WJ v FM [2019] NZLCRO 26 (19 March 2019)

Last Updated: 30 March 2019

	LCRO 108/2016
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	WJ Applicant
AND	FM Respondent

DECISION

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

Introduction

[1] Ms WJ has applied for a review of a decision by the [Area] Standards Committee Standards [X] (the Committee) which had made a finding of unsatisfactory conduct on the part of Ms WJ, following its inquiry into a complaint made by Ms FM.

Background

[2] Ms WJ acted for Ms FM on the purchase of a residential property.

[3] Prior to settlement, Ms FM noticed that the relatively new ceramic stove that had been in the property when she had negotiated the purchase, had been removed and replaced with an old stove, that did not appear to be in fully workable condition.

[4] Ms FM contacted Ms WJ to raise her concern. She sought to have the original ceramic stove returned or replaced with a stove of similar quality.

[5] Ms FM says that after raising her concerns with Ms WJ, she became aware that Ms WJ was also acting for the vendor on the sale of the property.

[6] Ms FM instructed a new lawyer.

[7] She filed the complaint that has subsequently led to this review with the Complaints Service.

[8] Whilst the complaint was being investigated, Ms WJ took steps to settle the matter through discussions with Ms FM’s new lawyer. A settlement was reached whereby Ms WJ paid Ms FM $760 as a contribution to the purchase of a new stove.

[9] That so far as Ms FM was concerned was the end of the matter. She did not wish to take her complaint further.

[10] Notwithstanding that Ms FM was satisfied with the outcome achieved, the Committee considered that it appropriate to proceed with its inquiry into whether Ms WJ was conflicted when acting for both vendor and purchaser on the same transaction.

The complaint and the Standards Committee decision

[11] Ms FM lodged her complaint with the New Zealand Law Society Complaints Service (NZLS) on 30 September 2015. The substance of her complaint was that:

• (a) on entering into an agreement for sale of her home, her agent had forwarded the agreement to Mr XC (who had been her lawyer for a number of years) but had received no response from him;
  
• (b) on phoning Mr XC, she was informed that Mr XC had retired;
  
• (c) Ms WJ had taken over her files, without consulting her;
  
• (d) when signing an agreement for sale of her property on 14 July 2015 (I think Ms FM was in fact intending to refer to an agreement for purchase of a residential property executed on 12 March 2015), she realised that her nominated lawyer Mr XC was also recorded as the lawyer acting for the vendor on the sale;
  
• (e) she was unaware that Ms WJ ended up acting as the lawyer for both vendor and purchaser on the agreement to purchase; and

• (f) on being alerted to the removal of the stove from the property she was purchasing, she immediately contacted Ms WJ, who advised her that the settlement had been concluded.
  

[12] In responding to the complaint, Ms WJ submitted that:

• (a) Ms FM’s purchase transaction was initially managed by a partner in her firm, Mr XC;
  
• (b) the purchase file was primarily managed by a legal executive, Ms TM;
  
• (c) Ms FM was advised both by Mr XC and Ms TM, that her firm was acting for both vendor and purchaser on the transaction;
  
• (d) during the course of the transaction, Mr XC retired from the partnership of the firm;
  
• (e) Ms FM raised the issues with the stove, after the transaction had settled; and
  
• (f) when it became apparent that Ms FM and the vendor were at odds, she advised both parties that she was conflicted, and could no longer represent either.
  

[13] The Committee delivered its decision on 1 April 2016.

[14] As noted, notwithstanding the fact that Ms FM received compensation for cost incurred in replacing her stove, the Committee concluded that there had been unsatisfactory conduct on the part of Ms WJ, as defined in s 12(c) of the Lawyers and Conveyancers Act 2006, (the Act).

[15] In reaching that view the Committee concluded that:

• (a) Ms WJ had, in acting for both vendor and purchaser on the same property transaction, breached r 6.1.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules), by failing to obtain informed consent from both parties to the transaction; and
  
• (b) Ms WJ had not breached r 6.1.

Application for review

[16] Ms WJ filed an application for review on 13 May 2016. The outcome sought is that the decision of the Committee be reversed.

