

[113] Ms NL accepted instructions from them both to prepare the agreement, with Mr HM providing the bulk of the details to be included. Ms NL prepared a very basic property sharing agreement and sent it to them both, requesting further information.

[114] Included in the draft agreement was a clause in which each acknowledged upon executing it that they had been “advised to seek independent legal advice on the contents and effect of this agreement and the extent of their liability under this agreement but that they have declined to do so.”

[115] Quite apart from the fact that Mr HM provided Ms NL with terms to be included in the property sharing agreement, this clause by itself would reasonably have reinforced Mr HM’s belief that Ms NL was acting for them both in drafting the agreement. “Independent advice” presumes advice independent of that given to the parties by Ms NL. If Ms NL is providing advice to the parties, she is acting for them both.

[116] Asking them both for “questions comments or changes” about the property sharing agreement in her email to Mr HM and Ms Z on 3 July 2015 would also have strengthened Mr HM’s belief that Ms NL was acting for them both in its preparation; she was inviting further instructions.

[117] Ms NL said that she spoke to Mr HM by telephone on 29 June 2015, when he remonstrated with her for dealing directly with Ms Z about the purchase, rather than him. In her response to Mr HM’s complaint, Ms NL said the following about that telephone discussion:

I reminded Mr HM that [Ms Z] was our client and that, until a Deed of Nomination was signed, she was solely liable for the obligations of the Purchaser under the Agreement, so we had to contact and confirm all details with her. We did not owe Mr HM a duty of care until that Deed was signed.

[118] Ms NL relies on this discussion to support her position that she only received instructions from Ms Z to prepare the property sharing agreement, that Mr HM was not her client for that piece of work and she conveyed that to him.

[119] I do not agree with Ms NL about the effect of that telephone discussion. It concerned the purchase and the Deed of Nomination. Before either could proceed, Mr HM and Ms Z wished to execute a property sharing agreement. This was a separate piece of work, necessary before the nomination could be made, co-ownership established and settlement.

[120] I conclude that, for the reasons outlined above, Ms NL held herself out as acting for both Ms Z and Mr HM for the preparation of the property sharing agreement.

[121] The proper application by Ms NL of rule 6.1 would have seen her make it clear to Mr HM that she could not take instructions from him. There was a more than negligible risk that Ms Z’s and Mr HM’s interests did not align for the purposes of negotiating the property sharing agreement. One was contributing more than the other, and on the face of it Mr HM was granting Ms Z a concession. Such an imbalance demanded separate representation for Mr HM.

[122] I conclude that in purporting to act for both Mr HM and Ms Z in relation to the property sharing agreement, Ms NL breached rule 6.1.

[123] The Committee held that Ms NL did not cause Mr HM to suffer any losses because she had not acted for him.18 My conclusion that she did act for him requires me to consider this aspect of Mr HM’s complaint.

[124] The business relationship between Ms Z and Mr HM broke down very soon after Ms NL had sent the couple the draft property sharing agreement on 3 July 2015.

I revoke my authority for you to deal with [Mr HM] directly in respect of any of my matters, including [the house purchase].

I no longer wish to proceed with this purchase. [C]an you please cancel this deal/[agreement] and get me out of it.

[126] Ms NL said that on receipt of those instructions she considered her position and said that because of allegations Ms Z had made about Mr HM, which were behind Ms Z’s reason to end any involvement with him, she (Ms NL) was “in a position of conflict. Even though he was not our client, [Ms Z’s] interests and those of Mr HM were no longer aligned.”

[127] For that reason, Ms NL concluded that she could not deal with Mr HM any further and that he needed to instruct his own lawyer. She said that this was conveyed to Mr HM when he telephoned her office.

[128] For his part, Mr HM said that he endeavoured to speak to Ms NL about this development, and to somehow keep the purchase agreement alive. He said that Ms NL declined to speak to him saying that she could not do so because “there was a conflict of interest”.

[129] It is unfortunate that Ms NL referred to “a conflict of interest” when Ms Z revoked Mr HM’s authority to deal on her behalf. If, as Ms NL asserts, Mr HM was not (and never was) her client, then she was not in a position of any conflict with him. She owed him no duties other than a general one of courtesy and respect. All of her duties lay with Ms Z.

[130] It may be that Ms Z and Mr HM were in conflict with one another, but this, as a matter of professional and ethical duties, was of no consequence to Ms NL. She had her instructions from Ms Z not to deal with Mr HM and she simply had to convey those instructions to Mr HM, without more. Ms NL was wrong to say that the personal conflict between Ms Z and Mr HM put her “in a position of conflict”. It did not.

[131] By using the language of conflict of interest when explaining to Mr HM on 8

July 2015 why she could not speak to him, Ms NL further complicated matters. It gave traction to his view that she was acting for them both.

[132] Although Ms NL had told Mr HM on 22 May 2015 and again on 29 June 2015 that Ms Z was her client, her other words and actions since 26 February 2015 contributed to Mr HM’s reasonably held belief that Ms NL was his lawyer. Objectively, at the very least there was considerable uncertainty about who Ms NL was acting for. It was her obligation to clearly dispel that uncertainty, and I conclude that she did not do so.

[133] Despite her efforts on Ms Z’s part, after cancelling the agreement Ms NL was unable to secure a return of the deposit.

[134] Because the agreement was cancelled and Mr HM was unable to resurrect it, he argues that Ms NL caused him to suffer losses by failing to protect his interests as her client.

[135] Mr HM said that he had spent considerable money and time in relation to the purchase. For example, he provided the deposit. He said that he also forgave a debt that Mr A owed him, apparently as an acknowledgement that Mr A was willing to sell the house to Mr HM and conceal that fact from his partner. As well, in anticipation of eventually co-owning the house Mr HM spent time there and money on carrying out repairs and maintenance. He puts his total losses at around $60,000.

[136] Mr HM spent that time and incurred those costs both before the agreement was declared unconditional and after, including up to the time that the agreement was cancelled.

[137] The simple answer to Mr HM’s argument is that, self-evidently, he should not have committed himself to forgiving a debt and spending time and money at the house prior to assuming ownership of it. Mr HM chose to do these things. He did not discuss them with Ms NL nor did he seek advice from anyone else about the wisdom of committing time and money (including forgiving a debt) to a house property before he owned it. No lawyer would have advised him to proceed in this way.

[138] So far as the deposit is concerned, that is an issue between Mr HM and Ms Z. There is no basis for saying that Ms NL was aware that Mr HM had personally paid the deposit. He provided Ms NL with proof that it had been paid, and that the payer was a trust. Beyond that, Ms NL had no knowledge of how the deposit was funded.

[139] Mr HM also said that because the agreement was cancelled, he (and Ms Z) lost an opportunity to make a considerable profit from a future sale. They had purchased at a good price on a rising market, and after maintenance and repairs (many of which Mr HM intended to carry out) the value of house would have improved significantly.

[140] This is speculative and involves inquiry beyond the reach of a disciplinary inquiry such as this review. It is an issue better suited to the civil jurisdiction of either the District or the High Courts.

[141] Although I have held that Ms NL acted for Mr HM from 26 February 2015, and that in so doing she breached Rule 3.4 by failing to provide him with terms of engagement, and Rule 6.1, by acting for more than one client in a matter where their interests did not align, I am not satisfied on the balance of probabilities that Ms NL has caused Mr HM to suffer any losses as a result.

[142] Relevant to this conclusion is my view that from 22 May 2015 when Ms NL first told Mr HM that Ms Z was her client, he was sufficiently on notice to take some steps to clarify or otherwise protect his own position. It seems that he did not.

[143] Because I have held that Mr HM was Ms NL’s client, I do not need to consider the fifth question I posed at [41], which was whether, if Mr HM was not Ms NL’s client, she breached any non-client duties owed to him.

[144] In his complaint, Mr HM said that in a letter Ms NL sent to the lawyer acting for one of the vendors on 17 July 2015 endeavouring to secure a return of the deposit, she disclosed confidential information about him acquired during their lawyer/client relationship.

[145] At the hearing before Mr Hesketh, Mr HM did not pursue this issue and I do not propose to deal with it further. Although I have found that Mr HM was, on the balance of probabilities, Ms NL’s client, I do not consider that Ms NL disclosed any confidential information about Mr HM; she was merely expressing Ms Z’s apprehensions about further dealings with him.

(a) Breach of rule 3.4 by failing to provide Mr HM with written terms of engagement.

(b) Breach of rule 6.1 by acting for both Mr HM and Ms Z in the purchase and in preparing the draft property sharing agreement.

[147] For each of those breaches, I make findings of unsatisfactory conduct pursuant to s 12(c) of the Act.

[148] Pursuant to s 156(1)(1) I further order Ms NL to pay a total fine of $2,000 to the New Zealand Law Society for those breaches for the following reasons:

(a) Because Ms NL was being instructed to act for co-purchasers in a transaction where the identity of one of them had to remain anonymous, she had a responsibility from the outset to clearly identify her client and take proper instructions concerning all aspects of the transaction to ensure that her client's interests were protected to the exclusion of third parties.

(b) Ms NL did not take any steps to clarify her approach to the management of the transaction until 22 May 2015.

(c) Her conduct after that date in dealing with both Mr HM and Ms Z in relation to the property sharing agreement undermined the steps taken on 22 May 2015.

(d) Ms NL could never have acted for both Mr HM and Ms Z for any part of this transaction, including the pre-contractual aspects up to 8 May 2015. A proper analysis of the negligible risk test under rule 6.1 would have identified that.

[149] This fine is to be paid to the New Zealand Law Society within 30 days of the date of this decision.

[150] Pursuant to section 211(1)(a) of the Lawyers and Conveyancers Act 2006 the decision of the Standards Committee is reversed as to the determination to take no further action on Mr HM’s complaint.

[151] Where a finding of unsatisfactory conduct is made or upheld against a practitioner on review it is usual that a costs order will be imposed. I see no reason to depart from that principle in this case.

[152] Taking into account the Costs Guidelines of this Office, Ms NL is ordered to contribute the sum of $1,200 to the costs of the review, that sum to be paid to the New Zealand Law Society within 30 days of the date of this decision.

[154] Pursuant to s 215 of the Lawyers and Conveyancers Act 2006 I confirm that the order for costs made by me may be enforced in the civil jurisdiction of the District Court.

In accordance with s 213 of the Lawyers and Conveyancers Act 2006 copies of this decision are to be provided to:

New Zealand Legal Complaints Review Officer

HM v NL [2018] NZLCRO 127 (28 November 2018)