[17] Ms WJ submits that:

• (a) Mr XC and a legal executive from her firm first took instructions from Ms FM;
  
• (b) Mr XC discharged the obligation owed to Ms FM under r 6.1.1;
  
• (c) Mr XC had ensured that he had obtained Ms FM’s informed consent to act; and
  
• (d) Ms FM was aware, that Ms WJ had taken over the management of her files following Mr XC’s retirement.
  

[18] Ms FM was invited to comment on Ms WJ’s review application.

[19] She submitted that:

• (a) she was not advised at the commencement of the transaction of the potential for conflict;
  
• (b) she did not consent to the lawyers acting for both parties;
  
• (c) during the course of the transaction, she had neither seen or spoken with Mr XC; and
  
• (d) she rejected Ms WJ’s argument that Mr XC had discussed the conflict issue with her.
  

Review on the papers

[20] It was initially indicated to the parties that the matter would likely be dealt with through an applicant only hearing.

[21] The matter was allocated a hearing date. Ms WJ was unable to attend the hearing as there had been some confusion with the dates she was available.

[22] Indication was then given to the parties that a Review Officer considered that the application could appropriately be dealt with “on the papers”.

[23] Consent was sought from both parties to an on the papers hearing.

[24] Ms FM responded by advising that she did not wish to have any further involvement with the review.

[25] On 25 July 2018, Ms FM wrote to the LCRO making request that no further correspondence concerning the review be forwarded to her.

[26] A file note from the case manager records that Ms FM phoned the Office on 8 August 2018. She advised that she was upset and angry that she was continuing to be involved in a case that was two years old. She emphasised that she didn’t wish to have any further engagement in the review hearing and requested that the Office refrain from forwarding her any further correspondence.

[27] A decision was made to deal with the review on the papers. Ms WJ confirmed her agreement with that approach.

[28] In the course of considering the review, I decided that it would be of assistance if Ms WJ was given opportunity to clarify some issues.

[29] A telephone conference was convened for Tuesday 26 February 2019. Ms FM was not required to attend nor was it necessary for her to do so.

[30] During the course of the telephone conference, I indicated my surprise to Ms WJ that she had not provided any evidence from her former partner Mr XC, to confirm her understanding that Mr XC had initially taken instructions from Ms FM, and in the course of doing so, had carefully explained the potential conflict issues and obtained Ms FM’s consent to him continuing to act.

[31] I indicated to Ms WJ that I would allow her an opportunity to obtain a statement from Mr XC. A timetable was set with direction that Ms WJ was to file any further evidence by 5 pm Wednesday 6 March 2019.

[32] This review has then been determined both by a consideration of the submissions filed, and with opportunity provided to Ms WJ to advance her case.

Nature and scope of review

[33] The nature and scope of a review have been discussed by the High Court, which said of the process of review under the Act:1

1 Deliu v Hong [2012] NZHC 158, [2012] NZAR 209 at [39]–[41].

... 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.

[34] More recently, the High Court has described a review by this Office in the following way:2

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.

[35] 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:

• (a) consider all of the available material afresh, including the Committee’s decision; and
  
• (b) provide an independent opinion based on those materials.
  

Analysis

[36] The issues traversed by this review are narrow.

[37] It is not contested by Ms WJ that she acted for both purchaser and vendor on the transaction involving the purchase of a property by Ms FM, of a property owned by another client of Ms WJ’s.

[38] The conduct concern potentially arising from Ms WJ acting for two parties in the same transaction, was the possibility of Ms WJ becoming conflicted.

2 Deliu v Connell [2016] NZHC 361, [2016] NZAR 475 at [2].

[39] The Committee correctly, in my view, considered the relevant Rules being rr 6.1, 6.1.1, and 6.1.2.

[40] Those rules provide as follows:

• 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 1 party in respect of the same transaction or matter where the prior informed consent of all parties concerned is obtained.
    
  • 6.1.2 Despite rule 6.1.1, if a lawyer is acting for more than 1 client in respect of a matter and it becomes apparent that the lawyer will no longer be able to discharge the obligations owed to all of the clients for whom the lawyer acts, the lawyer must immediately inform each of the clients of this fact and terminate the retainers with all of the clients.
    
  • 6.1.3 Despite rule 6.1.2, a lawyer may continue to act for 1 client provided that the other clients concerned, after receiving independent advice, give informed consent to the lawyer continuing to act for the client and no duties to the consenting clients have been or will be breached.
    

[41] Overarching the rules considered by the Committee, is r 6 itself, which emphasises a lawyer’s obligation to protect the interests of his or her client, to the exclusion of the interest of third parties.

[42] In acting for two parties on the same matter, even if the matter is, as was appears to be the case here a seemingly straightforward conveyancing transaction, there is obvious potential for the lawyer to find themselves embroiled in conflict, if the interests of the clients diverge.

[43] The Committee noted that it may be possible for a lawyer to discharge his or her obligations to both parties who are engaged in the same conveyancing transaction, provided that the lawyer is not involved in providing advice on the terms to be included in the agreement, and the transaction proceeds smoothly with no issues arising.

[44] In Ethics, Professional Responsibility and the Lawyer, it was noted that situations in which lawyers act for more than one party to a transaction are commonplace in small firms particularly in conveyancing, small-business law and family law.3 The learned authors observed that:4

3 Duncan Webb, Kathryn Dalziel and Kerry Cook Ethics, Professional Responsibility and the Lawyer (3rd ed, LexisNexis, Wellington, 2016) at 212.

4 At 212.

in domestic conveyancing it is standard practice for the lawyer for a purchaser to act also as the lawyer for the lending institution from which finance is being obtained to effect the purchase.

[45] That said, the Courts have on occasions warned of the risks involved where a lawyer acts for both parties in a conveyancing transaction.5

[46] It is clear, under the Rules, that there is a prohibition on a lawyer acting wherever there is a “more than negligible risk” that the lawyer may be unable to discharge his or her obligations to one or more of the clients. This is a high, seemingly almost unattainable, threshold for a lawyer to overcome.

[47] A lawyer may act for more than one party in respect of the same transaction, where the prior informed consent of all parties concerned is obtained.

[48] It has been observed that given the vulnerabilities a client may be exposed to in potential conflict situations, every effort must be made by a lawyer to ensure that if consent to act is obtained, that the consent is genuine and informed.

[49] It bears emphasising that a formulaic consent procedure will not suffice to show that the client understood the existence, nature and possible consequences of the conflict of duties the lawyers faced.6

[50] The Committee identified r 6.1.1 as being the relevant conduct rule against which Ms WJ’s conduct was to be measured.

[51] Obtaining a client’s informed consent to a transaction is not a mere formality.

[52] This is reflected in the definition of “informed consent” found in r 1.2 (interpretation) of the Rules, where it is noted that:

informed consent means consent given by the client after the matter in respect of which the consent is sought and the material risks of an alternative to the proposed course of action have been explained to the client and the lawyer believes, on reasonable grounds, that the client understands the issues involved.

[53] It would be expected that lawyers familiar with the Rules would ensure that in circumstances where there was intention that a single lawyer, or lawyers from the same firm, were proposing to act for both parties on a single conveyancing transaction, that there would be a particular awareness of the need to ensure that:

• (a) they satisfied themselves at commencement that the circumstances of the instructions provided by both parties did not present as potentially
  

5 Farrington v Rowe McBride & Partners [1985] NZCA 21; [1985] 1 NZLR 83 (CA) at 90.

6 Taylor v Schofield Peterson [1999] 3 NZLR 434 (HC).

exposing them to more than negligible risk that the lawyer may be unable to discharge the obligations owed to one or more of the clients;

(b) this would necessarily involve a consideration of the transactions prior to commencement to identify any potential pitfalls; and

(c) if, by way of example, there were conditions in either agreement which potentially raised possibility of potential dispute, the lawyer would be unwise to continue to allow either herself or himself, or their firm, to continue to represent both parties.

[54] Ms WJ accepts that in acting for two parties on the same transaction she exposed herself to risk of conflict, but she argues that Mr XC had ensured that Ms FM had been fully advised of the conflict issue, and that she had provided her consent to act.

[55] Ms WJ provided submissions following the telephone conference.

[56] In those submissions she advised that:

• (a) she had spoken to Mr XC who had told her that he could not recall having spoken to Ms FM about the conflict issue.7 This was a consequence of the passage of time that had passed since instructions had been received from Ms FM in early 2015;
  
• (b) Mr XC had confirmed that it was his standard practice to always advise clients as to a potential conflict of interest when he was representing a vendor and purchaser;
  
• (c) Mr XC was certain that he would have followed this practice with Ms FM;
  
• (d) he noted that Ms FM had on earlier occasions been unhappy with the service he had provided;
  
• (e) acting for both purchaser and vendor was common practice in rural firms; and
  
• (f) he would not be providing a written statement.
  

[57] Unfortunately, the account that Mr XC provides of his standard practice does not assist Ms WJ.

7 I note that Ms WJ, throughout the statement provided, consistently refers to Ms FM as Ms FN.

[58] The evidence for Ms WJ essentially remains that which was put before the Committee.

[59] I am not persuaded that Ms WJ has established that she met her obligation to ensure that Ms FM was fully informed as to the potential conflict issues.

[60] Simple explanation that the responsibility for ensuring compliance with that obligation was met by Mr XC is not sufficient.

[61] Whilst I accept Mr XC’s submission that it was his standard practice to advise parties of conflict issues when acting for vendor and purchaser on the same transaction, I am not persuaded that he acted for Ms FM on the transaction that is at the centre of this review.

[62] I hasten to emphasise that I do not intend in making that observation to imply criticism of Mr XC who is understandably cautious in emphasising that his ability to recall a particular conversation had dimmed with the passage of time.

[63] His statement, whilst focusing on his conventional practice, makes no reference to having actually acted for Ms FM on the transaction.

[64] There is no evidence of a letter of engagement having been provided to Ms FM recording that Mr XC was acting.

[65] It would be properly expected of a prudent and competent lawyer that advice provided to clients regarding potential conflict issues would be file noted and as an additional precaution, a record of consent to act being confirmed in writing and signed by the client.

[66] No evidence is provided of Mr XC recording his advice in a file note.

[67] It was Ms FM’s contention from the time she first filed her complaint that Mr XC had never represented her in the transaction.

[68] In her initial complaint to the Complaints Service, she laments that when she purchased the property, the agreement had been forwarded to Mr XC and she had received no response from him.

[69] She says that when she phoned Ms WJ’s firm, she was surprised to learn that her file had been passed over to Ms WJ.

[70] Ms FM had two property transactions running contemporaneously (a sale and purchase) both of which were to settle on the same day.

[71] Only one of those transactions raised the spectre of a possible conflict (the purchase).

[72] I allow for the possibility of some confusion on Ms FM’s part in accurately recalling the events. She suggests in her initial complaint that she became concerned when she sold her property in July 2015, that the same lawyers were acting for vendor and purchaser. That was not the case for the sale transaction. The same lawyers were acting on her purchase. But that is a minor error in context. She records that she became aware of the conflict when she realised that her lawyer was acting for the vendor of the property she had purchased in Paeroa.

[73] But Ms FM is consistent in her recollection that Mr XC had never acted for her, and I can see no plausible explanation as to why she would have either a failure of recall on a matter which was of importance to her at the time, or any motivation to provide inaccurate account of what had occurred.

[74] Her complaint seems motivated in part at the frustration she felt in learning that she had been passed over to Ms WJ without being consulted about the change.

[75] Despite indication from Mr XC that Ms FM had on occasions been unhappy with his service, Ms FM expressed a considerable degree of confidence in him, and noted that he had acted for her for eighteen years. The issue is of little import for this review, but a degree of confidence in Mr XC is surely recognised by Ms FM’s decision to place both the sale and purchase transactions in his hands.

[76] Mr XC retired from the practice in May 2015. The purchase agreement was entered into on 12 March 2015. Even allowing for possible confusion in Ms FM’s recall of the two transactions, there is consistency in her argument that an agreement had been forwarded to Mr XC’s office and she had received no response, following which she had followed up and been advised of Mr XC’s retirement. Bearing in mind that Mr XC retired from the practice in May 2015, and the sale agreement was entered into later in July 2015, Ms FM’s recollection that she had never had discussions with Mr XC about any conflict issues, presents as reliable.

[77] In providing her response to Ms WJ’s review application, Ms FM remains consistent and emphatic in her recollection that she had not been represented by Mr XC. She notes that:

during this time I never saw or spoke to my solicitor [XC] and I never signed any agreement noting that [lawfirm] acted for both the vendor and purchaser.

[78] Further, she notes that “there was no consent from WJ to act for me”.

[79] As previously noted, I can see no plausible explanation as to why Ms FM would misrepresent the position, and I consider that her concerns as to who was representing her were genuinely held and developed from a contextual framework which supports her recollection of events.

[80] I also note that in her first response to the Complaints Service, Ms WJ records that throughout the first part of the purchase transaction, Ms FM is said to have dealt primarily with Ms TM, a legal executive. There is nothing at all unusual in a legal executive taking over responsibility for managing a conveyancing file, indeed it is commonplace, however Ms WJ endeavours to bolster argument that necessary advice had been provided to Ms FM before Ms WJ assumed responsibility for the carriage of the file, by suggesting that the legal executive had also reported to Ms FM that the firm was acting for both vendor and purchaser.

[81] But Ms WJ has taken no steps to reinforce this argument by providing any evidence from Ms TM. Nor did she take steps to provide information from Mr XC which was pivotal to her argument, and only did so when prompted to do so.

[82] Whilst there may be issues of client privilege in respect to Ms WJ disclosing details of the conflict issue having been discussed with the vendor, she does not resile from advising that she had raised the conflict issue with the vendor as she was required to do. But her description of the manner in which that was done does not support conclusion that a careful and conscientious approach was taken to ensuring that the conflict issues across the transaction in its totality were properly addressed. She advised that her vendor client was elderly and had mobility issues, this to explain that her consent from the vendor was obtained verbally. She does not record that a file note was made of this conversation. My sense of the transactions in their totality, was that Ms WJ fell short of ensuring that the obtaining of consent was a mere formality, or that it met the requirements contemplated by r 1.2., and r 6.1.1.

[83] Ms WJ of course relies on argument that she did not caution Ms FM about conflict issues as there was no need to do.

[84] In circumstances such as these, it would have been prudent of Ms WJ, when taking over the file, to ensure that there was written record of the advice that had been provided.

[85] I agree with the Committee that the breach was at the lower end of the scale, and that Ms WJ’s decision to reimburse Ms FM should be taken into account when

considering the penalty to be imposed. I also note that no criticism is made of the manner in which Ms WJ managed the conveyancing.

[86] I see no grounds which could persuade me to depart from the Committee’s decision.

[87] As a final point that I am taking the unusual step of directing that a copy of this decision not be provided to Ms FM.

[88] I am unaware of any previous decision from this Office where direction has been made that a decision not be provided to a party. It is a direction that flouts the statutory requirement that a Review Officer must report the outcome of each review to each of the persons entitled under s 194 of the Act to apply for a review

[89] I make direction that a copy of the decision not be provided to Ms FM with a considerable degree of reservation but with I hope, reasonable justification for adopting this unusual course.

[90] My reasons are as follows:

• (a) It is compellingly clear from the file that Ms FM has no interest in the outcome of this conduct inquiry.
  
• (b) Her concern was in receiving compensation for the loss suffered. She has been compensated.
  
• (c) Her reluctance to proceed with the complaint was signalled at an early stage in the inquiry.
  
• (d) Ms WJ says that her client was elderly.
  
• (e) In discussions with case managers from the Review Office, Ms FM has emphasised in what I understand to be forceful terms, that she does not wish to receive any further information regarding the progress of this review application.
  
• (f) She has reinforced that position in correspondence to the Office.
  
• (g) There is indication that Ms FM is distressed when she receives information relating to the review.

[91] A copy of the decision remains on the file and can be made available to Ms FM in the unlikely event that she seeks to obtain the decision.

Costs

[92] Ms WJ’s application for review has been unsuccessful. It is appropriate to order her to pay costs. Pursuant to s 210 of the Act, she is ordered to pay the sum of $900 by way of costs, to the New Zealand Law Society. That sum must be paid by her within 30 days of the date of this decision.

Enforcement of costs order

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

Publication

[94] Pursuant to s 206(4) of the Act I direct that this decision be published so as to be accessible to the wider profession in a form anonymising the parties and bereft of anything as might lead to their identification.

Decision

Pursuant to s 211(1)(a) of the Lawyers and Conveyancers Act 2006 the decision of the Standards Committee is confirmed.

DATED this 19TH day of March 2019

R Maidment

Legal Complaints Review Officer

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

Ms WJ as the Applicant

[Area] Standards Committee [X] New Zealand Law Society

Secretary for Justice